Outsourcing Human Resources: Pros & Cons

Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson we will learn about the human resource department's responsibilities. We will explore the pros and cons to outsourcing those responsibilities and learn when an in-house department may be more beneficial.

A First Look at the Pros and Cons

Meet Troy! Troy owns his own business selling tires. When he first opened for business two years ago, Troy was able to get by with five employees. But, as his business began to grow, Troy soon realized that he would need to expand not only the building, but also the amount of employees that worked for him. With his busy schedule and his overwhelming tire orders, Troy had little time to sit down and look through applications and find ideal candidates. It was at that time, that Troy considered hiring someone that would fulfill the role of human resources. Before he made that step to hire yet another employee, Troy decided to look at the pros and cons of outsourcing human resources to see what was a better fit for his business.

Pros and Cons of Outsourcing

The human resource department has many responsibilities. Some of the big tasks include finding and hiring employees, and resolving conflicts. With that in mind, this section will look at some of the main reasons why a company may decide to either outsource human resources, or create one in-house.

  • Preparing Employees

Outsourcing - When a company decides to outsource human resources, filling positions after an employee leaves may take longer. This is because some positions require considerable training for new employees. Waiting for an outside agency to look for a candidate, and then filling the position might take some time.

In house - If a company decides to employ an in-house human resource department, they can be sure to continually have candidates on file that can quickly fill any open position. They are able to hire and train new employees in a short amount of time, and often this happens before an employee leaves, so that the company is never faced with an open position.

  • Hiring new employees

Outsourcing - Using an outside source is beneficial for a company that rarely has to fill a position. When someone does leave, the company simply outsources the recruitment process, and only pays for the service when the position is filled. In the end, this can save a company money.

In-house - If a company has a very low turnover rate, there may be months or years before a new candidate would need to be recruited. This means those employees working in HR, may not have work to do. This would leave a company paying an employee that they do not need. On the other hand, if there is a continuous turnover of employees, it would be more cost efficient to have an in-house HR department. This is because the fees of paying an outside company may be much higher than the salary of a full time employee.

  • Internal conflict

Outsourcing - When a conflict occurs and the company does not have a human resource department, finding a solution can be difficult. Because one of the responsibilities of the HR department is conflict resolution, not having that department could be detrimental to the company. Who will help solve the problems between management and employees? Who do employees turn to when there is a problem and there is not a human resource department within the company?

In-house - If a company has few conflicts or if management has the time to handle conflicts, then an HR department may not be necessary. This is because all problems can be handled within the company.

  • Cost

Outsourcing - If you rarely use the expertise of a human resource department, it may be more cost efficient to outsource. This is because a company does not have to pay a full time salary. Outsourcing allows a company to only pay for what they use and need.

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