Our business world today has become remarkably fast-paced. After the wave of COVID-19, we have seen a massive uprise in remote work. This trend has made businesses highly scalable and more competitive than ever. Today, companies are as agile as a squirrel on a double espresso shot. If your business is not up to speed, there are a lot others ready to take up your spot.

Therefore, focusing most on your primary business functions becomes important here. This is where outsourcing HR services come into play for your remote workforce.

This applies especially to SMBs or Small and Medium Businesses. SMBs must allocate most of their limited resources to core business activities. HR services may not fall in the category of core operations, but it is safe to assume that they are the foundation of these activities. So it is only obvious that experts in the industry handle these functions. By outsourcing your HR services, you are doing just that.

Outsourcing HR services of your business is a strategic decision where you basically delegate HR activities to external experts. This blog explores the benefits of outsourcing HR services and its potential alternatives. It also explores the best alternate solutions for your business.

What is Outsourcing HR Services?

Speaking by definition, ‘Outsourcing human resources services is a practice of delegating some or all the HR functions to an external service provider.’

This option is mostly opted by companies who wish to establish remote teams, be it onshore or offshore. That is because one of the most common HR challenges a company faces in building a remote workforce is managing its HR functions. Especially managing these functions across different locations, and time zones, understanding different legal frameworks, etc. This is where outsourcing helps by handling these complex functions on behalf of your company. These functions include everything from administrative tasks like

• Payroll processing
• Benefits management
• Handling paperwork
• Generating HR reports etc., and managing strategic roles like

• Recruitment
• Onboarding
• Employee training and engagement
• Compliance with local labor laws, etc.

One of the benefits of outsourcing HR services for remote employees is choosing which parts of the services you wish to outsource. It is like a more business-driven and complex version of distributing household chores with your roommate.

Find doing laundry convenient, but doing dishes too much? Let your roommate take responsibility for the dishes. You can also just offer them their favorite takeout and let them take care of all the chores while you focus on that hobby you love. 

Speaking from the perspective of your company, this model gives you the flexibility to design operations to suit your business the best. Let’s go a bit further and understand the reasons why companies prefer to outsource HR services.

Why Do Businesses Outsource HR Services?

Well, multiple reasons. Businesses most likely look for outsourcing when they

• Wish to set up teams remotely
• Want to reduce costs or re-adjust resources
• Are having difficulties managing HR activities in-house
• Expand their business, et cetera and et cetera

A study was conducted by Gartner that said, “Less Than 10% of HR Functions Are Achieving Functional Excellence” What does this mean? It means that out of all the HR services, only 9% of them align with the company’s needs. Simply put, the pandemic has had quite an impact on human resource services globally.

“Unfortunately, today’s new world of work has not only burdened HR with new demands but increased obstacles to effectiveness,” said Piers Hudson, senior director in the Gartner HR practice.

More than 50% of HR leaders reported that recruiting and retaining employees had become increasingly difficult post-pandemic. This calls for another reason why companies are looking to outsource HR activities. They’d rather have industry experts take care of this instead of engaging internal HR teams.

Let’s understand why HR services for remote teams can get tricky enough that companies might consider outsourcing them. We’ll see how it impacts the company, and how outsourcing can fix that.

What Are the Challenges of Managing HR for Remote Employees?

One of the primary challenges HR managers face with employees is communication. It becomes difficult to establish a connect with them as the only medium of communication is virtual. Since remote employees usually work in shifts, it becomes difficult for HR to be available beyond their work hours. This increases the communication gap making the employee feel unsatisfied with the work and the company.

Another challenge in-house HR teams face is managing a lot of employees working both in the office and remotely. Handling all the HR functions for many employees creates scope for errors. This can further cause a loss of productivity, dissatisfied employees, and potential loss to the company.

How Does This Impact the Businesses?

When the HR industry is undergoing a massive restructuring on a global scale, it is bound to impact the businesses. The Gartner study reported that over 71% of HR staff experienced burnout, leading to more challenges in the post-pandemic era. Difficulty in recruiting and retaining employees also causes projects to slow down and face hindrances.

If onboarding and engagement efforts are insufficient, remote employees may feel isolated and disconnected from the company. If technology and infrastructure support are not provided properly, it can very well disturb workflows causing delays in delivering results.

All these factors put together can create quite a strain on a company’s resources and limit its ability to grow and scale efficiently. This contributes to companies looking for better ways to carry out their HR activities. One of those many ways is outsourcing the HR services to third parties. Let’s understand what benefits this option provides to companies. 

Benefits of Outsourcing HR Services for Remote Teams

So far, we understand the current global landscape of human resources. We know of the potential problems companies can face managing a remote workforce with an in-house HR team. Let’s now understand the advantages of human resource outsourcing and how it can help companies fix these issues.

• Cost-effectiveness

Let’s face it, managing HR activities in-house is expensive. That is because when you are planning to establish remote teams, there are two types of costs that you need to consider. The first type of cost is to maintain an HR department that will overlook the operations and lifecycle of the remote employees. These costs include their salaries, benefits, tools for the HR team, etc. The other type of cost is to hire and sustain remote employees. These costs added together become difficult to manage.

On the other hand, outsourcing these HR services takes a lot off your shoulders. They manage the entire employee lifecycle on your behalf. You don’t need to get expensive HR tools, or even have an in-house HR department for these remote employees. That is the whole point, right?

This option reduces the overhead costs by a mile and allows you to allocate them more strategically.

• Scalability & Flexibility

One of the end goals of every business is profits. Obviously, right? Business growth and expansion get you that adrenaline rush, sure. But it also needs equal scaling of your HR operations.

For example, you just closed a big project that requires team expansion across multiple regions. It is a straight road to business growth and expansion, no doubt. But your HR department is in shambles. Finding talent, recruitment and onboarding, compliance, payroll, and taxation – managed by a single in-house HR department. Phew! I think I need to catch my breath by merely writing that down.

Depending on the in-house team to manage these tasks is difficult. There is a real possibility it can get chaotic, lead to delays, and mistakes which can get costly, and even cause burnout. 

All of these issues can be solved by simply choosing to outsource the HR services of your company. Let’s say you want to set up a remote workforce in India. You find the best HR outsourcing companies in India and you delegate responsibilities and the projects you want done. You are now free to focus on scaling and growing your business while the HR outsourcing services you hired in India take care of the employees.

• Compliance and Risk Management

Labor laws in countries across the globe are constantly changing. Managing compliance with these changing laws can be risky. There is a possibility of data breaches and errors in payroll. These are only to name a few. The list can get much longer and the repercussions of these mistakes, equally troublesome.

In-house HR departments are not always up to date with international laws, changes, rules, regulations, and risks involved. This can result in mistakes that lead to hefty fines, legal battles, or even damage to the reputation of your company. Not to forget that this impacts and slows down the work for which you set up a remote team in the first place.

For instance, if you are setting up a remote team in India, hiring HR outsourcing services in India would be a better choice. The HR service provider will help mitigate these risks as the HR functions of your company are in the hands of a local expert. This ensures maximum compliance with regulations and reduces the chances of any legal issues. However, if any legal issues arise despite being super careful, these outsourcing firms are experienced in handling conflicts and legal trouble.

• Access to Top Global Talent

Establishing remote teams means you step out into a global pool of talented employees across the world. As nice as that sounds, finding these employees is as challenging as finding that last ‘spot the difference’. It is quite a challenge for in-house HR teams to find, vet, and hire the best talent on a global scale.

Outsourcing HR services allows you to tap into the top global talent pool without having to go through the hassle. External HR providers have established networks across various countries and industries which gives them direct access to diverse and highly skilled talent. By leveraging their radar, you can attract the best candidates regardless of the location.

• Improved Effort in Employee Lifecycle

One of the major issues the HR people face with remote employees is managing their entire employee lifecycle. Onboarding and engagement activities are mostly conducted remotely and obviously not as effective as when done in person This can make it difficult to make them feel valued and supported and resolve their queries seamlessly.

You can take this pressure off your in-house HR team by outsourcing HR functions to manage your remote teams. Because they are the ones hiring employees for you, they have a much better connect with the employees. This improves employee satisfaction and retention making for a more engaged, stable, and high-performing remote workforce.

• Increased Focus on Core Business Operations

A big chunk of company resources go into managing HR services, especially the ones that don’t align with the core functions of the business.

With HR outsourcing services, say in India, you can regain the focus and shift it to the main activities of your business. You’re delegating HR responsibilities to specialized providers. You also relieve your teams of juggling multiple responsibilities at once. This enables them to work towards things that directly contribute to company growth and success.

With these benefits in your bag, you are all set to manage your resources and employees like a pro taking your business to a whole new level. By outsourcing the HR functions of your company, you are minimizing potential errors and mishaps. This comes together to create a stable support for your business to move forward, scale, and succeed.

But like day and night, every solution comes with its own set of drawbacks. Let’s try to understand what the other solutions are and which one fits your business the best.

Are There Better Alternatives to HR Outsourcing?

Now that we’ve understood the benefits of outsourcing HR functions, we agree that it is one of the many good options if you want to establish remote teams. However, there are some disadvantages to HR outsourcing as well. Let me run you through some of them

1. Data Security and IP Risks – HRO companies work with multiple clients. This also means they manage the sensitive data of every client. And this naturally poses a very real risk of data breach and violation.
2. Service Quality – Since HRO companies manage multiple clients, there’s a strong chance every company doesn’t receive the same kind of service. A bigger client, who has outsourced more services will get more attention as the workload is that much heavier with that client.
3. Dependency on External Vendors – Hiring HRO companies means giving them control of the functions you outsource. This makes you dependent on them to get the work done.
4. Employee Turnover – If HRO companies fail to manage the employee lifecycle properly, you’re looking at a higher turnover rate. What serves as a big benefit can also prove to be a big disadvantage. One that impacts the work and business negatively.
5. Can’t Help You Set Up Teams – One of the major drawbacks of HRO companies is that they can help you recruit employees but cannot add them to any payroll. To work with HRO companies, you must have your legal entity or a subsidiary add your employees to your payroll.

Given these drawbacks, it’s only practical to search for alternative solutions. An in-house team will eliminate all the above-mentioned disadvantages. But it is also costly and labor-intensive. An HR outsourcing company is not labor-intensive. It also allows you to scale and expand your business to different countries. Something in-house teams can’t do.

So, the question stands tall. Is there a solution that offers the best of both worlds? The answer is – duh – obviously yes! And that answer is EOR.

EOR or Employer of Record is that ‘best of both worlds’ solution. EOR is a service where the company acts as the legal employer of your employees. Additionally, it also manages any or all of your HR services. With EOR, you retain full control over the day-to-day operations of your company. It is a rather flexible solution that mitigates most of the risks of HR outsourcing.

One of the biggest differences between EOR and HRO is that EOR helps you recruit remote teams even in locations where you don’t have a legal entity. For instance, let’s say you are looking to set up a team and are looking for HR outsourcing services in India.