We all know that Human Resources Outsourcing is the process of hiring a third party to handle all or part of an organization’s Human Resources needs. This can include Payroll, Benefits, Recruiting, and Training, Organisation Development initiatives including People Development, People Strategy, HR Road Map, Policy & Process Documentation, Employee Life Cycle Management, Employee Surveys and many others
There are a number of reasons why an organization might choose to outsource their HR. Perhaps they do not have the staff or expertise to handle these tasks in-house. This is typically the case for start-ups and small businesses. Outsourcing for them can also be a cost-effective way to get the same or better level of service than an in-house HR department, without having to hire and train additional staff.
But for medium and bigger organisations, since the volume of transactions are more – repetitive jobs can easily be outsourced. It can free up the in-house HR staff to focus on more strategic tasks.
India has been an Outsourcing partner for the west for a long time and we have been managing so many processes. The domestic outsourcing business volume and maturity is also very high. Why then, is HR outsourcing in India not as prevalent as in the US? Whereas Finance function outsourcing is quite accepted in our country?
There are two main reasons for this- one regulatory and the other in our past based mindsets.
One can not start business without opening a bank account and that would need so many registrations and documentations that one cannot even commence a business with out taking care of these. No organisation can manage even for a single month without a minimum quantum of help from an accountant or an accounting organisation – be it in terms of getting licenses, understanding rules, maintaining books etc. Thus, the regulatory requirements ensure that we ask for this help. Now for people processes, while there are many laws, most start after one hire at least 10 employees. The other reason is our mental block towards HR outsourcing– especially when it is end to end. The main concern we hear is, if I don’t have a person sitting in my office every day, who is my own employee, how can the function be managed. So, if we break it down there are actually two concerns here – ‘I need a person in my office everyday’ and ‘if the person does not belong to my organisation will he/ she be understanding the business, culture and people?’
Now in most cases, the organisation was managing without a HR why would they suddenly need a person all the days of the week. Why can’t a person come to the office once a week (or more depending on employee size) and have a face time with the employees and get the balance of it done remotely? Now the second concern is actually a lesser concern as a person who is assigned to the account is typically managing two or more accounts, which gives the person more perspectives and greater ability to correlate with people’s concerns and grievances.
There are many potential benefits to small, medium businesses and when starting up a business when the HR function is outsourced .
- Better focus on the company’s core business activities. The promoter or CEO of the company has to wear multiple hats and he at times holds 4 to 5 roles. This is often not the most efficient way to handle the business.
- Access to specialized expertise that the company may not have in-house – while day to day operational tasks can be managed by a full time HR professional the biggest advantage comes in terms of access to advice from senior HR professionals to guide business in all people processes and strategy. Even if the organisation can afford a junior HR professional, if managed internally they would not have a senior HR professional to brainstorm and check out ideas with. It is not only a question of affordability – it is well nigh impossible to lure these seasoned professionals to come and work for smaller setups.
- Increased efficiency and consistency in HR processes – people who handle multiple clients will have organisation best practises and processes streamlined. No longer would one need to find solutions through trial and error
- Reduced costs, as the company does not need to hire a full-time HR staff member and employ Consultants for Strategic topics. A small employee base does not need a full-time person to manage the day-to-day operations. Probably a person coming in once or twice a week can, for example – interview, issue offer letters, appointment letters, induct and onboard employees, run training programs or engagement activities, manage leave and attendance, send inputs for payroll computation, and do other seasonal activities as well.
- The organisation is informed about changes in the regulations and statute,
- The organisation can showcase senior HR leadership for client presentations. Investor meets etc.
