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Outsource

8
min read
October 24, 2019

The Ultimate Guide to Human Resources Outsourcing

Geoff Whiting

Geoff Whiting

A contributor to Invisible, Geoff is experienced and writes on enterprise tech, B2B SaaS, supply chain, and e-commerce best practices
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Human resources outsourcing (HRO) is becoming a defining feature of many startups and growing businesses because it provides access to the HR talent they need right away. With the average HR professional earning more than $75,000 per year, we expect to see the demand for HRO to grow as more companies explore what they can afford.

As 2019 nears its end, companies are closing their fiscal books and looking for solutions to keep things running smoothly next year. While they not only look at baseline costs, they’re also doing audits to see annual turnover, software costs, and growth projections.

Now is the time businesses look to cut the fat from their operations, and HRO is turning out to be one of the top methods to keep things lean and projections trending upward. That said, this particular form of outsourcing isn’t for every business or executive. Here’s what makes HRO tick and how you can tell if it’s right for your business.

What Is HRO?

Human resources outsourcing (HRO)
HR is starting to look like the rest of the startup world.

Business process outsourcing focused on HR processes is specifically called HRO. This type of outsourcing is where an external partner manages the discrete HR activities that your company needs. These range from payroll and admin to managing handbooks and documentation to recruiting, hiring, and onboarding.

You can outsource individual tasks and supplement your existing HR policies, or you can create an entire “department” that is made up of outsourcing professionals.

There are some subsets of HRO that involve specific processes and payment schemes. You might have heard of shared service HR outsourcing where only the administrative side of HR is outsourced. This targets the interactions with employees and is common in small organizations when a team needs training, is dealing with an issue like harassment, or when you need to update a handbook.

Application HRO is the infrastructure side of this BPO variant. Here, your outsourcing partner will manage the technical (software) and infrastructure needed to support your HR activities. They’re managing the applications and everything required to help your business. Not only does this include many of the hiring technologies like applicant screening and background check software, but it’s also timesheets, employee tracking, and compliance tools.

HRO is common when startups don’t have time to manage their HR as they grow or when a company has struggled to find talent and faces an immediate need or risk. HRO can be a significant benefit to your organization, but only if you get it right.

Make sure you’re not choosing the wrong partner or outsourcing the wrong aspects of HR by being smart and vetting your partner.

Being Strategic About HRO

Let’s be blunt: outsourcing HR is a very significant business decision.

Take your time and be strategic about this consideration. It can be cost-effective but choosing a poor partner can introduce new risks to your organization. Some may be related to compliance and taxes while others can be as simple as HR processes that frustrate employees and increase turnover.

Speak with HRO providers to see what they offer and what they guarantee. Look for experience with your region as well as industry and business size. Someone who specializes in HRO for French companies could miss significant legal challenges in Germany — though many now market like this because both countries are in the EU.

outsourcing HR
Always discuss your needs in detail with partners.

It’s in your best interest to secure a service-level agreement for your HRO. This will create standards of performance for you and your partner, plus non-compliance penalties, as well as clear guidance on what you need to provide. Patience is your best negotiating approach because you want to find someone who takes your business as serious as you do.

 

Choose an Expert to Manage Compliance Correctly

A growing area of HR outsourcing is in the field of risk management and compliance. It can help businesses of all sizes because large organizations may need additional eyes that can work as soon as documents are available. Small organizations can turn risk into a benefit through this outsourcing by starting to protect themselves — The New York Times previously reported that two out of five small business owners have no business insurance at all.

How does HRO help?

An expert HRO provider knows the compliance aspects that your business needs, and they’ll be upfront about past experience and what they can/can’t provide. By learning about your business and banking on prior experience, your HRO provider can help you react to the regulatory environment as it stands now. By tracking a large number of customers and regions, HRO providers make it easy for you to keep up with federal, state, and local governments.

All businesses can be harmed by falling behind regulations, and the landscape changes dramatically in the blink of an eye. Get a team that manages this directly for you with a leading HRO provider.

Common compliance-related tasks that HRO companies can deliver for you:

  • Harassment: claims processing, dispute management, and record keeping
  • Wage and hours-worked disputes
  • Creating and implementing required policies
  • Training standards relevant to your industry, such as OHSA
  • Checklists for in-person requirements such as employment law posters, notices, and more

Three Benefits You’ll See

Employers turn to HRO because they need help and want a return. Thankfully, it’s one area of outsourcing where benefits are direct and easy to see, plus can they can be substantial if you don’t have an HR team right now.

Like most things in business, the gains you’ll see from HRO come in three flavors: time, money, and relief.

The National Small Business Association (NSBA) regularly publishes out surveys on regulation and typically finds that one-third of U.S. business owners will spend more than 80 hours annually on compliance tasks for federal laws alone. Mix in states and local municipalities, and things grow, especially if your operations happen in multiple states. 

hr outsourcing benefits
Compliance starts with record keeping, and software can improve it.

If your warehouse is in a different state so that you can ship products to the customer more efficiently, for example, you’re compounding the number of regulations and compliance needs you have.

These are just the “costs of doing business” for most, but think of all the time you could save if you didn’t have to worry about compliance or other HR tasks.

Other recent studies find that your average small business is spending nearly $20,000 each year to have untrained staff perform HR tasks. This includes many hours wasted by a non-efficient process as well as the increased risk that something isn’t being done right. Outsourcing to professionals not only gives you a much lower rate — $15 per hour on average — but you get experience that can keep your business safe.

Giving your HR tasks to a knowledgeable professional enables you to focus on those mission-critical aspects of your business, without diverting attention or time to HR. Keeping people happy and your business secure gets a lot easier when you have on-call experts that are also affordable.

Three Risks to Understand

While HRO can provide major benefits to your organization, there are also some common pitfalls that businesses experience. We want to be upfront and honest about these because the success of your business is the primary focus of your outsourcing partner.

hr outsourcing risks
Don’t let your HR feel this outdated.

We have to make sure you succeed, because that’s how we succeed. So, here’s what to look out for:

  1. Don’t outsource a process that you don’t understand. As an HRO, we can help you manage your needs and team with a wide range of services. However, you should know the baseline for the processes so you can understand our work and expectations. If you’re not sure what a specific function entails, then you might not realize how long it takes, software and tools needed, or other requirements. The good news is that we can work together to help you define each task and learn about its needs so that there are no surprises.
  2. HRO isn’t a replacement for having proper internal organization. Outsourcing your HR efforts won’t immediately introduce a functional management structure to your team. You need to have internal leadership who can still act as a point person for tasks and keep concerns moving slowly. With harassment or wage disputes, for example, any HRO can perform auditing and case management, making suggestions for you to resolve the issue. However, it is up to your team and leadership to implement the right action in the immediate and to make fundamental changes that prevent these from happening again. We’ll give you everything you need to do it, but you still must have the time to execute it and prevent future risks.
  3. Organizational resistance is a concern too. Change is difficult and outsourcing operations can be troublesome if your team doesn’t know how to address the change. We’ll work together to develop a change management plan that you can bring to your team to show where each HR function lives and how it is appropriately addressed. Remember that HR often requires a degree of privacy and confidentiality, so employees may push back when being asked to report to or speak with an outsourced partner. Explain the reasons your company is using HRO and the benefits that your employees will get from an experienced HR professional supporting your team.

Outsourcing any operations allows your team to be more strategic and focus on where they operate best. However, you may need to make a case for the usefulness of outsourcing when it impacts employee operations. Communicate is your best tool for making HRO a success internally and externally.

The Future of HRO

The exciting thing about businesses like yours who are looking at HRO is that you have a wide range of solutions available. You get to take advantage of automation, human experts, and a mix of innovative technologies. These can reduce your costs even further while streamlining HR operations too.

Robotic process automation (RPA) outsourcing is one new option available from Invisible. In this case, a machine is taught how a human performs a task within a piece of software. After the computer watches you do something, it creates a bot that can do this too. HR uses this often for preparing payroll and workforce analytics. Some are using it to sort and do essential management on applications also.

automate hr processes
Modern HR focuses on automating paperwork and prioritizing human interaction.

You can pair RPA with more specific application screening tools and humans to turn every hiring need into a streamlined set of a few, highly qualified candidates. The mix of RPA and traditional business process outsourcing ensures that people are reviewing the work of a machine and using logic and judgment to ensure no one slips through the cracks.

Human-led BPO is also creating the next revolution in recruiting. Agents outside your company can quickly build custom sourcing lists to find candidates from many locations, perform initial discussions with top talent, and even use your calendar to schedule interviews with the ones who meet your needs.

That’s all on top of the ability to have a true HR professional come in and support your team as needed. Instead of paying for a full-time employee who then needs busy work — or even worse, asking someone without HR experience to protect your company — you get true professionals who can scale with your demand.

The growth of HRO as just one of the services that a business process outsourcing company offers is good news for the future of outsourcing too. This means companies will be able to turn to a solid core group of professionals to keep their businesses operating smoothly. As your needs change, the mix of processes you outsource changes too. From researching vendors and managing off-site inventory to sales funnels and lead development to traditional HR and even international expansion support, outsourcing companies are there.

It no longer is about what small list of functions an HRO firm offers. Now, it’s all about what you need help doing. Tell us here and see how affordable your company’s next growth spurt can be.

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