Jilian Consultants Co., Ltd.
Jilian Consultants Co., Ltd.

Why It Makes Sense To Outsource Hr Services?

HR division in an organisation is of paramount importance responsible for managing and orchestrating the employees to produce the desired results. Major functions of HR Services include recruitment, training, induction, development and safety of employees, payroll services, HR Policy framework & implementation etc.

However, when it comes to operating and implementing HR Services, organisations are struggling with an omnipresent question that is “Should HR Services be outsourced, if yes, then completely or partially”?

HR Services Outsourcing: Key Role in Business Nourishment

“Getting some or all of the Human Resource functions done from third party service provider”

The symmetry between organisation goals and HR function is an important variable to discover firm’s success path. HR Services not only include recruitment or termination of employees but also to evaluate the need of Human Resource basis the genre of work and ensure the proper dissemination of resources in order to enhance the firm’s effectiveness.

Many organisations are experimenting with outsourcing various combinations of human resource activities to get the desired results which made them believe that it makes business sense when organisation decides to outsource non-core activities and focus on their fundamental/ primary activities.

When to outsource HR Services:

Many unexpected or expected issues or situations may persuade an organisation to hire an outside party to handle their administrative and transactional activities in order to reap significant rewards; following could be the possible scenarios:

  • Primary activities over subordinate actives; Other business needs demands more time to be spent in comparison to HR activities

  • Decentralisation of work basis its nature; Complex processes is best suited to be handled by outside vendors like task of repetitive nature or a task which require special know how, pay roll service is one of the apt example of this.

  • Financial hindrance; too limited funds to hire new employees and cover benefits for in-house HR staff.

  • Lack of head counts; In-house staff is not sufficient to handle business activities in totality or to the extent of satisfactory results.

  • Fear of Non- compliance of HR laws and regulations; most of organisations consider outsourcing of HR Services to avoid compliance of complex legal structure of HR regulations and to avoid penalties pertains to non-compliance of such regulations.

  • Technology barrier; shortage of HR related technologies like required software and associated hardware to run HR functions smoothly.

  • Employee benefit; essential element to recruit and retain talent. HR Services outsourcing companies take special care of worker’s expectation and demands by keeping track of HR changing trend, which strengthen the position of one small or medium size employer to compete in market.

    Why it makes sense to Outsource of HR Services?

    Global Company Compliance Requirements
    Outsource HR Services

    Innumerable operational and strategic reasons pilot the outsourcing of HR Services trend ahead in the business market; intelligent outsourcing can lead to long term benefits:

    • Cost-Effective services – Organisations are choosing outsourcing of HR Services majorly for the reason that this could save their cost and surely, there are other multiplex benefits as well which could bring other financial advantages to organisations.

    -Cost of capital: small and medium organisations start their business with limited capital along with restricted capital expenditure, therefore, recruiting entire HR on their own could be very expensive plus it's not only about putting people in place, but also to have never ending equipments and infrastructure all together to run them like software, servers, safety protocols, policies, licenses and registrations.

    – Cost of recruitment, training and induction: this is one of the most concrete money saving feature of outsourcing HR Services. The entire process of recruitment and training employees takes the major chunk of the funds as it involves cost of hospitality, training modules, fees of training experts, cost of infrastructure and all the rest.

    -Fixed cost vs. variable cost – renting services from outside on need basis works out a lot cheaper than paying fixed hefty salaries to employees, irrespective of whether organisation is running in profits or not.

    • Risk Management – Every business carries certain amount of risk while surviving in this dynamic business market where market trends keep on changing. HR Services outsourcing firms keep updated with changing laws & regulations, government regulations, financial policies, latest technologies and business methodologies which helps reducing business risk.

    • Stringent employment and labour laws in India* – Outsourcing of HR Services helps small or medium size or start up organisations to cop up with compliance of such rules and regulations without incurring penalties.

    • Increases efficiency – Outsourcing of HR Services allows organisation to give more time to focus on their core activities which surely results is more profit. Of course, via outsourcing, small and medium organisation can save their cost on in-house set up and can have an access to advance research, development, marketing and technology which boost their performance and gives them an edge over their competitors.

    • Governance of Employee performance and Organisational development – consulting on improvisation in organisational culture, leadership style, structure, internal systems & control.

    • Flexibility – smooth functioning by having an access to vast talent pools and organisation can perform multiple tasks at the same time.

      Some essential HR Services fit to be outsourced:

      • Evaluation of Organization’s HR needs

      • Payroll Outsourcing

      • HR Technology

      • Performance Management System

      • Acquisition of talent

      • Recruitment, Training, induction and Development

      • HR Policy framework & implementation

      • Recruitment solutions/ Staffing Solution

      • Professional Employer Organisation (PEO) or Third Party pay roll services

      • Regulatory compliance

      *Relation between Outsourcing of HR Services & Real-life implications of Employment/ Labour laws in India

      Success comes with great responsibility, organisation has to be in compliance with rules and regulation under various employments and labour laws in India while employing their employees and while have them on job.

      Outsourcing of HR Services plays a vital role here;

      • enables organisations specially small or medium size or start up organisations to work seamlessly without attracting any legal requirement under various employments and labour laws in India;

      • also act like a tool for organisation to deal with compliance, payrolls, employee benefits and worker’s compensation required under the said laws applicable, if any, for example registration under EPF (Employee Provident Fund) Act etc.

      Employment in India are governed by various laws such as Payments of Bonus Act, Equal Remuneration Act, Payment of Gratuity Act, Employees Provident Fund and Miscellaneous Provisions Act, Employees’ State Insurance Act, Maternity Benefit Act etc.

      In simple words, in order to survive this competitive market, organisations should have an optimum set of HR but also have to be cautious while dealing with them, so they always have a choice to work on best and outsource the rest.    

      Stipulations under various employments and labour laws in India:

      Employees Provident Fund and Miscellaneous Provisions Act-

      Any organisation with more than 20 employees is legally required to register with Employee’s Organisation Fund Organisation (EPFO).

      Once registered, both employer and employee have to contribute 12 % of the basic salary to the fund. If the employer does not pay his share or deduct the entire 12 % from the employee’s salary, he can be taken to PF Appellate Tribunal for redressal.

      Payment of Gratuity Act

      The Payment of Gratuity Act, 1972 provides a statutory right to an employee in service for more than five years to gratuity. Gratuity is paid as 15 days of salary for every year of service of an employee in that organization.  It is one of the retirement benefits given to the employee.

      According to the THE PAYMENT OF GRATUITY (AMENDMENT) ACT, 2018, The maximum amount of gratuity payable to an employee should not exceed Rs. 20,00,000/- rupees.

      The Payment of Wages Act

      The Payment of Wages Act mandates timely and fair payment of remuneration to employees. If an employee is not receiving his/her remuneration as per the employment agreement, they can go to the Labour Commissioner or file a civil suit for arrears in salary. Wages cannot be given less than the legal minimum wages, as per law.

      Factories Act/ Shop and establishment Acts (state wise)

      Factories Act/ Shop and establishment Acts (state wise) safeguard the rights of workers and Non-workmen

      The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

      Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 safeguards women at the workplace from sexual harassment.

      Under this Act, if an organisation has ten or more employees, it is mandatory to have an internal complaint committee constituted and also mandates the adoption of grievance redressal policy and mechanisms which details the definition of sexual harassment, penalties, redressal mechanism, etc

      According to [Section 2 n]
      “sexual harassment” includes any one or more of the following unwelcome acts or behaviour (whether directly or by implication) namely:—

      i. physical contact and advances; 
      ii. a demand or request for sexual favours;
      iii. Making sexually coloured remarks;
      iv. Showing pornography; 
      v. any other unwelcome physical, verbal or non-verbal conduct of sexual nature;

      Under the Indian Penal Code, there is a penalty of up to three years imprisonment with or without fine, for sexual harassment.