Pros & Cons Of HR Outsourcing That Every Entrepreneur Should Know

August 05, 2017

Pros & Cons Of HR Outsourcing That Every Entrepreneur Should Know

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HR outsourcing has become an almost inevitable investment for growing businesses. This is more so if they find the mundane HR activities daunting and affecting their productivity. Investing in an HR solution doesn’t only decrease the overall work pressure in your company but will also ensure minimum scope for duplication or error.

Another point worth noting is that, when we talk about an HR team, we are talking about various functions of human resource management starting from recruiting to employee engagement and exit management. Hiring so many employees in the HR team can prove to be expensive for small businesses and hiring one person to manage the entire gamut of HR functions will be overwhelming even for an expert. To get a rough idea, when we talk about HR functions, we have to consider:

  • Recruitment
  • Induction
  • Training and Development
  • Employee Engagement
  • Attendance and Shift Management
  • Grievance Management
  • Payroll, Compensation, and Benefits
  • Rewards and Recognitions
  • Competency Mapping and Appraisal


There are many HR consulting firms which provide seamless HR outsourcing as per your requirement and budget. While there are many benefits of HR outsourcing, these HR outsourcing services come with their own set of disadvantages which you must pay heed to before deciding to outsource your HR functions.

Pros and Cons of HR Outsourcing

#1. Cost Cutting

Advantage: Isn’t this always the first point of consideration when it comes to small businesses? If you are talking about an in-hour HR team, you need to consider cost factors like salary, incentives, hardware, software licenses, training and engagement activities. However, engaging the services of an HR outsourcing services, you would be just paying for the services you want and that too on a periodic basis (weekly, hourly or monthly).


Disadvantage: However on the other side, depending on the number of services you are outsourcing and the size of your business, HR outsourcing can become a huge expense. You might also have to blow your budget in the event of sudden scaling up and business expansion.

#2. Control and Ownership

Advantage: When you outsource your hr solutions, you can completely focus on your business and leave out the HR management to the hr consulting company. It saves a lot of your time which can be otherwise used more profitably for business development. For small businesses, this extra time and resources can mean a lot. Also, every additional employee you hire would require their office space and stationery.

Disadvantage: HR outsourcing, conversely also means that you are divulging a part of your ownership and control to a third party. By outsourcing HR solutions, your HR related decisions would be taken by an HR consultant. It is thus very difficult to make small changes to the management or policies.

#3. Expertise

Advantage: This is an area most small businesses have trouble with. Having a limited budget and hiring constraints, would be extremely difficult for you to get the right kind of expertise and talent pool to manage their HR solutions. However, by HR outsourcing, even small businesses with a tight budget can get expert guidance and management. You don’t have to worry about changes in the policies as your hr consulting firm will do everything with minimal scope for errors.

Disadvantage: However, there is evidence pointing that when you an in-house HR team, your employees feel more secure and are happier. There is a better scope for such companies to know their employees better and interact with them on a daily basis. This would lead to a better problem-solving ability and better relationship with your employees.

#4. Availability and Response Time

Advantage: Your HR consultant can give you expert opinion and guidance whenever you need them, and you can be assured of the best at all times as these hr consulting firms hire only the experts with immense industry experience to help you with your HR processes.

Disadvantage: However, hiring the services of an HR consulting firm doesn’t guarantee 24/7 availability. There will always be a response time for every query and issue. You can’t just expect your consultant to drop all the work and be available to you on-the-spot. It can be a drawback in case of an emergency crisis which requires immediate supervision.

#5 Confidentiality and Data Security

Advantage: With HR outsourcing you don’t have to worry about data back up and maintenance of sensitive data within the organization. You would be personally saving a lot of time and resources by outsourcing such services to a third party. This is especially the case in a small business which can’t afford high-security devices and storage servers. You data will remain secure with your hr consulting company. You also get access get access to such data whenever you need with ease. The data maintenance is real-time and accessible from any location and device. This makes it very lucrative for growing businesses which have a mobile workforce.

Disadvantage:  It is very important that you give such confidential and sensitive information only to top HR consulting firms and reputable brands in this industry. There is always a scope of data leakage and confidentiality breach when you give your data to a third party.

To conclude, your HR team is the first and last place an employee would be connecting with. Right from recruitment to exit, your employees would be completely dependent on your HR team for almost everything. It is hence, very important to provide them with an efficient one. A reputed HR outsourcing firm is a definite asset to the growth of the business, and one must be very careful while choosing an HR outsourcing services for their company. Also, it is very important to analyze what HR functions you would be better off performing in-house and which of them requires an HR outsourcing firm. This would not only help you manage your budget better but also help you control your ownership of the HR processes and policies. How much you outsource must entirely depend on your financial capability and in-house expertise.




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