Ms. Tieu Yen Trinh, General Director of Talentnet Corporation, discusses the benefits of HR Outsourcing.
Human Resources (HR) deals with anything and everything to do with the employment of people in a company. Rapid growth in the business world today frequently brings an increase in HR administration that companies see as a distraction that does nothing to improve sales and profits. The answer may be to outsource some of their HR functions to a third party HR provider so that companies can focus on their core business and ensure they meet their strategic objectives.
Fierce talent wars, rising HR costs, and increasingly complex labor regulations are cited as key influencers fuelling the HR outsourcing trend. Behind each strategic decision to outsource HR is a realization that specialist HR input may help companies reduce costs, improve regulatory compliance and, most importantly, improve efficiency. There are other benefits, too. Professional HR outsourcing companies will be up-to-date on the latest technology and techniques and will know how to adapt them to a company’s specific needs.
Companies can be confident that essential HR actions, such as payroll processing, will be done on time and are not dependent on a key internal employee who may leave or fall sick. In addition, HR outsourcing companies have people with significant in-depth expertise that enables them to provide sound advice to their clients’ employees and have a positive influence on the way they are managed, thus helping their clients to have a happier and more effective workforce.
A number of multi-national companies (MNCs) coming to Vietnam have been following the HR outsourcing trend for years and, in fact, MNCs are currently the main drivers of HR outsourcing in the Vietnamese market. In particular, HR outsourcing has become very popular for MNCs in the pharmaceutical industry. These companies are strong financially but, more importantly, they just want to focus on their core businesses while engaging external help to prevent necessary HR support functions from side-tracking their attention.
It is of note that companies in the banking industry also prefer to have their HR functions outsourced as they pay great attention to legal compliance and it takes time and cost to maintain sufficient expertise in HR legislation and regulations in-house.
In Vietnam, HR outsourcing is still a relatively new and unfamiliar concept to the majority of local companies. Following the success of MNCs using HR outsourcing, a small number of Vietnamese companies have recently started to go down this road. However, many have so far found it difficult to justify a decision to outsource on the basis of potential cost savings because administrative labor is still relatively cheap in Vietnam. Moreover, many still cling to the false notion that all HR resources should be kept in-house as they fear a loss of control or information leaks.
It is true that, at first, it may actually cost more to outsource some HR functions than to keep them in-house. However, it should come as no surprise that HR outsourcing both minimizes the hidden costs of the administration involved and reduces risks in the long run. Take, for example, payroll outsourcing, which tops the list of the most frequently outsourced HR functions.
In payroll outsourcing, a company uses external resources and professional systems to manage their payroll activities, from salary payments and insurance payments to personal income tax payments. According to our recent research, the total cost, including both the staff and management cost, to provide one payroll administrator is 2.5 or 3 times their monthly salary.
The cost of outsourcing to the payroll vendor is similar to the salary of this one person, but a company can make huge savings on training, benefits, annual salary increments, and working space from not employing people to provide this service in-house.
It is not surprising, therefore, that payroll outsourcing is on the minds of most newly-established companies all over the world and is particularly attractive and useful given the evolving nature of labor regulation and local practice in different countries and regions.
Outsourcing payroll can also protect new companies from the challenges of recruiting sufficiently experienced payroll staff in-house as well as risks such as incorrect salary calculations or being unaware of legal changes. Mistakes of this kind always have to be redressed at a later date, usually with an accompanying increase in costs, not least in the management time required to put things right.