HRO: Helping Nonprofits Focus on Mission, rather than Administration
Nonprofits often have limited financial and people resources, which can exacerbate the challenge of running back-office functions and often requires an Executive Director to wear multiple hats. This is especially risky in the area of human resources, as the added burden of managing a function outside of a leader’s area of expertise can not only result in inefficient transaction processing, which can reduce employees’ trust in leadership and decrease morale, but also introduces a high risk of non-compliance. To offset this, nonprofits in the US and Canada are increasingly opting to outsource HR activities.1
Why Outsource HR?
HR Outsourcing is defined as a “contractual agreement between the employer and external third-party provider whereby the employer transfers the management of, and responsibility for, certain HR functions to the external provider.”2 Whether it’s through a Professional Employer Organization (PEO), an Administrative Services Organization (ASO), or Human Resources Outsourcing (HRO), the three main models of outsourcing that handle some or all aspects of the function, nonprofits can recognize significant benefits by opting to engage a third party:
- Reduce non-compliance: Despite popular belief, nonprofits are not exempt from state and federal employment laws3. HRO organizations often have HR experts and employment lawyers on call to routinely analyze and advise on issues from tax withholdings, FLSA classifications, state-specific laws, best practices for employee manuals, hiring practices, codes of ethics, and more to ensure nonprofits are not penalized.
- Time saver: Allows nonprofit leaders to spend their time developing and executing on mission-driven strategy, while relying on human resource experts to deal with the day-to-day HR issues and ensure compliance with state, provincial, and federal laws and regulations. Additionally, third parties focused solely on HR transactions and inquiries regarding payroll, benefits, etc. can improve overall efficiency.
- Expert support and advice: HR experts can support nonprofits by implementing best practices and policies designed to improve process efficiency and boost employee morale.
- Reduce turnover and develop stronger culture: By outsourcing recruitment and applicant tracking, nonprofits can work with HRO staff to ensure they search for team members who will share in the organization’s mission, vision, and values. By attracting talent that aligns with culture, nonprofits can improve employee retention, one of the biggest people challenges they face. HR professionals can also gauge employee engagement and recommend interventions and long-term strategies to reduce turnover or stop it in its tracks.
- Ease volunteer management: Smaller nonprofits that don’t have specialized teams to handle volunteers can use third-party HR software solutions to monitor, track, and continuously engage volunteers, rather than dealing with the hassle and staff require to maintain an onsite program.
- Attract more donors/volunteers: When organizations meet employees’ needs, they are more likely to have higher job satisfaction and perceived organizational support, which can result in better mission articulation and delivery to beneficiaries and connections to donors.
- Cost saver: Outsourcing the HR function typically saves nonprofit organizations a high degree of overhead costs. A fully outsourced HR arrangement is often significantly cheaper than the cost to employ a full-time HR director or generalist.
Regardless of whether it is done in-house or by a third party, ensuring human resources tasks are completed effectively and that a people-centered, mission-driven strategy is in place is critical to ensuring long-term success. Nonprofits looking to improve customer service, employee engagement, HR technology, and compliance and want to save funds, but that do not have the means or desire to develop internal HR expertise, should consider outsourcing some or all aspects of the function.