The Key Disadvantages of an In-House HR Department

disadvantages of in-house hr

The business landscape is changing, with the COVID-19 pandemic being the most recent catalyst to organizations adopting the changes. Within the last three months, all businesses, big and small alike, have been forced to restructure their working patterns.

Human Resources is at the heart of any organization, because your employees and their well-being are pivotal to achieving your core business objectives. Still, in the last few weeks, we’ve seen human resource departments face unprecedented challenges, from communicating with staff that sadly had to be laid off, to figuring out how to handle a nearly 100 percent remote workforce.

Perhaps, once we define the world’s new normal in the wake of the Coronavirus pandemic, it’s time to rethink the structure of the HR department, especially for small to medium businesses that have suffered the biggest blow from the pandemic.

Outsourcing HR is a conversation that is long overdue, and might be the lifeline SMEs need to reduce overheads without affecting service delivery. In this article, we highlight everything you need to know if you’re considering HR outsourcing for your business.

Challenges from the Pandemic

The pandemic has disrupted organizations, causing HR managers to rethink their role as we all try to adjust to the implications of lockdowns, social distancing rules, sanitation requirements, and any other relevant regulations. The result is a completely new work environment that no one ever envisioned.

Overnight, companies have been forced to adopt remote working on a large scale, and without any prior preparation. Face to face collaboration has been replaced by emails, phone calls, and videoconferencing. The customer-facing business model has been outlawed, making achievement of core business objectives next to impossible in this environment.

Meanwhile, companies and businesses still have to find ways to fulfill the obligations they cannot reasonably set aside. Such obligations include payment of salaries, rent, and debts, among others. As a result, tens of millions have lost their jobs in the USA alone – all this is work that falls to the HR department.

The role of the HR practitioner has now morphed into processing paperwork and benefits for those who have lost their jobs, while simultaneously trying to keep workers still on the payroll productive, engaged, connected and motivated.

The emotional strain alone is far-reaching for everyone involved, but most especially HR pros. Their job has moved from focus on productivity with respect to company objectives to employee well-being. And this still must be done with the HR practitioner him/herself facing the same uncertainty everyone else is facing.

Nobody knows what the new workplace would look like – new details emerge about the virus on a daily basis. Even with the best projections, a vaccine or other novel intervention is 12-18 months away, probably longer. What the workplace might look like is anyone’s guess – yet many small businesses cannot afford the disruption for longer than a couple of months.

The Remote Workplace Nightmare

Even the businesses that had remote work policies are bearing the brunt of the crisis. Nobody could have imagined a situation where all/most employees immediately have to work from home, while facing the challenge of taking care of kids and other dependents, and facing the pandemic.

No policy could have forecast the closing of schools or the difficulty of accessing healthcare and other supporting services. Large tech companies like Google, Facebook, and Microsoft, who already had some form of flexible working programs running, released their workers to work from home in late February and early March.

However, small businesses didn’t until much later because they couldn’t afford to, and many have had their limited revenue streams shut down altogether. What’s more, larger companies have established policies for various scenarios, including remote working. Meanwhile, some small businesses don’t even have HR departments in the sense of the word. They may have one or two employees caring for workers’ well-being, but not much else.

In this present climate, any HR for any business will need to prioritize employees’ well-being. This means organizing for healthcare should it become necessary, ensuring adequate protection, sanitization, and testing for essential staff members, and providing other support for remote working.

The New Normal

While remote working began as that unwelcome visitor to the party, it may quickly morph into the new normal depending on the outcome of the pandemic. Even before the pandemic, many workplaces were shifting policies to support flexible working – between 2005 and 2017, remote jobs increased by 159 percent to 4.7 million employees in 2017. 44 percent of this growth was registered in the last five years.

Organizations are already talking of making remote working for more employees possible, even after the pandemic passes. Such a shift will create a unique set of HR challenges. The primary role of HR in the company is to build relationships, and you’ll need to think about how to do that when the working environment changes.

That said, outsourcing the HR function could give small businesses the lifeline they’ve needed to navigate a changing atmosphere without breaking the law/missing important regulations.

Challenges of Having In-House HR Departments

There are many challenges to companies running in-house human resource departments, and the challenges of this pandemic have brought many of them to the foreground. They include:

In-House HR Must Also Face the Pandemic

In addition to managing employees, their well-being and their interest, in-house HR teams must do this will looking after their own lives outside of work. This makes the HR practitioner’s job a thousand times harder and more draining.

The nature of the crisis already puts physical and mental strain on all workers, HR workers included. But the HR of the business is responsible for shouldering other workers’ strain. And they must do this without breaking the rules of the pandemic i.e. from a distance, remotely, and without endangering themselves.

High Churn

It is a little ironic that employees in HR are among the top five professions with the highest turnover rate – 14.6 percent according to a 2018 LinkedIn survey. Perhaps it is because, having a front seat to the organization’s management style and treatment of its employees, HR employees will spot toxic cultures or ill fits faster and jump ship much earlier than other departments.

Regardless, SMEs often don’t have HR departments to speak of, and a high churn could ground HR service delivery to a halt. This in turn ca ground other business operations – the last thing you want when facing a crisis such as the current pandemic.

Costly to Run

Many SMEs have relied on in-house teams to run HR and payroll, considering the cost of outsourcing to be higher than they can afford. Still HCM technology has advanced, and there are a host of solutions to manage all HR aspects for companies of all sizes.

However, where in-house payroll and HR tasks cost SMEs approximately $2,000 per employee per month, you can find HR outsourcing packages starting at just $50 per month. What’s more, there’s revenue lost in the cost of time as well as the cost of errors – 40 percent of SMEs are fined annually for improper tax filing.

Changing Business Landscape

Every year, the business environment changes to reflect market, employees’, or organizational needs. Often, SMEs can only afford to hire one or two HR generalists, who are often too busy to finish their own workload, let alone keep up with the changing trends, best practices and regulations. An overworked employee is more likely to overlook key tax codes that could at best earn you a fine, and at worst expose your business to lawsuits.

Time Management Challenges

Finally, the in-house HR pro is often pressed for time. His/her workload is expansive – managing benefits, payroll, compliance, personnel issues, recruitment and staffing, among many other functions. Not only will they be overworked, but they’re more likely to make costly errors or quit because of work overload. This leaves you in even worse stead.

Benefits of Outsourcing HR Functions

Regardless of how efficient your HR professional is, there simply aren’t enough hours in a workday to complete every aspect of human resource management. Sure, you can have one or two employees for a company of less than 50 employees, but you can pretty much count on them leaving because they’re just way too busy to be productive in each of their various functions. On the flip side, hiring professionals or specialists for each function isn’t a cost you can sustain within the small business framework.

The solution? Outsource your HR functions.

Below are some of the benefits of outsourcing human resource management and payroll to a dedicated company:

Time and Resource Savings

You can free up your and other employees’ precious time and concentrate on your core money-making tasks, rather than repetitive personnel and administrative tasks. Outsourced HR services can take over recruitment and down-staffing, workers’ compensation and benefits, payroll, personnel and time tracking, and all other HR functions.

Even if you have limited funds and manpower, you can take advantage of the tailored outsourcing services model to give your business professional and specialized oversight for a fraction of the cost of hiring yourself.

Risk Management

You can avoid accidents and potential lawsuits at your workplace by proactively engaging a company whose sole purpose is to keep up with HR regulations and law changes. Small businesses simply lack the capacity to remain on top of policy and law framework changes.

In addition, most companies provide professional indemnification against their errors, so you manage your own risks. Outsourcing helps to ensure compliance with relevant regulations so that you can avoid expensive lawsuits.

Cost Savings

With an outsourced service handling all your HR needs, you don’t need to recruit and pay HR professionals. You don’t have to incur the overheads in terms of paying their benefits, accommodating their workstations within your premises, and resolving any issues they have.

Outsourcing recruitment means outsourcing the monetary cost of hiring and firing – you don’t have to worry about conducting interviews, availing staff members to handle them – all of which takes time away from your core functions.

Higher Efficiency

When your personnel matters are run professionally, your company’s level of productivity rises proportionately. SMEs stand to gain from the experience, resources, and technological advancements of the HR agency. Therefore, you have an establishment functioning effectively and efficiently. Your employees are free to dedicate all energies towards your core functions to raise revenues and other outputs.

Training and Recruitment

Recruitment and training is arguably the most arduous task in HR management. Finding the right person for the job and inducting them into your company culture takes the kind of time and energy many SMEs cannot afford to dedicate. Yet, these businesses have the greatest need for the right employees to move the business along its growth trajectory.

Leaving this responsibility to an external agency allows you to benefit from their recruitment model, experience, and even connections/networks. They can furnish you with the right fit much faster than you could yourself, which allows less downtime, and facilitate training to hasten transitions between old employees and new ones.

Professional Environment

Finally, the HR agency is responsible for resolving conflicts and disputes between employees. These meetings can take up a chunk of time, a valuable resource for any HR running a small business. Depending on the nature of conflict, things can get even more complex (e.g. when there’s conflict between a boss and their subordinate).

An outsourced HR team doesn’t interact with said employees from day to day, and therefore they are able to hear cases impartially and come to swift resolutions of conflicts. Where the HR sits with other employees, especially in an SME set up, it becomes more difficult for them to put aside biases from professional relationships or friendships with coworkers.

Final Thoughts

The post-pandemic workplace will be very different from the workplace we left behind just a few weeks ago. Depending on how long the pandemic stretches – and previous outbreaks do not induce hope of fast resolutions – many companies will have to navigate a slew of measures to safeguard employees and prevent virus spread.

Face time will no longer be used to measure worker productivity – results will. In this changing landscape, small to mid-sized businesses will need the support of professionals who are constantly working and leveraging technology to understand the changing landscape and provide fitting solutions.

Certainly, outsourcing the HR function is not without its sell-offs, but in the grand scheme, SMEs will enjoy greater benefits by outsourcing than they would running an internal HR team.

To learn more about how outsourced HR services can benefit your business, please contact us or call (586) 997-3377.