What Is HR Outsourcing?

Whatever the company’s human resources requirements, there’s an HR outsourcing firm out there to meet those needs. Some HR outsourcing firms are generalists, offering a wide variety of services, while others are specialists, focusing on specific areas such as payroll or recruiting. Depending on the size of your business and how much control you want to maintain over HR functions, you can either outsource all your HR tasks or contract for services a la carte.

The basic services offered by HR outsourcing firms may include:

• Overseeing organizational structure and staffing requirements
• Recruiting, training, and development
• Tracking department objectives, goals, and strategies
• Employee and manager training
• Benefits administration
• Employee orientation programs

These businesses view HR outsourcing as a strategic tool that relieves them of HR responsibilities and enables them to focus on what they do best. In addition to allowing you to concentrate on your core business activities, outsourcing provides some key benefits, including:

• Providing you with skilled professionals who are focused specifically on HR
• Helping you reduce and manage operating costs
• Improving employee relations

If you don’t need the comprehensive services, you can contract specific projects through an HR outsourcing firm to help you:

• Implement a human resource information system (HRIS)
• Create or update employee handbooks and policy manuals • Develop and implement a compensation program
• Create or review a performance appraisal system

Here are the HR functions that are most commonly outsourced:

• High-volume recruiting
• Temporary staffing
• Background checks and drug screening
• Relocation
• Payroll • Benefits administration • Coaching • Creating/updating employee handbooks and policy manuals
• Compensation program development/implementation
• Writing and updating affirmative action plans
• Independent contractor compliance

Purposes and Tactics

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HR outsourcing (also known as HRO) is the process of sub-contracting human resources functions to an external supplier.

Reviews of business processes have led many organisations to decide that it makes business sense to sub-contract some or all non-core activities to specialist providers.
HR, as a non-profit centre, is an obvious candidate for outsourcing.
There are many ways in which outsourcing human resources can be done:
• Business process HR outsourcing (also known as BPO), where an external supplier manages discrete HR activities, such as payroll administration or recruitment, or perhaps the whole human resources function.
• Shared service HR outsourcing, where only the transaction or administrative elements of HR’s activities are subcontracted to an external supplier. This may include the personal interface with employees.
• Application (and facilities) service HR outsourcing, where external providers look after the technological (and physical) infrastructure to support human resources activities.

Outsourcing human resources or some of its processes to an external provider is a major business decision as, while it may be cost-effective, it introduces new elements of risk, including:

• Loss of control
• Impact on the employer/employee relationship
• Loss of flexibility • Failure to deliver cost benefits
• Legal or regulatory requirements
• Industrial relations issues

The operation of any HR outsourcing arrangement should be governed by a service level agreement. This will define the required standards of performance by both parties and any penalties for non-compliance. A service level agreement is a crucial document and must be negotiated with great care to mitigate the above risks.

People management plays a crucial role in delivering organisational performance. In today’s modern, knowledge economy this is more true than ever before. The decision to outsource human resources is therefore not to be taken lightly.

There are many circumstances in which outsourcing HR services can deliver tangible benefits to the organisation, for example by freeing HR professionals to devote more time to a strategic role supporting organisational performance.

Potential benefits of HR outsourcing

• Reduced cost • Increased efficiency • Access to improved HR IT systems • Improved management information (including human capital metrics) • Access to HR expertise not available internally • Increased flexibility and speed of response • Philosophical reasons (for example the organisation is outsourcing a number of its support functions, of which HR is just one part) • Reduced risk • To free HR resources to operate more strategically.