As the scramble for hospitality staff intensifies and staff shortages persist, the HR function in the hospitality industry seems to be overloaded. The hotel sector has faced unprecedented employee turnover, critically short-circuiting post-pandemic recovery. Coupled with Gen Z’s preference for flexible working hours, better pay and remote jobs, hotel employers and HR managers need to come up with new ideas of how to effectively run the HR department. Outsourcing HR services could be an option for solving multiple problems. After all, how much can your HR department or in-house recruiters handle when resources are low and staff are hard to find?

In this article, you can find out what HR outsourcing entails, and what the pros and cons of this approach are. You will also learn which HR functions to outsource, and the 5 best practices for leveraging this service.  

Outsourcing HR Services: What is That Exactly? 

According to SHRM, HR outsourcing refers to a contractual agreement between an employer and an external third-party provider.  The agreement describes how an employer transfers the management of and responsibility for certain HR functions to an external provider.

In an outsourcing arrangement, an employer can transfer some or all HR functions to an external provider depending on factors such as cost, business needs, and the size of the business.

A small to medium hospitality business e.g., can outsource a few specialist services that require the expertise lacking internally. Large hotel industry employers can outsource a huge chunk of HR routine and administrative functions to free up time for strategic tasks, such as succession planning.

Which HR Functions Can You Outsource?

Depending on the business size and needs, here are typical HR functions that your hospitality business can outsource to external providers:

  • Benefits: You can outsource employee benefits functions and let a third-party handle them on your behalf. Functions you can outsource include insurance plans, retirement benefits and enrollment, compliance, and claims.
  • Policy: You may outsource policy development to a specialist company or consultant to help you in areas such as harassment, labour relations, and DEI.
  • Recruitment: Advertising open positions, conducting background screening, interviewing and hiring are critical HR functions, but they take up a lot of company time and manpower. By using external providers, you not only free up time for your already stretched HR department, but it can also allow your business to access a broader talent pool. 
  • Compliance: For small hotels and restaurants, compliance can feel like a relentless burden on their shoulders. Outsourcing compliance to an external provider can help your hotel/restaurant stay compliant with constantly changing regulations and laws. 
  • Payroll: Outsourcing payroll services such as payroll administration, automating deposits, compensation and claims, taxation, and staff leave management can remove the payroll burden from you, while ensuring efficient service delivery to your staff.
  • Training: Ensuring your hotel staff get the training they need to be effective in their roles is an important HR function. You can outsource training services to specialists who are well-versed in industry trends. They may be better placed to bring your staff up to speed with new developments in the hotel sector. 

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What Are the Advantages of Outsourcing HR Services?

One of the biggest advantages of outsourcing HR services is cost reduction. By contracting outside firms to handle payroll, compliance, recruitment, training and other functions, your hospitality business can cut back on internal staffing and administrative expenses. This frees up cash flow, which your company can invest in new equipment, technology, and other business initiatives. Additionally, external providers can often provide a higher quality service at lower prices, as opposed to hiring several full-time specialists. 

Other advantages include:

  • Efficiency: Outsourcing HR tasks and paperwork frees up more time to handle strategic tasks
  • Improved recruitment: Outsourcing recruitment allows your business to get access to a global talent pool, which can help improve diversity metrics at your hotel or restaurant.
  • Risk mitigation: Outsourcing HR functions partly transfers the risk of non-compliance to a third-party.

→🤔 Race, skin colour and gender are the most common factors considered when it comes to improving workforce diversity. But did you know that neurodiverse employees continue to be neglected? This is why we’ve put together a handy 7-step guide to help you manage neurodiverse employees. Save it now, thank us later! 

What Are the Disadvantages of Outsourcing HR Services?

There are several reasons why businesses don’t outsource HR services, including:

  • Quality fears: Employers tend to believe that outsourcing can result in lower quality jobs. When some HR functions like payroll are managed by a third-party, employees may feel detached from the employer, which may lead to poor quality of output.
  • Giving up control: While outsourcing helps companies reduce the tasks at hand, some believe outsourcing will make them lose control over a critical aspect of their business. 
  • Cost concerns:  Companies often fear that HR outsourcing may cost a lot.  Benchmarking what’s available on the market is a good way to prevent excessive spending on these services. 

What Should You Look for When Choosing an HR Outsourcing Company?

Choosing HR outsourcing companies is a critical decision that you need to get right the first time. While it can be difficult to know which provider is the best, the following factors can guide your decision-making:

  • Cost: How much are you willing to spend on the service? Come up with a budget that you would be comfortable parting with, and look for an outsourcing company within your budget.
  • Scope: What HR functions are you ready to outsource? For instance, you may want to outsource recruitment but not payroll. Look for providers that will handle your scope of work efficiently.
  • Reputation: The provider you select must ideally have an excellent reputation. A provider with a poor reputation risks tainting your employer brand. 
  • Compatibility: Engage a provider who is compatible with your business needs, and poses minimal friction in your working relations.
  • Industry specialisation: Outsourcing HR functions to a company that caters to the travel and leisure industry would be ideal, as they understand the hotel and tourism sector better. In this case, word of mouth can help you find the right provider. 
  • Data compliance: The HR solutions provider should be compliant with data and employment rules and regulations in their respective markets. They should handle both company and employee data confidentially to avoid regulatory penalties and damage to your reputation.

What Are the 5 Best Practices for Outsourcing HR Services?

Although outsourcing HR activities might appear costly at first, contracting a qualified and reliable provider can ultimately result in financial savings for your hotel, restaurant or resort. The secret lies in effective relationship management. Here are the best HR outsourcing practices that can enhance return on your investment:

1. Vet the Outsourcing Services Provider

Working with a reliable and professional outsourcing company is crucial. After all, you're giving them access to some of the most private data your organisation has and putting your business' crucial responsibilities in their hands. To ensure that the provider you are dealing with is genuine and trustworthy, it is important to find a company with a proven track record.

2. Make Use of Service Level Agreements

Once you’ve identified a service provider, enter into a service level agreement that spells out the terms and conditions, functions, and performance indicators. Establish a work partnership, approve transitional arrangements, and define the communication channels for the outsourcing arrangement.

3. Start Small and Scale

If you’re not overly convinced about the whole idea of HR outsourcing, you can start by piloting some functions. For instance, you could outsource payroll for 10 employees first, and gradually increase that number depending on how satisfied you’re with the process. Starting with a pilot allows you to test the capacity and reliability of the service provider before committing to more HR functions.

4. Engage in Open Communication

Maintaining open lines of communication throughout the relationship is a crucial aspect of outsourcing. To get the outcomes you want, you need an outsourcing partner who is accessible, responsive and communicative. An outsourcing company that ignores emails or rushes to end phone calls is definitely not a good fit for your company.

5. Leverage Employee Feedback

After choosing your outsourcing partner, it's critical to gather input from your staff.  They are the ones who will actually benefit from this service. Given the advantages of HR outsourcing, your staff should be seeing improvements in departmental and personal productivity. If they aren't, it may be time to look for an alternative provider.

Also, establish a regular timetable to review the services you are paying for, and assess if they are still serving your needs. Since HR outsourcing is easily scalable, you should proactively assess if you require more or less coverage in specific areas.