Human Resource (HR) Outsourcing is a category of Business Process Outsourcing (BPO) where an employer transfers all or part of its Human Resources functions to an external service provider.
As with most BPO services, cost is a main driver of adoption. Cost savings are realized in outsourcing repetitive, highly time consuming or highly technical processes. The outsourcing of these functions allows for the employees to focus on core competency value add or revenue generating activities.
Small and Medium Enterprises (SME) businesses have started to use Private Employer Organizations (PEOs) to create fully functioning HR departments externally. PEOs and Contractor Management Organizations (CMOs) function as the employer of record. In this capacity the CMO/PEO takes on the liability of legal and employment regulation compliance. Additionally the CMO/PEO can offer a range of employee benefits that SME could not otherwise afford economically such as group health or Professional Indemnity insurance.
Benefits of Human Resource Outsourcing
The benefit of utilizing CMO/PEOs for outsourced HR is most evident for companies that are expanding to a remote location. The CMO/PEO can operate as a full service HR department in the new location with no capital expenditure and a very short time to full operation.
For offshore outsourcing, foreigners need visas and work permits to work compliantly. Generally the immigration office requires a local presence. In depth local knowledge can be the difference between the process taking forever or not at all and a reasonable time.
Most local and offshore hiring is subjected to employment laws regarding employment classification. Using a CMO/PEO transfers the employment law risk to the outsourced HR vendor.
As companies look to develop cost effective operations, the benefits of HR outsourcing becomes evident. Outsourcing HR means time intensive administrative functions do not need to be performed by the employees. This frees the internal HR department to focus more time on value added proactive problem solving. The internal HR department now can operate as a strategic business partner by creating employee training and developing programs.
Most HR outsourcing decisions are made from a cost perspective. Another decision point to consider is the burden put on the in-house HR manager and team to know and do everything. Many outsourced HR providers use a “shared service” model (call center) where the worker can generally request service 24/7/365. The call center operator uses a script or decision tree to answer questions and resolve issues. While this servicing model lacks the human connection of in-house HR personnel, the quality might be higher as the information can be more complete and the resolution delivered more timely and efficiently.
Weighing the pros and cons
For many employers, outsourced HR offers an attractive and valuable alternative to in-house staffing. Outsourced HR vendors can provide scalability with less expense and offer more comprehensive services with lower risk.
However, companies need to realize the importance of identifying the functions that the in-house HR does to increase the value of the human capital within the company and keep those functions in house. This helps maintain an environment where the workers feel valued. The key point is to shift the function of the in-house HR to be a strategic partner in building the company’s financial value.
As with Outsourced HR, the key to any BPO service is to not focus on cost. It’s the increase in value that matters.
Learn more about outsourcing