So What should we be Outsourcing?
January 30, 2012
By Monica Beauregard
Steps to determining which HR and Payroll activities can or should be outsourced.
For companies that have made the decision to outsource HR or payroll, the next step is determining which activities can or should be outsourced and which should remain in-house.
These decisions will vary by organization, depending on its size, budget, type of internal HR and payroll resources on staff and other factors. (For smaller organizations unable to hire an expert in all HR and payroll areas, outsourcing is a necessary solution.)
Functions that are good candidates for outsourcing are generally more transactional in nature or somewhat isolated activities that do not require as many face-to-face or ongoing interactions with other areas.
The following functional areas can usually be outsourced relatively easily and, by doing so, add more value to an organization:
- Harassment or bullying investigations: Because of the complexity of legislation regarding harassment, it’s important to have investigations performed by a third party that is trained and experienced in this area, to avoid potential legal or human rights liability.
- Policy development, maintenance and review of legal compliance on policies: The initial draft policies can be outsourced to take advantage of best practices but the finalization and maintenance of policies should be completed internally.
- HR and payroll audits: Outsourcing of these activities is a good way to gain an objective second opinion on internal processes, practices and policies.
Termination and disciplinary advice or documentation: This is wisely outsourced to ensure proper legal advice is sought, minimizing future potential litigation costs or human rights complaints in the event of a difficult situation.
- Payroll processing and year-end activities: This is a common functional area that is outsourced due to the transactional nature of the work, confidentiality reasons and the ability to perform the majority of these functions virtually.
- Recruitment: The sourcing and screening of candidates is commonly outsourced, leaving internal resources and efforts focused on the screening of final candidates and ultimate hiring decision — and saving an organization a lot of time.
- Temporary staffing: Outsourcing temporary staffing provides the ease of getting resources on short notice without the hassle of having to hire.
Exit interviews and employee surveys: Outsourcing these activities helps ensure surveys are handled in an anonymous and confidential manner and often employees are more open with their feedback if they believe their opinions are confidential and handled by a third party.
- HR projects including salary analysis: Outsourcing benchmarking and analysis work to competent external resources can add value by freeing up HR to focus on compensation strategy and other areas.
- Soft skills training and coaching: These skill sets are not unique to any organization, so they are good candidates for outsourcing. This can also include certified executive coaches and specialized programs.
- Employee assistance programs (EAPs) and counselling: This option includes specialized professionals (such as doctors or psychologists) and experts to deal with complex problems. This allows organizations to remain at arm’s length with difficult, private employee matters.
- Employees benefit by having access to EAP services related to a broad range of issues that may help them resolve problems sooner and reduce the amount of downtime from work.
- References, background, criminal, credit and driving checks: These are often outsourced to specialists.
- Absence management and return-to-work initiatives: These are often outsourced for privacy reasons and to ensure an employer remains objective regarding employees who are off work for a variety of reasons. Third party outsourcers have the resources and knowledge required to manage absenteeism and enable an earlier return to work for absent employees.
- Benefits administration: This can be outsourced with payroll due to the tie-in with areas such as deductions and taxable benefits.
Some of the benefits of outsourcing these functions are:
• external expert advice on matters that may not be available internally
• up-to-date legal compliance with ever-changing employment and human rights laws
• confidentiality surrounding sensitive information
• increased efficiencies and improved timeliness when internal resources are already overtaxed
• access to a broad range of resources in the market
• objectivity of resources that don’t have an internal bias.
Regardless of which functions are outsourced, an internal resource or point person should retain responsibility for the outsourced functions, including reviewing the work of the outsourcer to ensure it continues to meet the needs of the business.
Some of the reasons organizations hesitate to outsource HR and payroll activities include loss of control, concern over the level of service employees will receive, fear of HR or payroll staff being reduced and concerns about maintaining a cohesive company culture.
Areas not to be outsourced
Generally, activities that require a high degree of employee interaction and strong understanding of an organization’s culture and fit are not good candidates for outsourcing. The following functional areas are more difficult to outsource or, in some cases, shouldn’t be outsourced:
- Employee relations: Employees need an internal resource to bring issues to as they arise. Although employee hotlines can be set up externally, an organization will also want to maintain contact with employees to gauge ongoing employee satisfaction.
- Ongoing employee communications: This is a requirement within a healthy organization and should not be fully outsourced.
- Policy development and maintenance: While initial policy development is a good candidate for outsourcing, the finalization and maintenance of policies should be performed internally to ensure they are consistent with culture, practices and precedence.
- Performance management: Reviewing employees’ performance should be done internally by managers and colleagues. Although third party outsourcers may develop actual performance management tools and programs and train staff, internal managers need to perform the performance reviews to provide regular, valuable and job-related feedback.
- Training: Job-specific training and ongoing mentoring should be performed by an immediate supervisor or manager. Again, a third party outsourcer can provide tools and train-the-trainer sessions but the actual delivery of the training should be performed by internal resources.
- Hiring decisions: This should not be outsourced. Some of the sourcing activities, reference checking or screening may be outsourced but the ultimate hiring decision should be made by an appropriate internal resource.
- Orientation: This activity is very specific both to an organization and a position so it should be performed by someone internal to the organization. Often mentors or buddies are assigned to guide new hires through the first few weeks of employment. Outsourcers may be engaged to provide orientation design and content.
Striking a balance
It is also possible to outsource too much and here are a few reasons for striking the right balance:
• Ensuring there is still a strong level of engagement of staff by management, including ongoing face-to-face communications.
• Conducting these activities requires ongoing knowledge of employees, company culture and precedence.
• Even at organizations without an HR department, there are still day-to-day HR tasks that functional managers should be competent performing as part of their job.
Finally, in situations where some functions are outsourced, it’s important internally maintained activities be aligned with outsourced functions to ensure consistency in approach, messaging and fit with organizational culture.
Ultimately, each organization must decide what functions are best outsourced and which functions should be maintained internally to ensure they are providing maximum value to the business and employees in the most cost-effective manner.
Once this decision is made, the next step is finding the right outsourcer based on your needs.