Outsourcing Human Resources:
The Right Time, The Right HR Systems and The Right People
Originally Published in CanBiotech BioMed Outsourcing Newsletter: Volume 1, Issue 1, September 2002

By HR Integrators
Jean Alexander, Director
An international full service outsource human resources management company providing payroll management, benefit management, HR management, shared service centre, HR development, consulting and recruitment services.

In today’s complex global business environment, success depends more and more on having the right people do the right work.  This means attracting, selecting and retaining people who will commit to and execute the company’s overall strategic business plan.

Effective human resource management in this challenging environment requires professionals with competencies in a variety of specialized areas and functions who will work together in partnership with line management to develop, implement and monitor human resources strategy, policies and programs.

Unfortunately many small to mid-size companies cannot afford to hire specialized human resources personnel.  As well, the managers of many large companies, while realizing that human resources is an important function that needs professional expertise, are reluctant to commit the necessary resources to it because human resources is not their core business.  As web-based technology transforms the way in which payroll, benefits and other human resources services are delivered, and helps to streamline administrative processes, outsourcing is becoming a viable option for these companies.  Research in human resources outsourcing has demonstrated that it can be a cost-effective approach for most organizations.

What are the benefits of outsourcing the human resources function?  There seem to be three primary ones, and they may occur together, or independently.  In no particular order, they are cost savings, improved services to employees, and reduced opportunity costs.

An external service provider (ESP) is normally able to provide human resource management expertise on demand at much lower cost than an individual company can.  This is especially true for small and mid-sized companies.  Modern human resources management requires such a wide range of specialists that few corporations can justify having a full complement of talents on staff.  An ESP is able to spread the cost of these experts over many clients.  In addition to being able to supply the full range of competencies, for the human resource outsourcing company, human resources is their core business and managers devote all their energies to streamlining systems and maximizing efficiency.  An human resource ESP specializes in being fully up to date on the constantly changing fields of employment standards legislation, benefits and pensions, payroll taxation rules, equal employment opportunity law, and the like.  The internal human resources departments of most companies have a hard time keeping up with these important issues.  Therefore, the employees benefit from superior services and information from an ESP.  Opportunity costs occur when employees carry out tasks that are not the best use of their time.  In most small and medium-sized companies human resource management activities are done by people with other, more profitable, things to do.  By outsourcing HR, managers can devote their time to the core business of the firm, getting the most out of their time, and reducing opportunity costs.

The outsourcing process must start with the development of clear and measurable objectives for the delivery of services.  The human resources ESP should work with the company as a junior partner involved in the everyday activities of the company and helping to guide and support strategic planning activities.  The ESP must know how the company operates from the president down to the most junior staff member.  ESP contracts should specify the deliverables, deadlines, service quality, and results to be achieved.  If properly organized, the company will be able to access “just-in-time” expertise to strengthen human capital practices and achieve business goals.