How to Evaluate Outsourcing Human Resources | HR Tips from HRKnowledgeBase

How do employers know where to begin and how to outsource Human Resource activity?  It begins with evaluating each function within the HR department according to the ‘Four Ts’.

If time were the only factor to evaluate, the solution regarding a shortfall in time to perform any HR function would result in ‘hire additional staff or extend staff hours’ (don’t forget to factor in overtime). However, evaluating the true cost and benefit of outsourcing is more complicated than simply considering someone’s time availability.

The more revealing question especially for organizations with limited staff to perform HR duties is, “Does performing this function represent the best use of an employee’s time”?  After careful evaluation of the function and the talent that is on staff, It may make more sense to outsource a service like payroll which can be easily performed by a third party so that staff members can address complicated and company specific issues like conducting new hire orientation or handling employee discipline.

Many businesses are approached to outsource on the premise that it will save money.  This isn’t necessarily the case in many situations, nor is saving money the main reason to outsource.  Sometimes a function is outsourced because it can be done quicker and at a higher quality level than internally performed, as in the case of drafting an employee handbook.

Where processes are being administered the same way internally as opposed to an outsourced alternative, the cost between the two will be closer.  If the outsourced alternative involves different processes, often there will be a wider spread between the external cost and the internal cost, as is the case with manually accounting for time and attendance records compared to an electronic process.

The last area to consider is technology.  Virtually, every HR function has been identified for outsourcing either by third parties or electronically through special software.  When considering the use of technology to outsource a function, be sure to include set-up costs, annual maintenance fees and evaluate what skills are necessary to implement and administer the program.


If your organization is new to outsourcing, I recommend that you begin by considering the following function attributes as potentials to outsource:

  • The processes are repetitive (i.e., payroll).
  • The processes involve little or involvement by the company to be completed (i.e., background checks).
  • The process involves standardized data collection and analysis (i.e., employee surveys).
  • The function represents less than 25% of a full-time job (i.e., employee training).
  • The function is seasonal or sporadic in nature (i.e., hiring).

The key for employers to effectively manage HR programs is to periodically review the ‘Four Ts’s to ensure that the right talent is in place to run their HR department efficiently and cost effectively.

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2 Responses to How to Evaluate Outsourcing Human Resources | HR Tips from HRKnowledgeBase

  1. Connor says:

    Victoria, I’m looking to use the graphic you have here in a research paper – could you provide a source for the survey data?

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