Outsourcing employment to an external provider can free up time and resources while ensuring that critical HR functions are handled well. However, many businesses struggle to make this partnership work.
For instance, according to Deloitte, 59% of companies outsource at least one HR function, yet a significant portion report challenges in execution, such as miscommunication and compliance issues. Successful outsourcing requires careful planning, clear expectations, and ongoing evaluation.
By understanding your company’s needs and aligning them with the right partner, you can maximize the benefits of outsourcing. Failing this, you may subsequently find yourself with a non-performing third-party partner. Here are six essential strategies to ensure your outsourcing employment partnership succeeds.
Think About You and Your Company’s Goals
Your goals must align with your partner’s to gain the most from an HR outsourcing employment partnership. To ensure a successful outsourcing partnership, ask yourself and your leadership team:
- What are our strategic business goals for the next 12–24 months?
- Also, what are the strategic goals of the HR department, and how do they complement overall business objectives?
- What do we want to accomplish by hiring an outsourced HR professional? Be specific. Aligning your goals so that both your internal team and your outsourcing partner work toward the same vision, avoiding misaligned expectations and maximizing return on investment. For example, a company planning to expand internationally should ensure its outsourced HR provider has experience managing cross-border employment and compliance issues.
Identify the HR functions You Want to outsource
To determine which HR functions to outsource, you should first identify the internal HR elements you want to manage. Consider functions such as payroll processing, benefits administration, recruitment for specialized roles, or employee training programs.
Outsourcing these functions allows your internal team to focus on strategic initiatives rather than administrative tasks. Benefits of outsourcing include increased operational efficiency, cost savings, and access to industry experts who can provide insights and improvements that internal staff may not have the resources to implement.
Deloitte research shows companies that outsource HR functions report a 30% improvement in administrative efficiency and higher employee satisfaction.
For example, if your organization is large enough to need a dedicated human resources department, or if you have particular functions (e.g., payroll) for which training and experience are critical. You may decide that certain areas of HR should be handled in-house. However, there are many benefits to outsourcing at least some aspects of human resources management:
- You will be able to focus on other areas of your business
- Also, you will have access to expertise in specialized fields such as employee benefits or compensation administration
- Moreover, you will save time and money by outsourcing non-core services.
Choose the Right Provider for Your Business
The right provider will have the skills, knowledge, and experience to deliver the best service. Look for providers who have proven experience in your industry, understand your operational scale, and know local and international labor laws. Evaluate their track record with businesses similar to yours and request case studies or client testimonials that demonstrate success. For instance, a company operating in the U.S., Australia, and New Zealand should choose a provider with international recruitment experience to ensure compliance and optimal talent sourcing across multiple markets. Asking the right questions, such as “How do you handle recruitment in different regions?” or “Can you provide metrics on payroll accuracy?” helps you assess their capability and fit for your organization.
For example, if you’re an e-commerce retailer with multiple stores across several countries, choosing a provider who has worked with retailers in a similar situation might make sense. A good provider will also be able to provide insight into how recruitment works in different countries and different sectors.
Create a Detailed Service-Level Agreement
A service level agreement (SLA) is an essential document that both parties should have in place before a partnership begins. An SLA should outline deliverables, timelines, communication protocols, and penalties for missed targets. Establishing measurable metrics for performance, such as payroll turnaround times or onboarding completion rates, ensures accountability. Also, it outlines how they will communicate with each other and what the consequences are if things go awry.
It also includes a list of deliverables for each party to complete during their contracted period. The most important aspect of an SLA is that it lays out precisely the services each company expects from the other, as well as timelines for various tasks such as proposal reviews or project kickoff meetings.
If you’re a small team building your first internal HR system, or even if you’ve been on these systems before, it can be difficult to set realistic goals while considering all possible contingencies. This can lead to trouble in the future! By creating detailed specifications up front, you’ll avoid misunderstandings about what’s what from your new partner (and vice versa).
Define the Scope of Work Clearly
It’s important to know what is included and what is not in the scope of a project. Clearly identify which tasks are included and excluded in the outsourcing agreement, and define responsibilities for both internal and external teams. Discuss timelines, deliverables, and any contingencies that may arise during the project. You will want to ensure understanding and avoid miscommunication throughout your partnership. Below are some questions you should ask:
- What is the scope of this project?
- Plus, what is outside of our agreed-upon scope?
- Who else needs to be involved for us to accomplish our goals?
- How long do we have until we have completed all deliverables, objectives, and other time frames?
Trust, But Verify
Make sure you trust your outsourced partner and verify their trustworthiness. Communication and transparency are two critical aspects of the success of any outsourcing relationship. It’s essential to communicate with your outsourced partner regularly and ensure that they keep you updated on progress made or issues encountered.
The same applies to them communicating with you; you must know what’s what at all times, so make sure they keep you in the loop! Also, make sure that expectations are clear from the start and what will happen if those expectations aren’t met (e.g., penalties). Ideally, these would be written down in a service level agreement (SLA) signed by both parties before any work begins; however, if that isn’t possible due to time constraints or other external factors beyond anyone’s control, at least document them verbally after agreeing upon them together beforehand.
No one will be surprised later when things don’t go as planned. Plans can change due to circumstances beyond either party. Such could have been avoided had everyone accepted clearly defined roles beforehand instead of assuming everything would run smoothly without putting anything in writing first.
Identify What You Really Need
It’s important to identify precisely what you need from an outsourced HR partner and to choose the right provider for your business needs. You can build a strong outsourcing employment partnership by ensuring both parties have a crystal-clear idea of each other’s expectations. Both parties should work hard at least to meet, but preferably to exceed those expectations together. You must know what you want to ensure a successful HR outsourcing partnership. This will help you choose the right provider for your business needs and ensure both parties understand the expectations. You should always identify precisely what you need from an outsourced HR partner.
Here Are Some Ideas About How To Do This:
- Ask yourself whether any problems with your current processes could be solved by having someone else handle them on your behalf (e.g., it may take too long for employees to be paid). If so, consider how an outsourcing provider could alleviate these issues (e.g., by making payroll run more smoothly).
- Consider whether certain HR functions would benefit from being provided externally (e.g., would it be valuable to have someone with specialized expertise in recruiting or employee training). If so, ask yourself which parts of those functions would work best as outsourced services rather than internal ones, and why this makes sense based on your business expertise.
Conclusion: How Can I Ensure a Successful Outsourcing Employment Partnership?
Remember, the key to a successful outsourcing partnership is finding the right HR partner for your business and matching their capabilities with your needs. You should develop a detailed service level agreement, clearly defining your expectations of each performance − both parties should work hard to meet or exceed those expectations together.
Ready to transform your HR operations and maximize efficiency? Book a free consultation with our HR outsourcing experts today to discuss your business needs and start your successful partnership.
What is outsourcing employment, and how does it differ from general outsourcing?
Outsourcing employment refers explicitly to hiring an external provider to manage HR functions such as recruitment, payroll, employee benefits, and compliance. Unlike general outsourcing, which can involve any business process like IT, accounting, or customer service, outsourcing employment focuses solely on human resources management. This approach allows companies to leverage specialized expertise while freeing up internal resources for strategic initiatives.
Which HR functions are most commonly outsourced?
The most commonly outsourced HR functions include payroll processing, recruitment, benefits administration, training and development, and employee performance management. Organizations often outsource these functions when they require specialized knowledge or when internal teams are stretched thin. For example, payroll is frequently outsourced to ensure accuracy, compliance with tax laws, and timely payments, while recruitment may be outsourced to access a wider talent pool efficiently.
How do I evaluate the performance of an outsourced HR provider?
Evaluating an outsourced HR provider involves monitoring key performance indicators (KPIs) such as accuracy of payroll, time-to-fill open positions, employee satisfaction, and adherence to service-level agreements (SLAs). Regular communication, progress reports, and review meetings are essential to assess performance. Additionally, requesting case studies, client testimonials, and tracking compliance with international labor laws can provide insights into the provider’s effectiveness and reliability.
Can outsourcing help with international employment compliance?
Yes, outsourcing can significantly help with international employment compliance. Providers with global experience understand the labor laws, tax regulations, and employment standards in different countries, which reduces legal risks for your organization. By outsourcing functions like recruitment, payroll, and benefits administration to experienced partners, companies can ensure that they remain compliant across all regions where they operate, avoiding costly fines and operational disruptions.
