Strategic outsourcing helps you stay focused on mission-critical tasksLeaders of small nonprofits often handle "back office" tasks by themselves. And they're not always happy with their performance — especially when it comes to HR. Still, you might lack the funds to pay HR specialists or lack enough work to keep them busy full-time.
One solution to these issues is outsourcing. But before you delegate HR responsibilities to an individual consultant or outside firm, keep the following points in mind.
Keep it strategic
The rationale for outsourcing is to focus on what your organization does well — remembering that you can't excel at everything. Resources are limited, so make strategic choices.
Mark Rhodes, a consultant who specializes in strategic planning and organization design, suggests keeping mission-critical work in-house. This includes the programs and services that only your organization can provide. Such work leverages your core skills and supports mission success.
Other work is essential to your organization's daily operation — but not mission critical. Examples include routine HR tasks, accounting, website development, technology purchases and database management. While these operations keep you in existence, they don't necessarily create a competitive advantage. This characteristic makes them candidates for outsourcing.
Weigh benefits against costs
There are many compelling arguments for outsourcing HR, including:
- Restoring your focus on core programs and fundraising
- Accessing skills and technology that you don't have in-house
- Reducing the risk of noncompliance with employment laws
If you outsource HR while expecting to save money, however, you might be disappointed. Outsourcing might reveal that you haven't been spending enough on HR in the first place. You'll also need to pay your HR provider and supervise that individual or firm's activities.
To keep outsourcing costs in perspective, balance them against the hidden cost of poor HR — such as failure to recruit and retain talented employees, or lawsuit and court costs due to noncompliance with employment laws. Remind board members and funders about this when they review your budget.
Look for creative ways to cover the cost
Many small nonprofits cite cost as the biggest obstacle to outsourcing HR. If that's true for your organization, you might:
- Shop around. Meet with at least three different HR firms. Form a core group of employees to listen to each of the presentations and select the firm that best meets your needs.
- Seek subsidies from your HR provider. Ask individual HR consultants and firms if they're willing to reduce their fees when working with small nonprofits. This is more likely to happen when the HR provider already has a stable of larger, higher‐paying clients.
- Seek subsidies from a third party. Apply for a grant to develop HR infrastructure, or look for foundations, corporate sponsors or other donors to cover the gap between an HR provider's fees and what you can afford to pay.
- Form a collective purchasing group. Join or form a network of nonprofits with a similar scope and mission. Use your collective purchasing power to negotiate reduced fees from HR providers. For example, in the U.S., members of the Connecticut Association of Nonprofits can get discounts on employee benefits services from the eBenefits Group Northeast.
Start with an HR audit and interim outsourcing
You don't necessarily need to immediately outsource all HR tasks. Instead, consider hiring an HR provider to audit your current practices. This is a crucial step to take whenever you face issues such as:
- High staff turnover
- HR staff positions that remain unfilled
- Complaints from staff members about inefficiency and burnout
- Threats of lawsuits from employees
- Crises in cash flow and loss of funding
- Rising costs for insurance and employee benefits
- Fines for noncompliance with employment laws
- Lack of written HR policies or an outdated employee handbook
- Need for updated HR policies due to new legislation
After the audit, consider hiring an HR provider on a temporary basis to implement suggested changes. With new policies in place, you might be able to bring your HR functions back in-house.
Find a provider who understands the needs of small nonprofits
When shopping for an HR provider, look for someone who understands your organization's reasons for staying small. You might already be at a "sweet spot" in terms of capacity, or have few prospects for additional funding. Consultants with large firms who are steeped in a growth mentality might not understand this.
Also explain that size doesn't translate into simplicity. You may face complex issues — such as constant fundraising and balancing various revenue streams — precisely because your organization is small.
Be a great outsourcing client
Outsourcing is a two-way street. The depth of your cooperation matters as much as the quality of your HR provider. Be willing to provide the needed information in a timely manner and remain open to suggestions. The payoff is a positive long-term relationship — and HR that works.
Nonprofit Quarterly: When is HR outsourcing right for your organization? by Simone Putnam (2008)
Free Management Library: A key strategic choice: When to outsource work by Mark Rhodes (2010)