Why HR Function Management Outsourcing is gaining popularity among Startups and SMEs?

HR Outsourcing

What is HR Function management Outsourcing?

HR Function Management outsourcing is to let an outside agency (which is expert in handling HR processes) manage complete HR department of an organization starting from Recruitment to Separation. Company need not to hire any HR person. In fact there is no in-house HR department in the company.  This is very useful for start ups and SMEs in many ways.

HR Function Management outsourcing service is the most efficient and cost effective way to manage employee life cycle in any organization. For many businesses, various processes of Employee Life Cycle Management are too complex to maintain in-house.

What are the reason that HR Function Management Outsourcing is gaining popularity among startups and SMEs?

This concept is gaining momentum in India and many start ups and SMEs are opting for this option due to many reasons which are mentioned below:

Cost effective

Outsourcing can be very cost effective.  There are multiple costs involved in having an effective in-house HR in an organization.

Company requires office space for HR person to sit in the office. For startups and SMEs office space means a major cost. One workstation in Delhi may cost from Rs 10,000/- to Rs 25,000/- per month depending upon location and facility. Company also needs to spend on assets which should be given to HR professionals to execute their responsibilities. For example, Laptop, Mobile, Data card etc.  Some of these costs are one time but others are recurring cost like mobile and data card bill reimbursements.

Need not to mention monthly remuneration to HR professionals.

It is also cumbersome to develop a mature HR process especially for Startups and SMEs. It is a time consuming process with possibility of error at every stage of development. Every error or loop hole in system may cost money to organization now or later. Such damages are unwanted especially when there is limited fund with organization.

Hence small businesses find it more cost-effective to outsource HR functions rather than hiring HR professionals and establish in-house HR.

Moreover, by using automated processes, HR and payroll administration can be carried out in more efficient way, which can reduce costs even further.

Money saved can be reinvested into the growth of business.

Expertise in affordable cost

Startups and SMEs are in initial phase of their business. It is difficult for them to hire HR professionals with high salary simply due to budget constraint. Moreover, they may not require a full time expert for this. But they are the one who requires expert in HR the most as they are just starting up. There HR processes and policies should be in place and in line with business. HR expert should be able to guide them to hire right kind of talent and retain them.

Any full time HR expert will not be interested in part time assignments and there are very few HR experts who would like to go into day to day HR Operations after such a vast experience in HR.

That is where HR Function Management outsourcing plays an important role. Organization can simply outsource their HR department and its functionality to an agency. Agency manages each and every aspect of Employee Life Cycle Management with help of their team which includes both experts and operation team.

Moreover, organization need not to worry about attrition in HR department and loss of data and important information related to employees.  It is responsibility of agency to ensure HR functions runs smoothly irrespective of change in manpower in agency.

Hence, I would say, it is Expertise in affordable cost.


Compliance and Risk Management

A startup and SME should have all the statutory compliance to ensure that they adhere to labour laws of the land. Any non compliance in this area is a great risk and can lead to shut down of the unit. Hence, it is utmost importance for the organization to ensure that they let expert handles their labour law related compliance. HR Function Management outsourcing firms help organizations to minimize their risk.

Employment and labor laws often change and organizations find it difficult to keep up to date with these changing laws.

Outsourcing HR to an outside firm benefits you with their expertise in the field as they have experienced HR professionals who are updated with such changes in laws; they also audit and maintain company practices and policies to help & protect the company’s best interests.

This automatically reduces the potential of lawsuit that employee might bring against employer. So outsourcing firms can ensure that they have highly trained professionals whose sole work is to keep up with such laws and keep the clients’ companies away from danger

Employee Development

Outsourcing Human resource functions can help an organization to manage employee performance and development more effectively. Human Resource management firm can implement performance management plans for all the existing employees, to ensure achieving business targets successfully.

Your outsourced HR Partner can perform straightforward evaluation of employees from time to time and report the findings with company management.

This activity helps in many ways as mention below.

  1. It reduces the workload of managers by minimizing the administrative responsibilities they use to go thru for keeping performance records of team.
  2. It gives clarity to managers & management about the individual performance of each employee,
  3. Management can easily identify the burden & asset of company via performance evolution data available.
  4. After identification of performance internal programs of reward & reorganization or performance improvement plans can initiated to address the need of employee.
  5. Management can take some important steps considering RAG Analyses or Bell Curve theory to utilize the current strength of employees for business growth.
  6. Skill development training can be conducted to increase the potential of performer employees.

This way, it helps to develop the skills of employees. It also helps organization to maintain the strength & encourage them to contribute with best of their skills & achieve the individual goals to bring continues growth to the company.


Improved Efficiency

Outsourcing HR functions create greater efficiency within human resources systems. They can not only complete these responsibilities efficiently but will also help employers & managers spend less time doing administrative work. There is no need to dedicate more time to improve the competency and get best out of the employees.  HR Partner will take care of all these.

An experienced HR Outsourcing company is able to deal effectively with complicated HR functions also; like compensation & benefits, statutory compliance, employee handbook, compliance management,  health & safety during service and employee life cycle.


Do share your feedback and inputs with us through comments.



  1. HR SUCCESS TALK August 4, 2015 3:55 am  Reply

    Request all the viewers to post their comment on this blog

  2. Pallavi August 14, 2015 7:57 am  Reply

    Your articles are very help full .. I always thought about what is outsourcing company? It is good for a HR professional or not? Now I got my answers.

    Thank You

    • HR SUCCESS TALK August 23, 2015 4:21 am  Reply

      Dear Pallavi,

      We are happy that we helped you to understand this concept.

  3. prashanth February 18, 2016 11:10 am  Reply

    It was very useful information and thanks for sharing with us.

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