7 Signs That Your Company May Be Ready for HR Outsourcing

Updated: April 30, 2009

There comes a time in the life of most successful businesses when a decision has to be made as to whether certain HR tasks are best handled in-house or by an HRO (human resources outsourcer). Making the right call at the right time isn't easy, but certain telltale signs can indicate when it's time to "pull the trigger" and call for help. This is what you should look for:

Spiraling Costs: Rapidly rising costs in payroll , benefit management and other key areas continue to be the primary driver for HR outsourcing. While cost reduction isn't the only reason for using an HRO — efficiency, quality and speed are other motivating factors — it's certainly a major consideration.

Missed Deadlines: If a growing number of employees are complaining that critical documents, ranging from paychecks to W-2 forms, are arriving late, it's a sign that something is broken. There's a good chance that the delays are being caused by an HR department that's stretched beyond its capabilities. An HRO can step in and help get critical work back on schedule without the need to hire new HR employees or upgrade facilities.

System Overloads: If HR tasks are beginning to overwhelm internal IT resources, it's time to either invest in additional technology or turn at least some of the crippling workload over to a third party. HROs rely on their own IT systems, enabling in-house systems to focus on non-HR-related tasks. A cost/benefit analysis may show that it would be cheaper for your business to shift data-intensive and high-priority HR resources, such as employee databases and Web self-service operation, to an HRO rather than invest in new on-site technology.

Increasing Mistakes: No HR department is foolproof, but snowballing goofs are another sure sign that people and systems are being stretched beyond their limits. Assigning mistake-prone work to an HRO can lower the pressure on in-house staffers. The best part is that an HRO can be held accountable for supplying a basic level of accuracy in whatever work it handles. This is especially important in situations such as payroll where legal compliance is an issue.

Poor Quality Work: Mediocre or worse output over an extended period of time is a sign that an HR department is being overworked or — more ominously — simply isn't competent. While a business may wish to experiment with new managers and work procedures, it may be simpler to just outsource everything to a third party, either permanently or while a new HR department is being assembled.

Disgruntled HR Workers: Employee griping is as common as office football pools. But when the complaining begins drowning out normal discourse, it's time to start considering remedial action. An HRO can step in during busy seasons to take on the extra time-consuming tasks that drive up HR workloads and staff discontentment.

Competitors' Moves: Are many of your business' prime competitors shifting to HROs? If so, they might have spotted a need that you may not have yet detected or have been unwilling to acknowledge. Ask around and find out what benefits your rivals are gaining from outsourcing HR work. You may discover that these same issues apply to your organization.

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