Outsourcing HR functions can be a cost-effective and strategic way to improve the efficiency and quality of your human resources management. However, it also comes with some potential risks that you need to consider before making the decision to outsource. In this article, we will discuss some of the common risks of outsourcing HR functions and how you can mitigate them.
One of the main risks of outsourcing HR functions is losing control over your HR policies, processes, and data. When you outsource, you are relying on a third-party provider to handle your HR functions according to your specifications and expectations. However, there may be situations where the provider does not follow your instructions, makes mistakes, or breaches your confidentiality. This can result in legal, financial, or reputational damages for your organization. To avoid this risk, you need to choose a reputable and trustworthy provider, establish clear and detailed contracts and service level agreements, and monitor and evaluate their performance regularly.
Being an outsourced recruiter, I've observed that the main risk clients often express is the perceived loss of control over their hiring processes. Clients sometimes feel detached from the day-to-day recruitment decisions and candidate interactions. While outsourcing can streamline tasks, maintaining a collaborative relationship is crucial to address concerns. In my experience, transparent communication and regular updates help mitigate these risks, fostering a sense of partnership and ensuring the client remains actively involved in the recruitment process.
Another risk of outsourcing HR functions is facing communication issues with your provider and your employees. When you outsource, you are creating a distance between your HR functions and your core business operations. This can lead to misunderstandings, delays, or conflicts between your provider and your managers, staff, or customers. For example, your provider may not understand your organizational culture, values, or goals, or your employees may not feel comfortable or satisfied with the provider's services. To prevent this risk, you need to maintain regular and effective communication with your provider and your employees, provide feedback and guidance, and foster a collaborative and supportive relationship.
Working as an outsourced recruiter, I've encountered communication challenges as a notable risk. Coordinating with clients and understanding their unique needs requires constant dialogue, and misunderstandings can arise if expectations aren't clearly communicated. Timely updates on candidate progress and feedback become pivotal. In my experience, establishing a robust communication protocol, including regular meetings and status reports, has been essential in overcoming these challenges. It ensures alignment between the outsourced team and the client, fostering a more efficient and collaborative working relationship.
A third risk of outsourcing HR functions is becoming dependent on or locked in with your provider. When you outsource, you are transferring some of your HR capabilities and knowledge to your provider. This can make you vulnerable to their performance, availability, or pricing. For instance, your provider may increase their fees, reduce their quality, or terminate their contract unexpectedly. This can leave you with limited options or alternatives to continue your HR functions. To reduce this risk, you need to diversify your sources of HR services, retain some of your internal HR expertise and resources, and negotiate flexible and fair terms and conditions with your provider.
I've noticed that a significant risk is the potential dependency on the outsourcing partner. Over time, clients might find it challenging to switch providers due to the integration of processes and systems. In my experience, this dependency can lead to a perceived "lock-in" situation, limiting the client's flexibility. To address this, it's crucial to establish clear terms regarding data ownership, scalability, and exit strategies upfront, ensuring that clients retain control and have options for transitioning if needed.
A fourth risk of outsourcing HR functions is dealing with compliance and liability issues. When you outsource, you are still responsible for complying with the relevant laws and regulations regarding your HR functions, such as labor, tax, or privacy laws. However, your provider may not be aware of or follow these laws and regulations, or they may operate in a different jurisdiction or country. This can expose you to legal risks, penalties, or lawsuits if your provider violates any of these laws and regulations. To mitigate this risk, you need to verify your provider's credentials and certifications, ensure they have adequate insurance and indemnity clauses, and audit their compliance and security practices.
As an outsourced recruiter, I've encountered the significant concern of compliance and liability risks. Ensuring that the outsourcing partner adheres to relevant employment laws and regulations is critical, as any lapses can expose both the provider and the client to legal consequences. In my experience, maintaining a comprehensive understanding of regional employment laws and regularly auditing processes is essential. This proactive approach helps minimize compliance-related issues, safeguarding both the outsourcing partner and the client from potential legal liabilities.
A fifth risk of outsourcing HR functions is affecting your employee engagement and retention. When you outsource, you are changing the way you manage and interact with your employees. This can have an impact on your employees' motivation, satisfaction, loyalty, and performance. For example, your employees may feel alienated, neglected, or undervalued by your organization, or they may not receive the same level of support, training, or development opportunities from your provider. To overcome this risk, you need to involve your employees in the outsourcing decision and process, communicate the benefits and expectations of outsourcing, and maintain a strong and positive organizational culture and identity.
Manager, Transfer Payments Ontario, Ontario government. People leader and data geek
In my experience, there are core things we cannot outsource that related to how we as leaders care about our employees. Yes, we can outsource initial screening for recruiting purposes, we can outsource certain wellbeing and staff support programs, even learning and development, but we cannot lose the personal connection to learn and understand our team members, to get their perspective on organization development, we must not delegate our responsibility to hear people out, noone better than us can coach, support and inspire people. This is the heart and soul of any team that cannot be outsourced, even though we can delegate out certain administrative and coordination functions.
I am truly not in favor of outsourcing the HR function. While some personnel tasks may be outsourced (like attendance, data entry, leaves, payroll, etc.), the core HR function is all about people and engagement with them while nourishing a culture of belonging. For cultural alignment, the in-house HR teams can better align HR practices with the company's unique culture and values. In addition, they can facilitate better employee relations and conflict resolution. Some companies view HR practices and talent management as a source of competitive advantage. In-house HR can create and implement strategies that align with the company's broader business strategy and objectives, which may not be achievable through a generic outsourced HR provider.
Manager, Transfer Payments Ontario, Ontario government. People leader and data geek
I can see the working talent management model as a hybrid one with core function (strategy, communication, team building, growth, creating inclusion and belonging) being nurtured within the team while certain functions can be outsourced to enrich the experience (for example, training, certain employee support programs, talent pipeline building)