HR Outsourcing: Considerations for Nonprofits

The global market for human resources outsourcing was approximately $32.8 billion in 2020 and is projected to rise to $45.8 billion by 2027, according to market research company Reportlinker. Should your not-for-profit join the many organizations that have already determined that outsourcing HR makes financial and operational sense? Here’s what you should consider before acting.

Take a hard look

First, decide which segments of the HR function you would farm out. Take a look at:

• Payroll,
• Benefits planning and administration,
• Compliance monitoring,
• Leave management,
• Recruiting,
• Training, and
• Performance reviews.

These are all labor-intensive responsibilities where expertise counts. Transferring all or some of them to the right outside party can vault your organization to a higher level of professionalism and efficiency.

Next, perform a cost-benefit analysis. Even if the cost is more to outsource, you may decide that the extra dollars are worth freeing up staff hours for other initiatives. Factor in the drawbacks to outsourcing. Certain tasks may require an understanding of your organization’s culture and history to be effective. Also think about the impact of letting go HR people currently on staff.

Gather information

Get buy-in from your staff and board of directors before you decide to vet vendors. When you start screening providers, ask questions about the scope of their service, how long they’ve been in business and how many nonprofit clients they have in your area and sector.

Before deciding on one, make sure you understand what and how it charges — for example, by the hour or on retainer. And be clear about whether services will be provided on-site, off-site or in a combination of the two. It’s also important to set mutual expectations, including what the provider will depend on your staff and board to do. Once you’ve selected a vendor, ask your attorney to review the contract.

Don’t neglect controls

As you should do with all of your nonprofit’s operations, establish new internal controls. For example, designate an internal manager to closely monitor the outsourced work and arrange for that person and another manager (such as your executive director) to review the service’s invoices.

Contact us for HR outsourcing recommendations. We can also help you implement new internal controls that reduce fraud and financial risk.