Human resource (HR) tasks ranging from recruiting and hiring new employees to handling payroll, benefits, and training for current staff can take a huge chunk out of a small business’ bottom line. In fact, PricewaterhouseCoopers (PwC) reports that, typically, “direct HR costs account for 28% of overall operating expenses.”
According to the United States Census Bureau, the amount of money being spent on operating expenses has been rising as a nation, increasing to more than $980 billion in 2014 in retail, accommodation, and food services alone. Take 28 percent of that amount and this means that somewhere around $274 billion was used to cover HR-related tasks in these industries.
Just imagine what would happen if even a small portion of that was freed up to do other things. Think of the possibilities that would exist! The money could be funneled into more marketing activities, helping these companies grow. Or, maybe they would use it to help others in their communities, making the world a better place as a result.
Either way, there’s no denying that finding ways to reduce this number is critical to promoting business success—especially in the early stages of building and growth—as well as success as a nation. That’s why a number of small business owners are considering taking their HR tasks and outsourcing them. But many are still hesitant, wondering if this type of decision is really as advantageous as keeping these types of activities in-house.
As a solopreneur who works completely on her own and has no outside help, I have absolutely no experience in this area, which means that I also cannot offer any type of real world advice. That’s why I reached out to small business owners and HR experts who do have experience in this realm, and also have a pretty solid opinion of which is better, based on what they’ve seen firsthand.
What follows is what they have to say about the issue so, hopefully, it helps you make your own decision easier if you’re currently thinking about changing your strategy in this area of your business. But, as you’re about to learn, you’ll also see that there is no clear cut answer, as everyone seems to have a differing opinion.
That’s why educating yourself is critical to making the best decision for you and your company. With this goal in mind, let’s see what your colleagues had to say, shall we?
Outsource All the Way
Mary “Mickey” Swortzel, CEO, CFO, and co-founder of New Eagle, a mechatronic control systems engineering company dedicated to helping their clients take their ideas from concept to production, says, “After having a dedicated HR staff person for eight years, we recently outsourced to ADP Total Source.” The drive behind this move was health care costs says Swortzel, indicating that they “were rising at an astronomical rate,” forcing the company to look for other more affordable solutions for their company and their employees.
“The PEO (professional employment organization) model of co-employment provided a solution to reduce our health care costs but, more than that, offered Fortune 500 benefits to my team,” says Swortzel. “In addition, they have a dedicated HR generalist to assist with job descriptions, employment postings, staff issues, and handbooks. All for a fraction of the cost of an experienced HR staff person.”
This has outlying benefits to the company as well, beyond just cost, according to Swortzel. “We believe that outsourcing will make us more competitive in our recruiting,” she says, adding that it also keeps her company “up to date with the ever-changing employment laws.”
Sandra Lewis, founder of Worldwide101, a company that connects business owners and entrepreneurs with a line of premium virtual assistants, agrees that outsourcing is the way to go when it comes to HR functions. Lewis shares that this works for Worldwide101 specifically because “we don’t need someone full time and it seems much more efficient to pay for the hours we actually need!”
Lewis’ main concern when it came to outsourcing, and you may be able to relate, was to find someone trustworthy, especially when it comes to handing confidential company information. If you have the same worry yourself, Lewis says that “the key is to do due diligence to vet the right HR professional – just like you would if you were to hire in-house.”
Lewis says that their vetting process is quite simple as they have a set of criteria they use before making the final decision. These include:
- How long they have been in business and/or their tenure as professionals in the industry.
- Whether their online presence is professional and up to date. “It’s always disconcerting when someone’s profile is out of date, or their website shows a copyright from 2010 or no blog entries for a few years,” says Lewis.
- Whether they have recent recommendations available to speak with.
- The quality and timeliness of their communications throughout the process. Specifically, Lewis looks at whether emails were responded to in a timely fashion, the thoroughness and relevance of the responses, spelling mistakes, overall style, courtesy, and more.
“If all looks good,” says Lewis, “then we move on to a proper interview/ meeting. I believe that whether someone is ‘outsourced’ or ‘remote’ makes no difference to the interview process. That is, we put as much effort and diligence in making sure the outsourced individual or company is right for us for the long term.”
In-House HR Has Some Advantages
John Mauck is Human Resources Director at WLR Automotive Group, Inc. and he shares that having someone in-house to handle HR tasks is worth considering, as it offers a number of advantages for a company. “Without intimate knowledge of the organization,” says Mauck, “I feel that a business owner does not receive the full benefit.”
Case in point, Mauck says, “When I started at my company, they did not have a solid human resources function in the organization.” This caused WLR Automotive to talk about outsourcing as an option. However, they ultimately decided against it because “we find a lack of understanding about our company when outsourcing,” says Mauk.
“By having an educated and certified Human Resources professional at the owners finger tips, I have been able to provide organizational leadership and strategy the company has not had prior to my arrival,” explains Mauk. He goes to say that the results of this decision have been extremely positive as “we have been able to not only grow the company, but also employee culture and learning. We have saved costs with lower unemployment, improved retention and improved engagement.”
Why Not Do Both?
Michael Jacob is managing partner at Online Resume Builders, a tech company focused on changing the way job seekers build resumes for hiring companies, and he says that “Outsource or in-house?” is a question they ask themselves about once a month. Their response? “I think many companies should do both,” says Jacob, “to keep their business as profitable as possible while operating at peak performance.”
Jacob shares that one of the advantages of taking this two-prong approach includes having an easier time finding specialized employees, often at a lower rate. “If you are looking for a specific skill, Senior Angular Front End Software Developer, for example, for under $90,000, it won’t happen in the U.S.,” says Jacob. So, being open to outsourcing can open your talent bank as you’re not confined to the geographic area around you, possibly saving you some cash at the same time.
Out-sourcing certain HR tasks also helps Online Resume Builders save on costs typically associated with having all of these actions completed in-house, according to Jacob. This includes reduced amounts spent on tech costs, parking, insurance, paid time off and holiday pay, and all of the other benefits usually afforded to regular staff.
In addition, outsourcing with individuals in other areas of the world offersOut “time zone advantages,” says Jacob. “We have employees working around the clock due to outsourcing so things get completed faster.” Plus, “it’s easier to change the hours for off shore employees versus full-time employees because of the structure of the initial agreement,” Jacob says, presenting just another benefit of taking this route.
Cons associated up with splitting up the team and having some staff in-house and the rest outsourced include that it is “difficult to build a good office environment without the whole team knowing each other outside the office,” says Jacob. Additionally, project collaboration can sometimes be more complex as you’re forced to “collaborate via messengers versus going to a conference room right next door.”
Zaki Usman, CEO of ShoutEx Marketing agrees with Jacob in that there are benefits to outsourcing some actions and keeping others in-house. Which actions are which?
Usman says, “In my experience, its best to keep HR functions in-house when they require your expertise.” That’s why they take care of their own recruitment at ShoutEx. “As a tech startup, we’re looking for techies we come across at local web-dev and hackathon events,” says Usman. “So we take care of candidate screening and interviewing ourselves. It gives us a great chance to gauge their technical abilities as well as cultural fit for the team.”
Handling this function on their own has benefits for the potential employee as well, says Usman, as “the candidate gets a complete picture of what to expect at our company. This approach has delivered extremely good team hires, which is crucial in our startup growth phase.”
The types of functions that ShoutEx outsources include “specialized functions that can be automated by external vendors. So our payroll is handled by an external SaaS company. They have expertise in handling remuneration and tax deductions and we let them take care of it.”
“As a small business, HR functions are very important to your business success,” says Usman. “Think of your team as the biggest asset in your company and it’s in everyone’s interest to keep things running smoothly when it comes to HR. So, in summary, keep HR functions in-house when they require your expertise, or else outsource them.”
I’m always interested in learning other small business owners’ thoughts on relevant topics and issues, so if you have a unique article idea, feel free to contact me at firstname.lastname@example.org (put “Businessing Magazine” in the subject line, please). If I use it, it’s a free link to your website!