HR outsourcing is not exactly a new concept, however, with the ever changing landscape of employee benefits (i.e. health care reform coupled with state and city specific laws) and stringent employer legislative and compliance requirements, more companies are looking to third-parties to handle certain parts – or all – of HR and Benefits.    In this article, we review the pros and cons of HR-related outsourcing.

The first pro may surprise you. Outsourcing is not just for jumbo corporations anymore.  More small (<200 employees) and mid-size companies are outsourcing various components from new hire on-boarding, benefits status change events and annual open enrollment to a full suite of services including a third party call center to answer any and all HR and benefits related questions and leave of absence protocols.  The scalability of the new generation of outsourced vendors and software allows for all employers – whatever their size – to “get in the game.”

Another pro is the ability to off-load compliance liability to a third-party.  Legislative requirements are constantly changing and the fees for employer non-compliance are increasing. By outsourcing certain highly complex HR components such as leave of absence, COBRA administration and “grandfathered” plan rules; you decrease errors– and future non-compliance expenditures – immediately.

Finally, there is the pro that cost will be reduced for employers in the short and medium terms.  Outsourcing HR allows for a reduction in staff headcount and increases efficiency by reducing paperwork, time consuming employee follow-up and carrier processing requirements.   Additionally, if a company frequently changes insurance carriers or are in acquisition or growth mode, outsourcing can help manage these changes and allow the organization to efficiently scale.  Along these same lines, the ability to automate and standardize the employee user experience across the company remains a strong positive.

There are some drawbacks to outsourcing.  First, it can be expensive past the initial contract period.  Second, once HR has been outsourced, it can be difficult to transition back in-house.  Third, employees may feel that the personalized one-on-one service that they once had is gone, especially in a clunky self-service environment. Lastly, the implementation of any outsourcing requires “top down” support.  The Executive team needs to elect a client advocate and/or consultant during the requirements gathering phase to assist in documenting all rules, benefits, carriers, and client needs in order to ensure that the programs are set up accurately.  That same advocate and/or consultant will also need to be present during the “go live” time to test the system and work with internal teams (such as payroll) and external carriers to ensure a successful transition.  Depending on the client culture, a change management expert may also be required to ensure a smooth transition to the new user experience and processes.