In-House vs. Outsourcing — Which Direction to Choose?

At a certain point, every business takes the decision to scale up. Be it for strategic purposes, for market expansion, or for increased revenue and talent attraction. There are two main options to consider, which include outsourcing vs. in-house recruiting and transferring a number of tasks to them.

In-house recruiting remains inside the business, playing the role of a gatekeeper over the whole process. It takes care of the traditional approach, attracting candidates directly to the company. Instead, outsourcing allows businesses to remain agile, applying competitive approaches. Outsource recruitment gives that flexibility many companies seek for.

Taking a detailed look at the in-house vs. outsourcing models will help you understand what will align the most with your strategic goals. Both have their pros and cons, but only in response to your needs will they lead you to success.

Advantages and Drawbacks of In-House and Outsourcing Recruitment

We mistakenly think that only big companies, which count thousands of specialists, create their own HR department. Depending on your operations and specific needs, you can start from 20 and more people in your organization. You will need to assess your strategic plans and financial resources first.

With the expansion of tech recruitment and staffing, more and more businesses choose the outsourcing model, transferring some of their core functions to a third party. Outsourcing here means you delegate not only the hiring process, but also onboarding, employer of record services, talent acquisition tasks, among others. So, in-house or outsource, what’s the difference?

In-House HR Department in Detail

When you have a separate HR department inside your company, a number of specialists manage all the HR process from recruitment to retention. And obviously, they find the needed specialists just for your company, considering your strategy and working culture. If in your assessment of in-house vs. outsourcing you go for the first, the model consists of the following:

• Recruitment process. The recruitment team typically starts with identifying the needs of a separate department. Then, they proceed with job descriptions, and publishing vacancies on various channels. Inhouse staffing benefits from their position inside the company and their knowledge of corporate culture. However, searching candidates for all departments and all positions, they may lack knowledge for the tech niche in particular.

• Offer and onboarding. This aspect is also part of in-house talent acquisition. After the offer is signed, HR specialists are responsible for storage of all contracts, and preparing a comprehensive onboarding for newcomers. One of talent acquisition goals is to make sure that newbies will fit into the corporate culture and integrate into the team.

• Contract management and payroll. In-house HR takes care of contract signing and storing, and ensures they stick to company and legal requirements. This may limit them to manage the talent pool in a specific country only. Payroll activities are an extra task, which may require additional departments or people.

• Retention. You will typically have two scenarios for retention: either you set it as one of HR tasks or leave it to tech managers. For the first scenario, on top of HR activities, your team will need to take care of engagement initiatives, development programs, and performance. You’ll definitely need to add more people to the team. If you leave it to the manager, they may become overloaded and left with little to no time for strategic tasks.

• Cost. In-house HR will be part of your business, so the HR specialists will receive regular salary directly. You’ll just need to count a number of people who will perform all the tasks described above.

• Skill set. Comparing outsource vs. in-house recruiting, the expectation from the last is usually generalized. You’ll rather focus on soft skills such as communication or conflict resolution with legal awareness and knowledge of HR technologies. Since the HR team will search for all types of candidates, they will be less likely to have a background in all fields.

• Team integration. The in-house team is part of your company, fully integrated with other departments. This is a win position for bringing new members to the team and connecting them with colleagues.

Outsourcing Recruiting Journey

When decision makers of a company hesitate between outsourced vs. in-house department, they’re usually not fully aware of the nuances of outsourcing. Let us shade some light. Outsourcing HR activities means delegating them to a third party, or an external agency. Before talking about its benefits and the boom in the market, here are some points about how it works.

• Recruitment process. The outsourcing recruitment and selection go through a number of prerequisite steps, from job posting to screening, to interviews, and tech teams onboarding. The outsourcing team uses the latest technologies and a wide network of job boards and platforms, which often leads to quicker results. At the same time, recruiters consult with you beforehand, asking details about your business’ goals, needs, and preferences.

• Offer and onboarding. Even though you, as a company, are the main decision taker, the outsourcing company will facilitate the offer and will onboard the candidate if the offer is accepted. Both outsource vs. in-house models have this step.

• Contract management and payroll. If you outsource the recruitment part, you also transfer your administrative tasks, including signing all the contracts, checking all legal requirements, setting up regular payrolls. Even if you’re choosing between outstaffing vs outsourcing, both options fulfill this task. The benefit is that they are globally oriented, without being tied to one geography.

• Retention. The outsourced team cannot take up on your tech manager’s task, but they can consult you, share their expertise, and suggest best practices.

• Cost. The cost usually depends on the number of services you need and the duration of your cooperation. This will differ in outsourcing vs. in-house. For example, if you only need to find a new specialist, this will be a recruiting short-term service for a fixed fee. If you consider long-term cooperation for employer of record tasks and other services, this will be a fixed monthly fee.

• Skill set. Since the outsourced company focuses solely on a number of staffing and recruiting areas, they have a solid expertise and a background in tech industry. They’re real experts who can advise you with the way forward.

• Team integration. The outsourced team which cooperates with you is not part of your business. However, they bring new people to your business, which means they get to know you well enough to find the best match for your team. Especially long-term cooperation turns them into valuable partners.

If you need a visual example of how an outsourced model works, you can check our case study with tech recruitment for Softorino.

Outsourcing vs. In-House HR: Pros and Cons

According to Forbes, 46% of surveyed HR departments and businesses in general put the recruiting process among their top priorities for the year. At the same time, many admit that they don’t have enough sources and mechanisms to retain their top talents. This is one of the reasons many businesses turn to outsourcing while selecting between outsourced vs. in-house models.

In their report on this year's HR trends, Gartner states that leaders rethink moving recruiting externally while reorganizing the work internally. This correlates with Deloitte’s survey and report. They highlight that outsourcing brings a win-win approach for the companies, as 56% of the respondents admitted they didn't have the right mechanisms to retain the existing specialists. Why do companies outsource recruitment? One of the main points is that they seek the expertise of specialists in questions where they lack efficiency, while liberating time for their core operations.

Let’s see what you get by choosing in-house vs. outsourcing recruitment:

Does in-house vs. outsourced recruiting have any challenges?

Depending on your company’s needs, there are two sides in assessing the outsourced recruiting vs. in-house one. The benefits for one company may be considered the drawbacks for the other. But the general observations show us the following:

• In-house HR. The HR department requires intensive resources. This relates to a number of specialists involved, the financial investment in recruitment teams, processes, technology, and time and effort. The in-house model may lack access to global talent pools and show itself less efficient in scalability. In assessing outsourced vs. in-house recruiting, you’ll notice that scaling up and down during growth and market fluctuations may be challenging and ineffective for in-house teams, which impacts the overall company’s agility.

• Outsourcing vendor. The outsourced partner can lack the nuanced aspects of a company’s culture, which may challenge the overall onboarding process. You may also experience gaps in communication, quality, and costs, which are all solvable by choosing a trustful service provider.

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So, Oursource vs. In-House — What to Choose?

In in-house vs. outsourced recruiting you don’t have a one-size-fits-all solution. As you see, both models have their advantages and downsides. To pick the one that will bring you the most value and benefit, assess your business against these criteria:

• Frequency of hiring;

• Type of positions to be filled;

• Control you want to have;

• Needed flexibility;

• Budget;

• Recruitment resources and experience;

• Geographic location.

These aspects will help you prioritize your needs and values and choose the strategy, whether internal or external, that will meet all your expectations.

Does outsourcing recruitment suit everyone?

Here are a couple of examples that show that outsourcing can indeed suit any company size.

• Small businesses. HR questions are typically covered by a single person or department. At this stage, recruiting is the most vital and urgent, while other Tech HR Ops might not be there yet. The outsourcing company can save time with streamlined tech recruiting and bring a much-needed expertise in the HR Operations and administrative processes.

• Medium businesses have a more complex hiring structure. The HR department can split into Recruiting and HR Operations, even though in the long run, this solution is less cost-efficient than turning to an outsourcing team. They can help medium businesses solve the question of covering Recruiting, HR Ops, and Employer of Record that a business hasn't allocated people or resources for.

• Big businesses have a complex structure and internal departments that cover Recruiting and HR separately. At this stage, companies usually get puzzled by how fast they can reach their growth goals. What an outsourcing company can do is bring them diversification and help them scale and focus on what they do best.

As a Final Point

To summarize all the insights, it’s important to point out that both in-house and outsourcing recruitment have their attractive points. The size of your company and the niche of your project don’t really matter. What works best is not a one-size-fits-all solution but a strategic choice that aligns with your immediate needs and future goals.

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by Maria Shepeta
on March 29, 2024. Share on LinkedIn Post on Twitter

Maria is a writer with 7 years of experience in wide-ranging areas. Passionate about tech and innovation, she enjoys diving deep into the research before mastering the art of the word. In her articles, she combines the best practices with the extensive knowledge to bring to the surface what really matters.