Human resource outsourcing has evolved considerably throughout the years. From being a mere provider of temporary staff, recruitment agencies have now become critical business partners that deliver specialized staffing services and reduce HRM costs while improving personnel management in general.

The Evolution Of HRM Outsourcing

It was in the 1970s when human resource outsourcing gained a prominent role. The boom in the IT industry created a big demand for programmers more than what the labor market could provide. IT firms resorted to HRM outsourcing and even paid a lot to agencies to fill their vacancies. Early human outsourcing involved a paid service whereby companies could obtain a list of prospective employees working with their competitors.

Today, recruitment process outsourcing is increasingly becoming an integral part of comprehensive HRM outsourcing solutions which also include workforce retention, compensation and benefits administration and training.

HRM outsourcing benefits both large and small companies.

Large corporations can improve efficiency by delegating payroll management to outsourcing firms. Even small companies find it economical to partner with HRM contractors for recruitment purposes.

Data from the Everest Research Institute showed that small businesses believe in the cost benefits of outsourcing human resources. By partnering with outsourcing firms, small companies do not have to hire special recruitment staff.

Although BPO firms provide huge financial benefits to corporations, the risks of human resource outsourcing should not be ignored.

4 Risk Factors Of Human Resource Outsourcing

#1 Cost.

Working with external HRM partners could lead to unforeseen increases in cost. As workforce demand increases, the cost of outsourcing could grow as well. New government regulations could prompt outsourcing firms to increase their cost to ensure compliance.

#2 Effect on Employee-Employer Relationship.

The human resource department of the organization is the primary intermediary between its workers and the management. Personnel services are the major priority of HR-oriented organization, thus hiring the wrong contractor can severely damage the employer-employee relationship.

Some employees may feel alienated when dealing with third-party HRM providers. There are many job applicants who prefer to apply directly to the company of their choice rather than go through staffing firms.

#3 Delays.

If an outsourcing provider is serving several clients, getting something changed or corrected may take several days. Payment disputes, errors in employee records and other urgent concerns are harder to deal with if an HRM outsourcing provider is involved.

Outsourcing can impact employers’ access to information and the ability to make urgent decisions.

#4 Legal liability.

Employee file management and corporate record keeping are heavily regulated in some countries. Large companies that are exposed to considerable legal risks need to find a human outsourcing provider that can protect, manage and maintain personnel records like transaction slips and medical records.

Partnering with BPO firms with poor data security system and inefficient record keeping practices merely increases the risk of outsourcing.

The Bottom Line

Quality and legal issues are a major concern in every type of outsourcing. The risk of outsourcing human resource functions can be minimized by developing an oversight system to ensure consistency in the operations of the in-house HR department and the contractor.

Lack of preparation in choosing an outsourcing provider can result in violations of labor law, unfit candidates being hired or employee benefits being mismanaged. Studies on the risks and benefits of outsourcing should be balanced to avoid unrealistic goals and zero return on BPO investments.

D'Vaughn Bell
D'Vaughn Marqui Bell is a millennial entrepreneur, author and businessman. As CEO of Marqui Management he is responsible for day to day operations, management and insight. He continues his leadership development and training for the millennial generation at his website: D'Vaughn Bell

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