When it comes to managing human resources, businesses face an important decision: should they build an internal HR team or outsource it to a third-party provider? As HR functions play a crucial role in shaping a company's performance, careful considerations must be made to ensure success. This guide will explore the benefits, challenges, and key factors to help you choose the HR model that best suits your company’s needs.
Differentiating between In-house and Outsourced HR
Below are some examples that differentiate between In-house and Outsourced HR:
HR Function | Option 1: Build an In-House HR Team | Option 2: Outsource HR Function |
Hiring / Recruitment | Recruit a hiring manager, then build and train a team of 3–5 recruiters. Set up all recruitment processes: sourcing, screening, onboarding. | Sign a contract with a recruitment agency. Let expert recruiters manage the full cycle: sourcing, screening, onboarding. |
Payroll Management | Hire or assign HR/payroll staff. Purchase payroll software. Train staff to process salaries, handle tax deductions, insurance, and reporting. | Sign a payroll service contract. The provider calculates salaries, manages declarations, tax filing, and reporting. |
Legal Compliance & Admin | Keep up with Vietnamese labor laws. Draft contracts, register insurance, handle onboarding/offboarding, and manage labor reporting. | Provider manages compliant contracts, government reporting, insurance registration, and employee document handling. |
What is In-House HR?
In-house HR refers to human resources professionals employed directly by a company. This team is responsible for managing all aspects of HR internally, including recruitment, performance management, compliance, benefits, payroll and employee relations. In-house HR teams are fully integrated into the company's culture and operate alongside other departments to meet both strategic and operational HR needs.
Benefits of In-House HR | Challenges of In-House HR |
Full Control: Complete oversight of HR processes, ensuring they align with company culture, values, and objectives. | High Costs: In-house HR departments can be expensive to maintain, with fixed costs including salaries, benefits, training, and HR technology. |
Deep Integration: HR teams are embedded within the organization, fostering a strong understanding of internal dynamics and culture. | Limited Expertise: Small or mid-sized businesses may struggle to hire specialists in areas like compliance, payroll, or recruitment. |
Quick Response and Adaptation: In-house teams can make fast decisions, especially during crises or rapid changes. | Resource Constraints: As the company grows, scaling HR with specialized skills becomes costly and challenging with an in-house team. |
What is Outsourced HR?
Outsourced HR refers to contracting a third-party provider to handle specific HR functions. These services include recruitment, payroll management, legal compliance, training, and more. Outsourcing allows businesses to access expert services without hiring full-time, internal HR staff.
Benefits of Outsourced HR | Challenges of Outsourced HR |
Cost-saving: Outsourcing HR can save up to 40% in overhead costs, especially for small businesses or startups that don’t require a full-time HR team. | Less control: Outsourcing HR means you have less control over HR tasks and rules. This can sometimes result in a mismatch with your company's culture and values. |
Access to specialized expertise: External HR providers offer expert knowledge in areas like recruitment, legal compliance, and employee benefits, keeping businesses aligned with the latest industry best practices and local regulations. | Communication barriers: Collaborating with an outside provider can sometimes cause communication issues, which might result in delays or misunderstandings. |
Time-saving: As experts from HR agencies usually have a vast talent network and seasoned experience, it usually takes significantly less time to find the right talent, serving urgent growth periods or seasonal hiring spikes. | Dependency on Third Parties: The success of outsourced HR depends on the provider's reliability, and any issues could disrupt key HR functions and services. |
In–house vs Out-sourced HR? Which one is for you?
Choosing between in-house and outsourced HR is a pivotal decision for any business, influenced by factors like business size, budget, and specific HR requirements. In this detailed guide, we’ll break down essential considerations to help you determine which HR model works best for your business.
1. Evaluate your budget and financial capability
Determine if you have the resources to build an in-house HR team, including salaries, benefits, technology, and retention costs. If your company doesn’t have the budget for a full-time team or HR infrastructure, outsourcing can be more affordable. Here is an example of how outsourcing HR in terms of the hiring function helps businesses save cost:
Item | HR outsourcing | Self-Recruitin |
Overall recruitment cost | Service fee based on the percentage of base salary | - Advertising cost - Job posting cost - Job board cost - CV database - Sourcing and screening - Assessment cost - Employer branding |
2. Assess the urgency of your hiring needs
If you need to rapidly hire many employees because of seasonal demands or business growth, outsourcing HR can be a more efficient option. Outsourcing agencies have a broad network of candidates, enabling them to expedite the recruitment process.
Client Needs: A leading e-commerce company in Southeast Asia faced significant labor shortages during their peak demand periods. Their labor demand fluctuated dramatically from day to day each month, often with little notice. On the busiest days, they needed hundreds of warehouse workers, which was 5-10 times higher than normal.
Manpower Solution:Our dedicated recruitment team offered flexible staffing solutions and actively sourced workers through various innovative channels, ensuring a ready-to-work talent pool available at any time. We managed the entire recruitment process while taking care of workers’ benefits and compliance regarding salary payment, social insurance, and taxes, allowing the company to focus on its core business.
Outcome: On average, Manpower Vietnam successfully filled over 250 positions in less than 5 days.
On the other hand, if your hiring needs are ongoing and relatively stable, in-house HR may be a better option as they can build a consistent process for managing recruitment long-term, maintaining closer relationships with employees and candidates.
3. Consider the complexity of your HR needs
Outsourced HR is the ideal choice when your business requires specialized expertise in areas where internal teams may lack the necessary knowledge or resources. Here are some scenarios where seasoned experts from the outsource team can help your business:
Legal Compliance with Local Labor Laws: When setting up business in new regions or countries, navigating intricate HR and legal compliance can be complex and challenging. Outsourced HR ensures your business remains compliant with local regulations, avoiding legal pitfalls.
Managing Employee Benefits and Complex Payroll Systems: Outsourcing HR allows you to tap into specialized knowledge, ensuring the smooth handling of employee benefits, payroll systems, and tax compliance without errors.
Recruitment in Confidential or Competitive or Niche Industries: expert HR consultants can give you access to vast networks and specialized expertise, helping you find and hire top talent faster.
4. Control and customization
Some businesses require more control over HR functions and want processes to be deeply integrated into their company culture. If having complete control over hiring, employee relations, or performance management is essential to your business, an in-house team may be the best option.
5. Reassessing HR efficiency and employee experience
Lastly, evaluate your current HR processes. If your in-house HR team is struggling with high turnover, slow hiring processes, or outdated compliance practices, outsourcing could help by bringing in fresh perspectives and expertise.
Look at factors like employee turnover rates, long time-to-hire, and overall employee satisfaction to identify whether your current HR function is meeting the company’s needs or if outsourcing might help resolve key issues.
HR Outsourcing with Manpower: A case study to safeguard brand reputation in crisis
Navigating Downsizing with ManpowerGroup: A Success Story
A North American client with over 350,000 employees faced the daunting challenge of multiple significant downsizing events. With offices spread across the United States, Canada, Mexico, China, and India, the impact was widespread and complex.
ManpowerGroup's Strategic Intervention
To address these downsizings, Right Management, a brand of ManpowerGroup, provided Notifier Training, Notification Support, and Outplacement Programs. Leaders and managers received specialized training to deliver notification messages effectively, ensuring they were prepared to handle potential challenges with best practices.
Right Management’s notification consultants played a crucial role, offering real-time advice to Human Resources and manager notifiers. This support helped mitigate legal risks and guided affected employees through their transition, encouraging them to focus on their next steps beyond the immediate moment.
By implementing an efficient outplacement program structured by band level, Right Management mitigated downsizing risks and ensured optimal support for former employees. This approach not only safeguarded the client’s interests but also provided a smooth and supportive transition for those impacted.
Transformative Outcomes
The results speak volumes about the effectiveness of ManpowerGroup's approach:
High Satisfaction: 94% of former employees expressed satisfaction with the services provided.
Positive Perception: 72% of former employees held a positive view of their previous employer.
Enhanced Preparedness: Preparedness for job searching soared from 41% to 90% after receiving Manpower Vietnam support.
Swift Career Transition: On average, former employees secured their next career opportunity in less than 12 weeks.
Enhance your workforce management with Manpower Vietnam's expertise
When facing workforce management challenges, outsourcing HR functions to Manpower Vietnam can significantly benefit both your employees and your business. With over 77 years of global operations and more than 17 years of recruitment experience in Vietnam, Manpower Vietnam offers a comprehensive HR service portfolio tailored to enhance human resources management.
Let Manpower Vietnam's experts guide your business through successful HR management with professionalism and care. Fill in the form below to get started.