Making a profit and staying competitive are the main objectives of any business. To that end, some organizations opt to outsource their HR or other functions in order to aid in their success. While this practice has positive implications, it does not come without its disadvantages. Companies considering outsourcing anything should carefully weigh these implications before making a decision.


Perhaps the most attractive implication of HR outsourcing involves cost reduction. By outsourcing certain functions, such as payroll or recruitment, organizations do not need to spend money hiring and training employees for those particular roles. It also eliminates the need to pay wages and benefits in favor of a flat rate to contract the work to a third party agency, where labor is generally cheaper. Companies can also avoid paying taxes, insurance and various overhead costs, since the contracted organization handles those instead.


Another positive implication of outsourcing HR functions is a company's ability to allocate time and resources to other endeavors. Outsourcing absolves the main company from having to recruit, train and replace employees. In doing so, the organization can take the time and money otherwise spent on these functions and redirect it to new projects, allowing it stay competitive and speed up productivity.

Job Loss

HR outsourcing is not a perfect practice. Job loss is a classic occurrence and a serious concern for employees. It makes staff feel undervalued, leaving them in a state of fear that they may be laid off in favor of the company's bottom line. In turn, employee loyalty suffers, resulting in increased turnover. This is especially problematic during a recession, where workers know that finding other employment will be more difficult.

Product Quality

HR outsourcing is not an effective way to ensure quality. Whether it is human resources functions, customer service or manufacturing, third party companies employ less skilled workers at a lower wage. This can result in a substandard product that ultimately results in client dissatisfaction. In short, a company's desire to save money can be offset by lost revenue due to a poor end product.