Human Resource Outsourcing: Cutting Costs In Recessionary Times
The process of sub contracting the Human Resources services to an external agency is known as HRO or Human Resource outsourcing
. The latest trend of sub contracting or outsourcing either all or most of the non-core activities, also known as secondary functions- has made sufficient business sense to many global organizations. The human Resource outsourcing to specialists is justified from this angle, as the human resources services in a Company does not function as a profit making center nor does it form a part of primary activities like finance or strategic planning.Industry experts are of the opinion that in these times of the worst economic downturn since the Great Depression, businesses must indulge in cost cutting initiatives and thinning down of non core functions to save on valuable resources. As a result, Human Resources services are now finding their way out of the companys cubicles and heading towards specialized firms that offer the highest standards of services to their clients that opt for Human resource outsourcing.
However, before making the outsourcing decision it is important to discuss the various ways in which Human Resource Outsourcing can be undertaken, and the risks involved.
Complete Human Resource Outsourcing: In such an arrangement- the entire HR function is managed by an external supplier, including discrete HR activities like recruitment and payroll management.
Shared Service Human Resource Outsourcing: Here, while keeping personal interface with the employees intact within the company walls, the transactional and administrative elements of Human Resources Services are outsourced to third parties.
Application and Facilities Service Human Resource Outsourcing: Companies can also opt for an arrangement, where only specialized technological and physical infrastructure support (in connection with HR functions) is supplied by an HR outsourcing provider.
The strategic decision of outsourcing the Human Resources Services may be cost effective and helpful in improving the bottom line, but it can also expose the company to certain risks like:
Loss of control over internal affairs
Reduction in flexibility
The employer/employee relationship may be impacted
The process may fail to deliver cost benefits
Adherence to legal and regulatory requirements is important to avoid any complications in future
Issues relevant to Industrial and Labor laws must be considered
To reduce the risk levels, and mitigate any chances of financial losses, it is important to draft an explicit and well defined service agreement between the client and the provider. This agreement should govern the Human Resource Outsourcing arrangement and operations in totality with complete transparency. This service level document must be carefully discussed and negotiated to avoid any future conflicts between the parties. The penalties for non compliance and the standards of expected performance should also be clearly defined in the agreement. The goal of outsourcing Human Resources Services is to redirect the focus and energy of the business organization back to strategic affairs instead of engaging the limited and valuable resources in nonprofit making areas such as HR.
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