Last Updated 02 Jul 2020

Human Resources Management: Outsourcing

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Outsourcing certain human resources roles can save an organization time and money in many respects. While it is not necessary or often feasible to outsource all human resources roles, outsourcing various functions can help reduce overhead and result in greater efficiency in some organizations. To save money however organizations must decide what human resources roles can be effectively outsourced to save money and not impeded performance or harm the organization. This paper will discuss the benefits of outsourcing certain human resources roles, including payroll, benefits administration and recruitment and selection.

By outsourcing each of these roles an organization can reduce overhead, risk and save valuable time when conducting normal business operations. These ideas are explored below. Outsourcing typically reduces the number of human resources staff necessary on hand to handle ordinary HRM activities (Sims, 2002). Outsourcing involves "long term contractual relationships" with businesses and external providers (Lever, 1997:37). Outsourcing relationships are increasingly common in human resources. Outsourcing can provide organizations with multiple competitive advantages, including cost savings.

There are many roles that an organization can outsource to save money. Some of the more common roles that organizations are outsourcing to save money include payroll and benefits administration and employee hiring or recruitment (Lever, 1997). By outsourcing these functions an organization can maintain a smaller personnel base and reduce the number of experts needed to manage the human resources function (Lever, 1997). Outsourcing experts can recommend the best methods for conducting payroll and can handle the often lengthy administrative tasks associated with benefits administration.

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By outsourcing the recruitment and selection process an organization can rest assured that well qualified experts will screen candidates, background check candidates, and ensure that the best employees are hired to handle core competencies. In most organizations even if an external party manages the recruitment and selection process, internal managers or representatives still have the opportunity to meet with potential candidates and determine whether or not they are a good fit for the organization or a given team.

Outsourcing can help reduce the business risks associated with hiring, payroll and benefits administration. Outsourcing companies share the burden of risk for all employees they recommend to a company and all job roles they carry out within the organization. For this reason they typically operate under stringent guidelines, policies and procedures that ensure optimal delivery of service. HRM typically focuses much attention on risk management.

By outsourcing certain functions in an organization however, the firm will not only save money but also valuable time, and can concentrate its attention on building or developing other programs including employee rewards and recognition programs. It is important to note that most organizations will have to pay a premium price to outsource to certain experts (Lever, 1997). In larger organizations this may still result in a cost savings, when compared with the expense of paying annual salaries to multiple internal experts in charge of payroll, recruitment and benefits administration.

It is important that each company take into consideration their unique situation and decide whether or not outsourcing makes sense in the long term. Outsourcing can provide substantial savings when it comes to filling positions requiring specialized skills (Lever, 1997). Traditionally human resource managers have spent hundreds of hours researching candidates to select ideal candidates for hard to fill positions. This often results in high expenditures. If a candidate does not work out, the cost to re-recruit and re-train a new candidate can be debilitating.

Fortunately most outsourcing recruitment agencies provide access to specialized who are highly skilled and have access to networks of specialized candidates to choose from. Because the outsourcing agencies only task is to fill this position or others rather than handle multiple roles for the organization, they can often find a candidate more efficiently and quickly. They chances that a candidate will stay with the firm long term are also much higher due to better screening methods and more skills training and testing (Lever, 1997).

Outsourcing does change the culture within an organization, but this change is not necessarily one that is negative. In fact, outsourcing can bring about positive change within the organization. Many employees fear that outsourcing is negative, a means by which an organization replaces internal candidates with external specialists. While this is true, in many organizations outsourcing makes sense and can benefit employees and managers alike in the long term.

An organization that saves money outsourcing can redirect those funds into employee promotion programs and employee incentive programs. Outsourcing certain job roles including payroll, benefits administration and recruiting and hiring can result in risk reduction for an organization, can save an organization much time and often results in cost savings in the long run. These benefits of course are provided when the organization takes it's time to select an appropriate vendor to meet its needs and fulfill its obligations.

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