Take A Load Off!

What entrepreneur hasn't spent long nights calculating payroll or pondering the wording to use in a memo reprimanding an employee for slipshod performance? Now the question that needs asking is this: Should you be doing any of these things in the first place? None of it is fun, none of it augments your bottom line, and these reasons alone are why more businesses are outsourcing at least some of their HR functions, according to Ed Lawler, director of the Center for Organizations Effective at the University of Southern California (USC).

Why else are companies outsourcing their HR tasks? Two big drivers are propelling this trend: Number one, it's often cheaper to farm out HR to outsiders who already have smoothly functioning systems set up. Do it yourself, and there's the cost of your time. Hand it over as a part-time function to a current employee and there's the cost involved in wages and, quite frequently, this part-timer will take much longer to do HR tasks than a fully qualified outsider would.

The other driver: "It's a risk-aversion tactic for smaller businesses," says John McGlone, a principal with Buck Consultants, a global human resources consulting firm based in New York City. Outside consultants who specialize in this field will probably make fewer mistakes than insiders would--and when they do make errors, they may well be liable for making good on any losses you incur (due to employee lawsuits or negative IRS rulings on benefits plans, for example). That may be a comfort to entrepreneurs, especially since HR has become increasingly complex.

Even large corporations have climbed aboard this bandwagon. "Close to 100 percent of major companies are now outsourcing at least some HR functions," says McGlone.

Adds Tim Bourgeois, vice president of research at Kennedy Information, a Fitzwilliam, New Hampshire, firm that specializes in tracking consulting industry trends, "Companies are focusing on core competencies, and outsourcing other tasks to others who can do them better."

This article was originally published in the August 1999 print edition of Entrepreneur with the headline: Take A Load Off!.