HR Outsourcing: Definition
HR outsourcing involves delegating all or part of your human resources management to an external service provider. This can be a one-off assignment or an ongoing support arrangement.
Outsourcing can cover a specific HR function (payroll, recruitment, training, administrative management, etc.), an HR process, or the full or partial management of HR management software.
Most often, HR outsourcing allows HR teams to free themselves from time-consuming or low-value-added tasks to focus on their core business and high-value essential missions. However, HR outsourcing can also address more strategic issues for which HR teams seek specific expertise not available in-house. Whatever the reason for outsourcing, the objective is to gain productivity, competitiveness, and create value for the company.
Furthermore, the digitalization of HR, enabling the automation of repetitive and time-consuming low-value-added tasks, combined with the rise of freelancing, facilitates the use of HR outsourcing. Outsourcing thus appears as a genuine underlying trend, already present and set to grow even further in the years to come.
The Benefits of HR Outsourcing for Companies
HR outsourcing offers numerous advantages for companies: time and efficiency gains, cost reduction and control, and access to specific expertise.
Time and Efficiency Gains
A company’s needs are constantly evolving, and outsourcing offers great flexibility, thereby increasing efficiency.
First, when HR teams outsource time-consuming, repetitive, or low-value-added tasks, they free up time to focus on more strategic matters: employer branding, employee satisfaction, etc.
Indeed, certain aspects of human resources management require a great deal of time and are not cost-effective when performed in-house, hence the benefit of outsourcing them. External service providers, experienced and with a diversity of experience and clients, deliver rapid solutions that help the company gain efficiency.
Moreover, when HR processes are outsourced, the company no longer has to worry about potential employee absences and all that may result from them (delays, costs, etc.). This becomes the responsibility of the external provider.
Cost Reduction and Budget Control
Gaining efficiency on certain tasks or processes, as discussed above, de facto reduces the costs associated with managing these tasks. External service providers enable their clients to benefit from economies of scale, help them automate certain tasks making them less expensive, or reduce costs related to the payroll burden.
Indeed, outsourcing certain tasks allows processes to be optimized without having to recruit new skills in-house. Sometimes these tasks do not even require a full-time resource. The company thus avoids a recruitment process, which can be lengthy and costly, and entails cumbersome post-recruitment management (payroll management, leave, etc.).
The automation of certain tasks or processes by external providers also helps avoid errors that can become costly. Indeed, by automating tasks such as payroll, the company limits the risk of human error, which can have significant repercussions.
In summary, HR outsourcing allows companies to adjust their resources according to actual business needs, which may vary regularly depending on context, seasonality, or a one-off project. Costs are thus perfectly controlled, optimizing productivity and supporting value creation within the company.
Access to Specific Skills and Expertise
Finally, certain projects or tasks require specific expertise that the company does not possess in-house. Here again, rather than resorting to recruitment or training an employee internally, the company may benefit from outsourcing this competency.
Generally, these involve new know-how or skills related to digitalization, regulatory changes, or a specific one-off project. By outsourcing the required competency, the company ensures it benefits from a subject-matter expert for the duration needed for the project.
Missing a new regulation, a legal or social compliance requirement (CSE (Social and Economic Committee) elections for example) or failing to recruit on time constitute risks for the company. Entrusting HR activities to an external expert helps mitigate the risk associated with a lack of expertise or technical or legal knowledge. By delegating, the company relies on the consultant’s know-how and expertise.
With their external perspective on the company, outsourced resources also enable the company to step back and see the bigger picture. These resources are dedicated to the success of the projects or assignments entrusted to them. The company thus has access to an experienced resource based on its needs, where a full-time hire is not necessarily justified. HR outsourcing is a genuine source of value creation for the company.
The Different Forms of HR Outsourcing
Several solutions are available to companies for outsourcing their HR functions. The company chooses the appropriate formula based on the type of role to outsource, the duration, and the scope of the need.
Outsourcing can be partial (a few functions) or total (the entire HR function), one-off or ongoing.
An HR consulting firm is a perfect solution for managing a time-bound assignment with precise specifications: HR audit, opening a new country, a new site, etc.
Time-sharing is an ideal formula for recurring, long-term assignments. Time-sharing provides you with an expert resource tailored to your needs (a few days to a few weeks per month) who comes to know your organization inside out. The time-sharing HR consultant can work on your premises and/or remotely and can be supported by other time-sharing consultants if the assignment requires it.
Finally, some companies allow you to outsource a specific function on an ongoing basis, such as payroll management, which is very time-consuming with little added value. This is then subcontracting.
Identifying the HR Functions to Outsource
All HR functions can be outsourced. This is widely the case in companies with fewer than 50 employees, where hiring a full-time resource is not necessarily justified.
When companies reach a critical size, they may also outsource certain functions. These are generally the least strategic or most time-consuming functions such as payroll, personnel administration, recruitment, or training. Assignments considered strategic or complex remain the responsibility of the in-house HR team, who can thus focus on their core business.
Payroll and Personnel Administration
Payroll management and personnel administration are the most commonly outsourced functions. These tasks are considered time-consuming, repetitive, and low in added value.
Using outsourcing for payroll ensures ongoing compliance and helps avoid errors. Tax exemptions, withholding tax, contribution rate changes, annual configurations, URSSAF contributions — all these specialized aspects may require the intervention of an outsourced HR specialist or HR Director. The external consultant can thus handle:
- Conducting a payroll and social charges audit;
- Verifying data consistency and payroll counters;
- Providing technical payroll expertise for complex situations;
- Training payroll managers or administrators within the companies where they work;
- Temporarily replacing a payroll manager;
- Preparing queries and extracting payroll data;
- Managing the migration to a new payroll system;
- Preparing and supporting the company during a URSSAF audit.
The company can also outsource the organization of professional elections.
Recruitment and Selection
Recruitment encompasses multiple tasks, some of which can be very time-consuming. While recruiting a senior profile is obviously a strategic issue, the final decision still belongs to the company even if the task has been outsourced. Thus, the entire upstream process is often delegated: sourcing, building a candidate database, posting job ads, writing job descriptions, pre-screening, and organizing interviews.
For specific, strategic, or hard-to-fill positions, companies may also use recruitment firms. Rather than risking spending too much time on a recruitment that might not succeed and would be time-consuming, companies often have every interest in outsourcing.
Training and Development / Talent and Career Management
Skills management within a company helps attract and retain employees. Successful skills management is therefore a major challenge, but certain administrative aspects such as assembling funding applications can prove complex. Other areas are particularly time-consuming, which is why HR outsourcing is common in talent management and training. The HR consultant can thus take charge of:
- Identifying existing skills within the company;
- Validating the proper utilization of existing internal skills;
- Assessing employee skills needs and prioritization;
- Preparing a skills development plan based on identified needs;
- Sourcing training organizations and administrative management: enrollment, funding, OPCO, etc.
- Organizing training sessions;
- Evaluating completed training programs and training organizations;
- Implementing tools and processes related to skills management;
- Deploying the annual skills development plan;
- Managing internal mobility and promotions.
Key Steps to Successful HR Outsourcing
Needs Analysis and Objective Setting
As we have seen, all HR functions can be outsourced. However, before taking the plunge, a few steps are necessary for successful HR outsourcing:
- Define the specifications: What expertise is needed to accomplish this assignment? Is this expertise available in-house? Do we need a full-time resource for this assignment? What is the available budget?
- Define the assignment framework: What is the project duration? Does the project have a set deadline or end date? Consequently, how many resources are needed to complete the project on time?
- Define the management framework: Who will the HR consultant report to? What are the objectives to achieve? What are the KPIs to track?
If you have answers to all these questions, then comes the provider selection stage.
Selecting the Ideal Provider
Independent freelance consultant, HR consulting firm, agency… There is no shortage of options for outsourcing your HR function.
At Boost’RH, we believe that using an HR consulting firm (time-sharing HR specialists or HR Directors) is a guarantee of outsourcing success. Indeed, the advantages of a consulting firm are numerous compared to an independent consultant or an agency:
- Ensuring assignment continuity: in case of the consultant’s absence, illness, or leave, the firm can quickly replace the absent resource. Thus, the continuity of the assignment or project is never jeopardized;
- Rapid adaptation: if the assignment requires it, the consulting firm can quickly staff other consultants who can provide reinforcement or work on a technical aspect of the assignment requiring different specific expertise;
- Quality assurance: the firm puts its image and reputation on the line when a consultant works within a company. As such, it is the firm’s responsibility to carefully select the consultants who intervene, verify their skills, and continuously train them to ensure their expertise;
- Non-dependency: the HR consultant must ensure they do not place the company in a situation of dependency. The consultant generally works within the company, blends in with the employees, and absorbs the company culture, whereas an agency, for example, works externally and can create a dependency situation.
Do not neglect the selection and preparation stage — it is essential for outsourcing success. Admittedly, the preparation effort may seem significant, but it is the guarantee that the outsourcing will be effective and successful. Once the provider is selected, they will need to be briefed and provided with the information necessary for the success of the assigned mission. Remember to communicate about your decision to outsource in order to inform stakeholders as well as all employees, who might view outsourcing negatively.
Challenges and Risks of HR Outsourcing
Even though they are minor, HR outsourcing involves risks that are best identified in advance to guard against them: data confidentiality, maintaining service quality, controlling skills and knowledge within the company, etc.
Indeed, a company that outsources a function relinquishes the employment relationship with its employees in favor of a third party. There is a risk of loss of control and loss of information, data, and confidentiality.
The company may also find itself in a situation of dependency on the provider. It can be difficult to change providers if they are not delivering satisfaction, as they hold the knowledge and history of the assignment. This is why choosing the right provider is a crucial step in outsourcing.
Finally, a last risk is internal employee dissatisfaction. Some may find it difficult to work with external providers or may not understand the rationale. Communication about the company’s outsourcing decision should therefore not be neglected.
