Why companies outsource recruitment (and why you shouldn’t)

Not every company can do every function. When your company is small, you can’t afford experts in every aspect of the business, so you outsource. One of the functions where businesses often choose to outsource is recruiting.

In some cases, this makes perfect sense, and in some cases, it does not. Here’s what you need to know when making a decision on whether or not to outsource recruitment.

What is recruitment outsourcing?

Outsourcing is hiring someone outside of the company to do a task. This can be a consultant or a contractor, or a company. It can be someone who lives and works in the same town or lives in another country.

When you outsource a task, you give it to an outside person or organization. When you outsource recruitment, you can use several different types of outsourced recruiting.

• Headhunters. This is the colloquial term for recruiters that recruit for specialized positions. They often work on a commission basis. While they can technically recruit for any role, they often have specialized areas. Headhunters increase their value by building relationships in their chosen industries. Companies, not candidates, pay headhunter fees (usually a percentage of the salary if they place a candidate). Some executive or highly specialized headhunter contractors are retainer-based. In this case, the recruiter receives pay for providing candidates and sourcing, and is not contingent on job acceptance.
• General recruiting. You can hire an outsourced recruiter or recruiting firm to handle all your recruiting needs, regardless of specialization. Again, the company, not the candidates, pays the recruiters.
• Staffing companies. These companies not only find people to work for you, but they hire them and pay them as well. Consequently, the employees work for the staffing company and not for you. This model is popular in industries with high turnover and low-skilled labor. It’s also popular for some IT roles, and larger companies, including Google, use this model.

When outsourced recruitment is good

Suppose you are a startup looking to hire your first of everything. In that case, it’s far better to hire a professional recruiter to help you find a CFO than to appoint your college roommate who majored in musical theater but never managed to get their big Broadway break.

For senior roles, the headhunter option generally remains a good idea, as these positions are highly specialized and critical to company success. If you get a mediocre junior analyst, it can get expensive (as bad hires tend to be), but if your newly recruited Chief Marketing Officer is a failure, it can tank your entire company.

You may also want to consider outsourcing recruiting during intense hiring phases, as your in-house HR may not have the bandwidth to take it on. For instance, if you are launching a new product and you need to hire 100 new salespeople across the entire country in a short time, your lone in-house recruiter may not be able to handle that added workload (although a great ATS can help alleviate that stress!).

You can, of course, use a contracted recruiter for all your positions, and some companies do this. Smaller companies can’t afford a dedicated recruiter or don’t hire enough people on a regular basis to warrant an extra employee for that task.

When outsourced recruitment is bad

Relying on someone outside the company to market your jobs, source candidates, and screen them, can be problematic in many situations.

If you want to build a specific company culture, you probably want to bring your recruiting in-house. An external recruiter generally has multiple clients at a time and won’t be able to dedicate themselves to the unique needs of your company as well as an in-house recruiter can do.

Because external recruiters typically get paid upon placement, there can be a bigger push to fill the role than to focus on finding the right person for the position.

If your turnover – whether voluntary and involuntary – is higher than the industry average, you may wish to take a look at in-house recruiting. People do leave when they feel that the company is a bad fit for them. You also need to fire people who turn out to be not a good fit for you.

If your turnover in either of these categories is too high, it could be due to wrongly or poorly targeted recruiting. There are times where assigning the recruiting to someone who knows the employees personally, who walks your warehouse floor every day, or sits in on exit interviews and sees the problems firsthand can result in a better candidate fit.

If you have the proper HR systems in place – a good applicant tracking system and a compatible HRIS – running the recruiting in-house can save you time and make your reporting more straightforward and more accurate.

If you choose outsourced recruitment

This is a path that fits some companies, and if you go in this direction, there are a few things you need to remember when you search for your recruiter.

• If employees work in the office, ensure the recruiter has visited and understands the working environment firsthand. There are different challenges in different businesses, and seeing the physical facilities can help the recruiter’s understanding.
• Go over the job descriptions with the recruiter in depth so that the recruiter understands the key points to look for. You can’t assume an external recruiter understands the unwritten rules of your business because she doesn’t work there.
• Consider the costs. If you hire more than one or two professional people per year with a headhunter, the associated costs can become higher than an in-house, salaried recruiter.
• Keep communication channels open. Hiring managers often change criteria during the recruitment process. If you aren’t communicating clearly, your recruiter will waste valuable time looking for the wrong candidates.
• Figure out how you will coordinate your onboarding process. Frequently, in-house recruiters handle that part of the process. If you outsource recruitment, someone in-house will need to process the paperwork and new-hire orientation.

In-house recruitment benefits

Whether you’re growing or in a high-turnover industry, you might consider bringing the whole thing in-house – the technology is there to help even the leanest hiring teams manage the recruitment process, and at cost. And the benefits of doing it internally can far outweigh the conveniences of outsourced recruitment.

Consider the following:

• Your recruiter can help identify internal candidates that may or may not apply for an open position. Someone with an intimate knowledge of the business will have powerful insight into people who can fill gaps when an external recruiter cannot.
• You can control costs. Many employers outsource recruitment to reduce costs, but filling two senior positions in a year with an external recruiter can cost more than a full-time salary for an experienced in-house recruiter.
• You have more flexibility. If you think you need to do a job fair, you can organize one. If you’re working with an outside firm, you may have to renegotiate the entire contract.
• An internal recruiter can help anticipate business needs. They can spot things before requisitions appear and plan ahead.
• Internal recruiters have a better understanding of company culture because they work there every day. They have a vested interest in getting the right people in roles because they have to work together.

Whatever you decide for your business, remember that good quality recruitment needs to be a high priority. Your business needs people to succeed, and that can’t happen without quality sourcing, recruiting, and hiring.