The importance of the role of human resources management has increased for the future and longevity of a certain business.

SMEs have a more difficult time being competitive since they are restricted with resources; more specifically money to provide the necessary people for the job. In addition, finding the right people for the job requires having an expert.

However, having an HR department doesn’t mean that the employees that were placed in specific roles is at its optimal state. Therefore, there is a poor allocation of resources and more costs can be more evident. That is why some businesses invest in an outsourced HR, so that the money that will be saved can be used to invest in activities and projects that will fuel success in the long run.

HR outsourcing allows SMEs delegate routine management tasks, such as recruiting, hiring, training, payroll and benefits administration, to a professional HR firm instead of hiring an internal HR staff. When there is a presence of outsourced HR firm, the firm takes the burden of the HR staff for less that hiring an internal HR staff. An outsourced HR firm is more likely to invest in the needed resources to be up to date with the latest trends in HR, compliance, and the law. An outsourced HR firm tends to be more cost-efficient. There are five options that are fit for SMEs namely: HR consultant, HR firm, HR software, HR service provider, and a professional employer organization (PEO).

5 Options for SMEs:

List taken from Handrick, L. (2018)
  1. HR Consultant — Onsite or local one-on-one consulting to build HR knowledge and set up and/or manage your business’ HR practices.
    1. Setting up a performance management system
    2. Training employees on the best HR practices
    3. Job descriptions and organizational charts
    4. Documenting policies for the employee handbook
  2. HR Consulting Company — Creating job descriptions, forms, policies, systems, employee handbooks, and/or training to support your business
    1. Easily available through phone call
    2. Training managers and staff
    3. Choosing the best HR systems and strategy
    4. Setting up employee benefits, compensation packages, leave packages, etc.
  3. HR Software — Tracking employee lifecycle from hire to termination in one system that provides legal HR compliance
    1. Timekeeping and payroll processing, compliant with the Philippine labor and tax laws
    2. Employee self-service
  4. HR Service Provider — Similar to HR/payroll software with the added HR compliance benefits of a team of consultants to assist with employee relations and HR functions
    1. Applicant tracking and recruiting
    2. Dedicated help answering complex HR questions you or employees may have
    3. Standardized forms, policies, and templates you can customize
    4. Assistance in updating org charts, job descriptions, and job postings
  5. PEO — Outsourcing all things HR to a PEO co-employer that hires your employees and leases them back to you at a monthly rate
    1. They manage the hiring process, onboarding and all new hire documentation and forms
    2. They provide employee benefits to include health insurance and retirement savings
    3. They manage all payroll, and often provide a system for timekeeping
    4. They deal with labor issues, helping prevent discrimination and reducing risk
    5. Handle workers compensation, unemployment claims, and garnishments
    6. Employee service regarding questions about HR, benefits, payroll, and labor law

With all the options given, choosing an HR outsourcing option can be overwhelming at first. Choosing the right option requires careful planning and execution.  Here are five steps to see which one will be a right for the company:

  1. Understand Your Drivers — The company needs to understand why are they hiring an outsourced HR firm in the first place. What are the problems they want to solve (cost-reduction, increase productivity, improve workforce, risk-reduction, etc.) By having a clearer grasp of why you need it in the first place, the reasons will narrow down your options to be able to evaluate which option suits the business the best.
  2. Understand Your HR Outsourcing Options — Understand what are the costs of the five options above, advantages and disadvantages, features, etc. Study each one to see if the features of each and every option are against your drivers.
  3. Develop Evaluation Process and Selection Criteria — Create a criteria and a process for selecting the best option for outsourcing HR. After doing so, discuss with stakeholders to see what are the key factors in having an effective HR team. One thing an evaluator can do is to come up with a list using the MoSCoW method which consists of  “Must haves”, “Should haves”, “Could haves”, and “Won’t haves” or “Would haves”.
  4. Execute Plan — With the options and criteria provided, it is time to finally evaluate which can be the potential options.
  5. Select Your HR Outsourcing Option — Once obtaining the information on what will be the best fit for your company, it is time to implement your strategy.

In addition to these 5 steps, inquiring about their certain services, range of services, background, clients, are very essential in finding which one is the best fit. Here are 6 things you need to know when inquiring to see which outsourced HR firm can suit your needs:

  1. HR/HR Staff background — This is to see if they are certified, their training is up to date with regards to HR and labor law, to see how knowledgeable they are in terms of HR skills, etc.
  2. Their other clients’ type of business and size — The HR provider should know what type of business you are and what size you are so you won’t have to go through giving them a breakdown on basic concepts like commissions, certifications, permits, etc.
  3. Range of services they provide — An example of this is when you want them to recruit candidates, will they do also screening and interviewing, or just provide you with a list of potential employees?
  4. Best practice tools and templates for customization — A company should be careful since there are firms that create these legal documents without knowing the mission, vision, and objectives of the business. It is essential that the company should look into this since these templates should be fit and customized for your company’s specific business and industry.
  5. Software and programs provided — it is essential to know what are the programs are included to know what you will need in terms of hiring, payroll, benefits, applicant tracking, etc. If they don’t carry any programs or software, it is important to ask advice on what they recommend and what they see fit to increase efficiency.
  6. Package pricing — Since a lot of businesses want to get the best bang for their buck, it is important to ask if they do package pricing. By knowing what are the rates, this can aid in allocating just the right amount of resources and preventing from over or under spending.

Having an outsourced HR firm is a key essential in today’s world when it comes to having the best employees for the role and at the same time allocating resources more optimally. It is now a proven and widely practiced concept on all businesses, big or small.



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