In a company’s infancy, it’s not at all unusual for everyone to pitch in and wear many hats. The accountant often handles payroll, benefits administration and leave tracking may fall on the office manager, and the president likely meets with and interviews all candidates. However, most companies grow and so do their HR needs and obligations. Knowing when to hire or outsource HR is critical and must be done before a valuable employee leaves, top talent isn’t interested in your job openings or, worse yet, an employee files a complaint, and the Department of Labor is on your doorstep. To be proactive, leadership must know when to transition HR to an HR professional and understand the benefits of outsourcing HR completely.
Key Indicators it’s Time to Outsource or Hire
As businesses grow, roles become more defined and specialized eventually leading to focused departments. The “all-hands-on-deck” approach becomes one of individuals concentrating on a specific function in support of the organization’s goals. At this time, it likely makes more sense for the company president to forego spending time on employee-related issues and interviewing new hires and focus on continued growth and revenue. The CFO is likely knee deep in forecasting and budgeting with no time to run payroll. The office manager realizes he isn’t equipped to handle open enrollment for the growing staff and respond to increasingly complicated employee relations issues. Fortunately, this growth spurt usually coincides with enough profitability to build staff in each department. At this juncture, it makes sense to separate HR into its own department and hire or outsource HR.
Difficulties Attracting Talent
If a company cannot find and hire top talent, a lack of HR leadership could be the culprit. In the beginning, companies may be able to successfully recruit using online websites like Indeed and LinkedIn or even word-of-mouth. Eventually, a full cycle recruiting strategy should be employed to reach top tier talent. A seasoned HR professional is best equipped to formulate a recruiting strategy aligned with corporate goals leading to smarter choices during the hiring process, boosting ROI and reducing costs associated with high turnover and subpar employees. A good recruiting strategy determines current and future recruitment needs, capitalizes on corporate branding and culture, identifies smart sourcing and employs best interview, new hire and onboarding practices. These activities require a highly specialized HR skill set.
Poor Employee Engagement & Retention
Poor employee engagement and retention can be the death of an otherwise steadily growing and prospering company. Small fissures and cracks in a foundation can bring the strongest building down. The same is true for a business. While it may not be obvious and permeate all aspects of the working environment, unhappy and unengaged employees can spell disaster and be a sign strong HR leadership is needed. A seasoned HR professional can identify the root cause of departures and make necessary changes to retain good employees.
Legal Compliance Challenges
Complying with labor and employment laws at the local, state and federal level is challenging, period. As companies grow and hit certain employee thresholds, they become subject to more employment laws. For example, when a company has 15 employees, it’s subject to Title VII of the Civil Rights Act and the Americans with Disabilities Act. A company with 20 employees is subject to COBRA, and one with 50 employees is subject to the Family and Medical Leave Act. Employee thresholds are also present in state employment laws, and laws change. Recently, many states have mandated paid and non-paid family leave. Failure to comply with employment laws can lead to lawsuits, penalties and audits so it is imperative companies have an HR professional on top of compliance so nothing falls through the cracks.
Outsourcing is the Answer
There are several indicators it’s time for a business to transition HR work to an HR professional. Then, the question becomes whether to hire someone to work internally or to outsource HR entirely. There are many compelling reasons why outsourcing HR is best for small to mid-sized companies. Here are just a few.
It’s a Difficult Hire
Hiring the right HR person is tricky, and a successful hire is very dependent on finding the right fit based on the company’s stage of its life cycle. Is it a startup? Is the company expecting international growth? Will there be a merger or acquisition in the future? Is a RIF expected? Might there be entirely new corporate leadership for another reason? All these scenarios require specialized HR expertise. Some HR professionals love the challenge of building HR programs and procedures from the ground up, and others don’t. An otherwise very experienced HR manager may have absolutely no idea how HR is affected by a merger or acquisition. Some HR leaders have firsthand knowledge of how to get through a DOL audit, and others don’t. Some HR professionals enjoy the challenge of working with new leadership and others prefer the stability that comes with working with more senior leaders who have a proven track record with the company. Recruiting requires excellent communication and sales skills which may or may not be an HR professional’s forte. The attention to detail and excellent customer service required by benefits administration could be one’s strength and another’s shortcoming. HR is all consuming and requires a wide and varied skill set.
Finding the “perfect” HR candidate able to do it all is extremely difficult under any circumstances, but the past few years have resulted in a major shortage of talented HR professionals. The Covid-19 pandemic meant HR leaders were literally dealing with the life or death of their employees. The past few years have required HR professionals to quickly take teams remote, find safe ways to bring reluctant and scared employees back to the office, navigate vaccination issues, develop hybrid work models, train managers on handling remote employees and support employees through a host of social justice movements, economic downturn and political tensions. These unprecedented HR challenges have led many HR leaders to leave the profession, become consultants, retire or opt for a new career with a better work-life balance.
When a company doesn’t want to risk hiring the wrong fit, it has an excellent alternative in HR outsourcing. HR outsourcing is a contractual agreement between an employer and an external third-party provider in which the third-party provider manages and is responsible for the employer’s HR functions. Arguably, the biggest benefit to outsourcing HR to a reputable HR provider is gaining access to subject matter HR experts who have seen and done it all. The best HR outsourcing providers have senior HR professionals with 10+ years of specific and generalized HR experience working for companies and clients in all industries and of all sizes. HR outsourcing providers have access to best practices and metrics for all HR functions. They have sourcing pools and talent pipelines for recruiting unavailable to most companies. Providing competitive salaries and benefits is tricky since they fluctuate based on market conditions, geographic areas and by industry and position. Reputable HR outsourcing providers purchase salary and benefit surveys with current information for use by their clients. Why settle for one person’s knowledge and expertise when access to subject matter experts for all HR functions is available with HR outsourcing?
It Makes Economic Sense
In addition to having access to the very best, seasoned HR talent, it saves money to outsource HR. A substantial cost savings is realized by reduced payroll costs. According to salary.com, as of January 26, 2023, the average Human Resource Manager salary in Washington, D.C. is $127,753 with the range falling between $113, 193 and $143,818. Most HR Managers need an assistant. According to salary.com, as of January 26, 2023, the average Human Resources Assistant salary in Washington, D.C. is $50,018 with the range falling between $44,567 and $56,165. Add in the cost of benefits, and it’s easy to see how expensive it is to hire in-house HR personnel. According to some estimates, companies can save around 50% by outsourcing HR instead of hiring internal HR staff. There are, of course, other cost savings such as reducing exposure to litigation when working with an HR outsourcing provider.
It’s an Objective Third Party
Employee relations and management issues can get complicated for an internal HR professional. What if the exit interviews for several top performers indicates problems with the CEO as the main reason for the employees’ resignations? What’s the best way to handle two employees who’ve begun dating and one supervises the other? What if the supervisor is related to the CFO? What’s the best way to handle a long-time employee whose been out on medical leave for three months with no signs of returning? Who’s the best person to deliver the news to employees that insurance premium costs are increasing 10%? Who is going to deliver the terrible news an entire department is ceasing operations? Who will explain severance, COBRA and other termination items to the terminated employees with compassion and grace? An HR professional’s job is tough, and there’s not always a blueprint for how to handle certain situations. Being a part of the “family” that is a company can cloud the waters and sometimes impair one’s judgement. When working with an HR outsourcing provider, one can be certain decisions are made objectively, fairly, with compassion and in accordance with the law.
Get Smart HR
There is no escaping the need for HR, and that need grows exponentially as a company gets larger and more successful. Many business owners try to handle everything on their own until that’s no longer feasible. When it’s time to turn over the HR reins to an HR professional, outsourcing is often the best choice. Deciding on the right HR outsourcing provider is crucial, and Smart HR is hands down the best choice in the Washington, D.C. metro area. Smart HR consultants are dedicated and focused, working with a few clients allowing them quality time with each client. Smart HR consultants are an active and visible part of their clients’ management teams. In fact, many company employees think their Smart HR consultant is actually a company employee due to their consistent visibility and top-notch customer service. Smart HR consultants have 15+ years of HR management experience and usually have one of the following certifications (or the equivalent): Professional of Human Resources (PHR), Senior Professional in Human Resources (SPHR), Certified HR Professional (SHRM – CP) or Senior Certified HR Professional (SHRM – SCP). Many Smart HR consultants also hold advanced degrees in Human Resource Management or Organizational Development. Smart HR consultants undergo a rigorous screening process to ensure they fit the Smart HR model. Less than 2% of the HR professionals who interview are hired to be Smart HR consultants. Smart HR consultants join Smart HR for the long haul, and once paired with a client, they remain a constant presence at the client’s company. Annually, over 97% of Smart HR clients remain with the same Smart HR consultant. If you’ve been wondering if Smart HR and HR outsourcing would be a good fit for your company, don’t hesitate. Call today.