Nonprofits: How Outsourcing HR Can Save Time and Money

Outsourcing HR functions is no longer an unconventional practice; it's increasingly becoming a strategic choice for nonprofits looking to streamline their operations. In fact, statistics from software company ZipDo reveal that approximately one-third of U.S. employers have embraced HR outsourcing. For nonprofits, this trend is particularly noteworthy, considering the growing complexity and specialization of many HR responsibilities. If your nonprofit's HR team is still shouldering the burden of handling everything in-house, it may be time to explore the advantages of entrusting certain functions to external experts.

Unlocking Potential Savings and Other Benefits

The first step in this journey is to identify which HR functions could be outsourced effectively. These may encompass payroll management, benefits planning and administration, leave management, recruiting, employee training, performance evaluations, and initiatives related to diversity, equity, and inclusion (DEI). These responsibilities often demand significant time and expertise. By partnering with the right external provider, your nonprofit can elevate its professionalism and operational efficiency.

However, the decision to outsource should be a well-considered one. While outsourcing might entail some costs, it's crucial to evaluate the value it brings in terms of freeing up your staff hours for more strategic initiatives. It's equally important to recognize potential drawbacks. Certain HR tasks may require an in-depth understanding of your organization's unique culture and history to be truly effective. Additionally, the impact of terminating current in-house HR personnel should not be underestimated.

Selecting the Right Partner

Before you dive into the process of vendor selection, secure the buy-in of your management team and board of directors. Once you have the green light, commence the screening process by asking pertinent questions to potential HR vendors. Inquire about the scope of their services, their track record in the industry, and the number of nonprofit clients they have served, especially those in your sector and of a comparable size.

It's essential to have a clear understanding of their pricing structure, whether it's based on hourly rates or a retainer model, and whether services will be provided on-site, off-site, or a combination of both. Mutual expectations should also be set, defining what the provider will rely on your staff and board to contribute. Before sealing the deal, it's advisable to have your attorney review the contract to ensure its fairness and compliance with your organization's needs.

Addressing Overwhelming Workloads

If you remain undecided about outsourcing, consider a sobering statistic from the Society for Human Resource Management: nearly 75% of HR professionals believe their departments are stretched too thin. Even if you opt not to outsource immediately, it's crucial to have open conversations with your HR manager about workload issues. Overburdened HR staff can adversely affect the morale of your entire organization and impede your nonprofit's ability to serve its clients effectively.

In conclusion, outsourcing HR functions can bring substantial time and cost savings, enhancing your nonprofit's overall efficiency and allowing your internal resources to focus on strategic initiatives. However, it's a decision that should be made after careful consideration of your organization's unique needs, potential benefits, and potential drawbacks. In the end, the goal is to ensure that your nonprofit operates at its best, serving its mission and beneficiaries with excellence.

How HoganTaylor Can Help

The HoganTaylor Nonprofit team of business advisors and CPAs is comprised of former CFOs, controllers, and industry experts with extensive experience providing the guidance organizations need to lean forward again in their leadership. If you have any questions about this content, or if you would like more information about HoganTaylor’s Nonprofit practice, please contact Jack Murray, CPA, Nonprofit Practice Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.