A common theme among business executives, operators, and HR professionals is a sense of overwhelm. The pressures of managing a team through political trauma, ensuring the business reaches key objectives, and navigating the realities of a hybrid workforce cannot be taken lightly. These responsibilities also can’t realistically fall on one person in the organization.
With budgets tightening and the future uncertain, companies cannot always afford to add headcount in hopes of solving their HR-related problems. While it is critical to build an internal People function as a company grows, not all problems need to be solved by employees alone. In this article, we look at the merits of outsourcing key HR functions to an HR consultant or firm, the options companies have in terms of outsourcing, as well as the trade-offs you make in gaining outside expertise.
Outsourcing Key HR Responsibilities
Over the past few years, the value of HR and People Operations professionals has become increasingly apparent. The business case for thoughtful and innovative performance management solutions, recruitment strategies, and workforce planning is writing itself as company reputations are harmed by haphazard layoffs and ineffective hiring practices.
Partnering with an outsourced People, Talent, or HR firm or consultant can ensure your organization benefits from best practices.
In addition, outsourcing this expertise allows in-house teams to leverage their resources more effectively. When you hand off specific projects and services such as a compensation review, performance management program design, or parental leave administration to an outsourced firm or consultant, you give yourself the space to focus on the areas of the business. Areas where your expertise and unique internal knowledge are needed the most.
The Role of HR
In any given business, the bulk of the workforce is focused on serving the company’s customers. This service happens by means of making sales, offering support, and building products. Human Resources (HR) and People Operations professionals see the employee as their customer, and roles are designed to take care of the people within a business. Workable notes, “HR professionals make sure that employees have everything they need to perform their day-to-day tasks and they’re also responsible for creating a healthy work environment that attracts and retains qualified people.”
This singular focus impacts the entire business. People professionals will direct recruiting and hiring efforts, performance management, benefits and compensation, and more, giving them an outsized influence on the employee experience. HR and People Ops’ ability to execute on projects and tasks will be felt at every level of the organization and leaders often rely on them for guidance and coaching as they manage their teams.
Given the integral role of HR in business success, getting the expertise you need in the room shouldn’t wait until hiring an extensive HR department is possible.
Comparing Outsourced HR and In-house HR
Your HR Tech Stack
Whether in-house or outsourced, HR teams rely on software tools to power their work. This tech stack is key to gathering useful data, creating predictable outcomes, and keeping up with the pace of the business. Both in-house and outsourced HR professionals will have advice and expertise to offer on if and when a company should invest in a specific software system.
In some scenarios, partnering with an outsourced HR firm will offer the use of tools and systems the company would not be able to implement on their own. For example, a compensation consultant may have access to datasets the company doesn’t have the budget to invest in, or the expertise to use. An RPO (recruitment process outsourcing company) may have sourcing tools and interview scheduling software a business can’t justify the cost for within their current hiring targets.
HR Resource Availability
Outsourced HR and People Operations encompasses a broad range of professions and resources. If you can think of an area or task set within HR, it can probably be outsourced! From implementing onboarding programs to providing payroll and benefits support to employees, outsourced HR can take a variety of approaches and fulfill an array of duties to support your business.
Outsourcing to an HR Consultant VS a Consulting Firm
Typically, outsourced HR is handled by either a consultant or a consulting firm. Contracting with a consultant gives some ease in only managing one point of contact, and these professionals often offer flexibility and customization to a concentrated group of clients.
Engaging a consulting firm may mean you have multiple professionals supporting your organization, and they often have a defined set of solutions they will implement for you.
It’s helpful to think about a few general categories of services consultants and firms may offer.
HR Advisory Services
An executive or operator may have an idea of what talent the business needs, but lack the experience to know how to solve for those needs. Advisors can provide proven solutions and time-tested guidance in hiring or upskilling to fill talent gaps.
Firms and consultants who provide advisory services may do so on an ad-hoc basis as clients come to them with specific dilemmas, or on a retained basis. On a retainer basis, a client pays to have access to their expertise as needed. Many times this support is provided through phone or video calls to discuss in real-time what an executive or operator is facing within the company. The advisor draws from their relevant experience and expertise to provide concrete and tactical guidance.
HR Project or Specialty Services
Perhaps you’re a COO who needs an employee handbook created. Or an HR Manager who needs a compensation review completed, but you don’t have time or expertise to run the analysis yourself.
Enlisting the services of a firm or consultant who can handle a specific project or specialty can help make sure the goals and objectives of the business are met without missing any day-to-day tasks. These types of services are usually short-term engagements where the outsourced resource can provide a concrete deliverable fast. Often the project is something the internal team would not be able to accomplish to the same extent on their own.
Fractional HR Services
A small, growing company may not need a full-time internal HR professional, and yet find it difficult to address employee concerns without any HR expert on the team. A larger organization may not have the budget for more HR headcount, but the complexity of their workforce demands more resources or expertise.
Fractional services can help alleviate these internal pressures by providing stable, ongoing support in a variety of functional areas. An HR firm or consultant may engage with a client long-term to implement customized solutions and partner with multiple internal stakeholders to offer coaching and support.
There are also different styles of work and support outsourced HR can offer, which may influence the type of partnership that develops.
External HR Support
Implicitly, any outsourced solution offers external support, but external consultants and firms usually work with one point of contact in an organization. As such, they do not necessarily interact with the entire organization regularly. The external HR consultant or team empowers their point of contact with resources, implementations, and messaging to execute on the actual projects and tasks they set out to do. These are invaluable expert insights that an in-house team may not have access to.
Embedded HR Support
An embedded consultant or firm becomes integrated into the processes of your organization. They may be in contact with multiple people in the company, or the entire employee base. They directly implement processes and tools on the company’s behalf, working in partnership with internal stakeholders.
Historically, HR has been an afterthought in headcount planning, and roles were only opened when absolutely necessary. Phil Strazzula, the founder of SelectSoftware Reviews, observes, “Unfortunately, too many companies start off with the wrong mentality on HR. They view it as a commodity to run payroll, and then the burden to do strategic People leadership falls on the shoulders of functional leaders and the CEO of venture-backed companies.”
That prevalent mindset is starting to shift, allowing People leaders to showcase their impact earlier in a company’s growth. A few common HR and PeopleOps roles often act as strategic decision-makers within a company.
Martin Yate for SHRM notes, “An HR manager typically holds overall responsibility for the daily implementation of HR policies and plays an important role in the smooth running of the organization.”
Ensuring a company is compliant with state and federal laws has only become more complex with the expansion of remote workforces. HR Managers help ensure oversight of payroll, benefits, training, and safety - vital areas for every employee. Communication is key to success for these roles, as they synthesize legal and employment complexities into actionable insights for everyone in the organization.
Director, Head, or VP of People
The emphasis on people is apparent in these titles and is summed up by HR University’s description, “The Director of People maintains employee relations and cultivates a culture that promotes productivity, creativity, innovation, and growth within your organization. They help improve the quality of the workplace environment and take a people-centric approach to their duties.”
While these roles may have some oversight of employment laws and regulations, the true impact of their work is in designing dynamic people programs and processes centered around the needs and feedback of employees. The title may be dependent on the seniority of the professional, but these roles all interact with senior leadership. A key function here is coaching and partnering to instill best practices across the organization that reflect and align with the company’s mission.
HR Business Partner (HRBP)
HR University explains, “An HR business partner (HRBP) is an HR professional who works with an organization’s executives/C-suite to improve their HR functions. They create human resource agendas and lead HR departments with the aim of achieving an organization’s business objectives.”
These individual contributor roles connect directly with line managers, board of directors, or C-Suite members to align HR practices with business objectives, acting as a bridge between the HR department and company leadership. This strategic focus means HRBPs have fewer HR administrative duties, although they may help oversee HR budget and recruitment efforts.
There are many possible HR org structures, largely influenced by the size of the company. More employees often create a demand for more HR headcount! The advantage of opening roles internally is these professionals will know your organization deeply and develop relationships with employees, allowing them to move quickly and act as influencers within the organization.
Can Outsourced HR Be As Effective as In-house HR?
Partnering with an outsourced HR firm or consultant can act as a force multiplier on the efforts of an in-house team, whether or not a company has an in-house HR department. For lean or early-stage teams, utilizing an outsourced HR firm or consultant may be just as effective as placing an internal hire. The outsourced HR resource gives the company the building blocks for success, so when the company does hire an internal HR professional, that hire can focus on strategic impact instead of organizational clean-up.
For HR teams of one, or operations professionals tasked with handling HR, enlisting the services of an HR firm or consultant eases a lot of the day-to-day tasks. This partnership can allow them to make the strategic impact they hope for without becoming an expert on every aspect of HR, PeopleOps, and Talent Management.
Eventually, the company’s growth may call for an expansion of the internal HR function. But even with those positions filled, having external resources can help bridge the gap between what an organization would like to see and what their HR team can actually accomplish.
The Benefits of Outsourcing HR for your Company
Utilizing a firm or consultant is a smart way to further the organization’s HR infrastructure without breaking the budget. You can enlist the expertise of multiple HR specialists within a firm or a senior HR consultant at a fraction of the cost of an annual salary. This partnership may also offer access to tools and services the outsourced HR team uses on behalf of their clients, giving you access to an expanded tech stack without any long-term contracts.
Business News Daily notes, "In 2019, the median salary for an HR specialist was $61,920. The equivalent number for an HR manager was about twice that. Hiring another employee will also affect what you pay for benefits and payroll administration. So, ask yourself: Is the total cost of an employee ultimately less expensive than outsourcing?”
Outsourced HR firms and consultants often bring with them a wide range of experience and insight as they’ve worked with multiple companies across different stages of growth. Or they may provide a specific area of expertise that an in-house HR department doesn’t possess. A company can benefit from the practiced perspective and resources of these experts to develop a best-in-class experience for their employees.
Acting as an external resource requires outsourced HR firms and consultants to manage their clients and proactively highlight the solutions and deliverables they can offer. This guidance may be a relief to executives and operators who make hundreds of decisions a day. These people can happily rely on an experienced perspective to implement solutions benefiting the company at large.
The Pitfalls of Outsourcing HR for Your Company
Control & Privacy
HR professionals manage highly sensitive information, and some companies may not be comfortable entrusting that information to an external resource. These leaders may prefer to keep employee information within their own tech stack and have greater control and visibility into all aspects of the employee lifecycle.
Outsourced HR resources often have their own time-tested approaches and data-handling tools, which may not feel totally original to the company they’re implemented in. Business News Daily cautions, “If you need control over and complete transparency with your HR functions, you might fare better hiring HR in-house.”
If a firm has multiple professionals working with a client, or a consultant is not available to the employees at large, it may be confusing for employees to know who to go to for issues and questions. An internal HR department will often clarify the lines of communication and provide a go-to resource for employees to develop long-term relationships throughout their tenure with the company.
Outsourced HR firms and consultants are working with multiple organizations simultaneously, so may not be as adept at developing and maintaining the internal knowledge of one company specifically. An internal HR department is completely embedded within the organization, so they will learn the ins and outs of every aspect and be able to educate others internally.
How to Gauge What’s Best for You
With all this information in mind, how do you decide what’s right for your organization? There are a couple of factors to consider.
What Does the Organization Need?
Without clarity on the problems needing to be solved, any solution will be ill-fitting. Defining the needs of employees, managers, and of the company will help identify who may be best to tackle the issues at hand between internal and external resources.
Is a new payroll and benefits system implementation needed? An in-house HR Manager who will manage the system long-term may be more appropriate. Does a robust onboarding program need to be established to help sales team members ramp sooner? An outsourced HR firm may be able to provide a specialized solution in a short time frame.
What Resources Do You Already Have on Your Team?
Evaluating the resources already at your disposal can help save time and budget.
Perhaps a Recruiter you have on staff is interested in People Ops projects and would add value by branching into a new area. Or, maybe your company already has an outsourced HR firm or consultant in place and can bring up new needs to expand their service offering. Thereby freeing up additional in-house capacity.
How Could You Utilize an Outsourced HR Resource?
Identifying the current needs and resources of the organization will better equip you to evaluate outsourced HR firms and consultancies.
A Head of People may geek out on performance management, but doesn’t have time to refactor the employee handbook. That situation creates a clear project to hand off to external support. A VP of Operations may not have the bandwidth to establish an onboarding process or performance management program, and benefit from working with an embedded outsourced HR firm or consultant.
The options are endless, but finding the right solution requires that you are cognizant of your organization’s needs - and honest about the needs you may not be aware of!
Some Final Thoughts on Outsourcing HR Functions
Many executives and operators invest time and effort into the sales, marketing, and product functions of the organization, ensuring they’re well staffed and resourced to reach the organization’s goals. People, HR, and Talent deserve the same time and attention. Their efforts will impact every employee in the organization.
Outsourced HR firms and consultants can bridge the gaps within in-house teams and ensure the organization is well-equipped to grow and scale over time.