Are you thinking about outsourcing some
of your small business’ HR functions?
Need some information to help guide you through the process?
Over the coming weeks, we’ll be writing
a three-part series on outsourcing HR functions in small business. This week, we’ll be introducing the topic.
Our Findings
What Is Outsourcing?
Outsourcing is when one organization contracts out the production
of products or services to another organization either domestically or
internationally (“offshoring”). In
Canadian business, outsourcing (both domestic and international) is commonplace
and has been for many years—according to an article on Outsourcing and Offshoring in Canada by Statistics Canada,
intermediate inputs (outsourced materials, purchased services, and energy
inputs) in Canadian business accounted for 48.5% of gross output in 1961 and
eventually 52.0% in 2003 (1). Notably,
within this same time period, material inputs have gradually decreased, whereas
service inputs have grown from 10.9% in 1961 to 20.9% in 2003 (1). Similar trends appear to be found in U.S.
business, but statistics on the subject are less available (11; 12).
There are businesses everywhere and in every industry that
outsource Human Resource functions. It
is done for numerous reasons and involves weighing out many positives and
negatives. Typically, businesses
outsource HR functions due to: financial savings; an increased ability to focus
on core competencies; advanced technology; better service levels; specialized
expertise; and decreased organizational politics (2). Although businesses of all sizes outsource HR
functions for these reasons, many believe that smaller-sized businesses—those
with approximately 10-150 employees—receive the greatest benefit from doing so
(3; 4; 5; 6).
Which HR Functions Are Typically Outsourced by Small Businesses?
Simply put, any and all Human Resource functions can be
outsourced. That being said, the types
of activities that are typically outsourced tend to be:
- “Rule based
- Repetitive
- Frequently undertaken
- Predictable
- Able to be fully or partly automated by technology
- Able to be delivered by remote sites” (2)
Some of the main functions that small businesses outsource
include:
- Payroll
- Benefits
- Criminal and background checks
- Temporary staffing
- Regulatory compliance
- Recruiting
- Training (2; 3; 6; 7; 8)
Because any HR function can be outsourced, what is actually
outsourced is more a question of company needs and preferences. Some businesses prefer to handle most or all
HR functions because they see them as a vital part of employee relations or
competitive advantage (9). Some find
that the less HR functions they deal with in-house, the more they can focus on
their business’ core activities (3; 4; 8; 10).
And others outsource HR functions out of necessity due to a lack of
internal expertise (6; 7; 8). So, as
with any other decision a business needs to make, which HR functions are
outsourced truly comes down to a cost-benefit analysis that is unique to every
company.
References
(1)-
“Outsourcing and Offshoring in Canada” from Statistics Canada:
(2)-
“Strategic Human Resources planning” (5th ed.) by Belcourt, McBey, Hong, &
Yap
(3)-
“Knowing when to outsource your small business's HR” from The Guardian:
(4)-
“Is It Time to Outsource Human Resources?” from Entrepreneur:
(5)-
“May I Handle That for You?” from Inc.:
(6)-
“Mess with my desk, but not my cheque” from The Globe and Mail:
(7)- “HR Outsourcing Buyer's Guide” from Yahoo Small Business:
(8)- “How to Build a Better Business with Outsourcing” from
Entrepreneur:
(9)- “The best way to outsource HR? Don’t” from The Globe and Mail:
(10)- “The 3 Jobs Your Startup Should Outsource” from Forbes:
(11)- “Domestic Outsourcing and Imported Inputs in the U.S.
Economy: Insights from Integrated Economic Accounts” from the U.S. Bureau of
Economic Analysis:
(12)-
“Outsourcing and Imported Services in BEA’s Industry Accounts” from the U.S. Bureau of Economic Analysis:
Links to More Information
Check back in the next two Mondays—Mar. 4 and Mar. 11—to read the
second and third parts of this series on outsourcing HR functions in small
business:
Article #2- “The Positives and Negatives of Outsourcing HR Functions in
Small Business”
Article #3-
“How to Outsource Small Business HR Functions,” covering:
- “Selecting the Provider”
- “Negotiating the Contract”
- “Managing the Relationship”
Otherwise, have a read of the articles in our “References” for
more information on outsourcing.
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