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Keeping It ‘Human’ When Outsourcing Human Resources

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William S. Speros is a partner at MacDonald Illig Attorneys. He counsels both commercial and government clients on contract formation and disputes, corporate compliance, business acquisitions, internal and external investigations, and various export control and international trade matters.

Many businesses have taken the leap and outsourced some or all human resources (HR) functions to a human capital management (HCM) firm. Outsourcing HR can greatly benefit your company by giving you the freedom to focus on the big picture while shifting mundane but important day-to-day tasks like payroll and benefits to an HCM provider. But HR addresses your company’s most critical employee-related concerns from “hire to retire,” including background checks, hiring and onboarding, wages, benefits, dependent coverage and pension plans. Before you entrust these vital functions to someone outside your company, it is critical that you carefully weigh the pros and cons from both a business and legal perspective.

The main benefit is cost savings. Small businesses and start-ups, in particular, can realize significant cost savings by engaging HCM firms on an ad hoc basis rather than hiring a full-time HR professional. Likewise, large businesses may see a significant improvement in workplace productivity when they delegate HR administration to an HCM firm with experts in a wide variety of tasks rather than training in-house personnel to master them all. Moreover, many larger HCM providers offer cost-effective, bundled solutions that handle numerous HR functions via cloud-based or web-hosted platforms, providing a one-stop, software-as-a-service HR shop.

Another benefit is managing legal risk. It’s not easy keeping up with ever-changing compliance requirements in labor and employment laws applicable to HCM. It’s even harder if you operate in highly regulated sectors. Outsourcing health benefits or COBRA administration likely means HIPAA requirements. Along with a government contract comes minimum wage laws in the jurisdictions where your employees work. And if your business employs more than 50 individuals, Family Medical Leave Act and Affordable Care Act compliance requirements kick in. Outsourcing all these concerns to an HCM expert, with support from your legal counsel, can relieve much of the burden.

Further, HCM firms provide an unbiased, third-party expert to handle delicate workplace issues. Managers at every level understand that they must prioritize thorny HR issues such as employee conflicts or hostile workplace allegations. Addressing workplace drama takes precious time away from running the business, especially when it entails a lengthy investigation or administrative discipline. An HCM firm and (if necessary) outside counsel can handle these matters efficiently and discreetly while keeping you compliant with the relevant law.

But here is the flipside: Outsourcing HR can seemingly take the “human” out of human resources. To some extent, HR would no longer be your co-worker down the hall. Instead, it may be miles away or even in another state. A consequence of this inconvenience may be that your new recruiter or benefits administrator doesn’t know the culture of your business the way you do. More importantly, outsourcing HR may mean that you must hand over the security of your proprietary information to an outsider. HCM firms require your confidential data, such as payroll accounts or employees’ personal health information, to administer certain HR tasks. Outsourcing HR means, to some degree, loss of control.

This is why it is imperative that you do not limit your consideration of outsourced HR to its many pros. You must also properly protect yourself against the business, legal and reputational risks that accompany the cons. Make sure your HCM service agreement effectively covers your interests in the areas of confidentiality, data breaches, customer services, indemnity for third-party claims and resolution of employee disputes, to name a few. Doing so will help ensure that outsourcing HR remains a sound and cost-effective business move that protects your brand, all while retaining as much of the human touch in your workplace as possible.

For more information, contact Bill Speros at 814/870-7764 or wsperos@mijb.com.