Human resource outsourcing or simply HRO or HR outsourcing entails sub-contracting functions in the HR department to an external provider either onshore or overseas. HR outsourcing has become popular as it streamlines business processes making them efficient and less costly.
As companies continue to outsource their non-core activities HR as a nonprofit center is a perfect candidate to be passed on to third parties.
HR outsourcing is a major business decision and it may expose a business to new risks. For the companies trying out HR outsourcing for the first time, the process can be a potential cause of jitters. Nonetheless, it is vital to note that HR outsourcing provides companies of all sizes with an opportunity to;
- Reduce costs
- Increase efficiency
- Access high-level HR expertise
- Access better HR IT systems
Partnering with an HR outsourcing provider such as C9 digital’s HR outsourcing services can take your HR functions to a new level.
Some of the tasks that you can pass on to an HR outsourcing firm include payroll administration, recruitment, health insurance options, retirement plans and so forth.
Statistics reveal that firms that outsource experience a wide range of benefits such as their growth rate which can be 7%-9% faster compared to other firms, employee turnover can be reduced by 10%-14% and administrative costs can be reduce by as much as 40%-70% depending upon the location you elect to outsource to.
Looking to outsource your HR functions? Here’s a simple step-by-step guide to help you start off on the right foot.
1. Identify the HR Outsourcing Goals
Evaluation involves first analyzing how the entity is currently handling HR functions and to identify the gaps that may exist in the organization’s HR department. The second step is defining your HR outsourcing goals-that is, how HR outsourcing will benefit the organization. Moreover, as a business owner, it is recommended to first familiarize oneself with HR outsourcing trends and how they could affect the company. Don’t just get carried away by the HR outsourcing hype. Learn first. Do not allow your organization to get into HR outsourcing blindly. As with every strategic business decision, caution must be taken into account.
Timing is crucial and third-party advisors can help you to identify whether it is the right time for the firm to embrace HR outsourcing.
This can be done by analyzing data and financial projections. Some of the questions that can assist to identify whether it is the right time to outsource HR may include;
- Does the current organization’s situation merit HR outsourcing?
- What type of outsourcing solution will best fit the organization?
- Is the HR meeting all company needs?
- Can the transition to outsourcing be carried out without disrupting the current operations?
It is also vital to be aware of HR outsourcing risks and how to mitigate them. Some of the areas of concern in HR outsourcing may include;
Compliance-Determine the compliance services to be provided by the HR outsourcing vendor. The HR outsourcing service provider must completely meet the company’s legal obligations.
Service levels– Ensure that there is a full understanding of the services to be provided by the vendor.
Process– The vendor may carry out tasks in a way that differ from the procedures familiar with the company. The organization must understand the HR outsourcing service provider processes to know how the company may help.
2. Identify the Functions to Outsource
Companies choose certain functions for outsourcing. They may include payroll, benefits administration and recruiting.
Selective outsourcing is the most popular form of outsourcing. Selective outsourcing is whereby an organization outsources transaction-oriented activities. Selective outsourcing unlike relying on a single provider can be tailored to meet a company’s exact need.
Some of the functions that are popularly outsourced include:-
Compensation-Outsourcing compensation functions such as payroll, salary surveys, job evaluation systems, and executive compensation plans may be in the form of;
- (1) Single-process outsourcing-An approach whereby a company picks one vendor to conduct all its compensation administration.
- (2) Integrated HR outsourcing- In this approach, compensation and workforce administration are outsourced.
- (3) Point solutions-The vendor provides compensation administration as well as call center support.
Workforce administration– Functions such as maintenance, development, and operations of HR IT systems are outsourced.
External recruitment-It involves outsourcing recruitment to obtain top-quality talent vital for the success of the firm. With recruitment-process outsourcing (RPO), the vendors turn the firm fixed expenses into variable expenses helping the organization with potential cost savings.
3. Identify the Organization to Outsource HR
There are four main types of HR outsourcing organizations. To whom can you outsource?
Business process outsourcing (BPO) is a broad term for all outsourcing categories including HR. the best side of a BPO is however that it applies new technologies to improve processes. In HR, a BPO will ensure an organization’s HR system is complemented by the latest technologies; for instance, HR data warehousing or self-access.
C9 Digital is a perfect example of BPO in Manila, Philippines. Due to the high demand for Call Center Talent Outsourcing Services, Digital Marketing Talent Services, and Executive Head Hunting Services, C9 Digital continues to serve various companies abroad and at home. The company is well-positioned to move with the latest business trends and respond to changing needs, especially in HR outsourcing. As a BPO, you can hence get all your HR functions outsourced to a single provider.
Professional Employer Organizations (PEOs) take entire responsibility of your firm HR administration. PEOs take the legal responsibility of your company, including being in charge of hiring, contract termination, and employee compensation. A PEO is, therefore, a partner as they handle all the HR aspects. The only unique feature that differentiates PEOs from the other three vendors is that they take the legal responsibility of the company staff. Hence, a vendor recognized as a PEO must take the legal partnership. PEO serve both small and medium-sized employees.
A human resource organization (HRO) help large businesses with 1000+ employees to pick the services they would like to outsource. The business has a co-management relationship with the business regardless of the service that they choose to outsource. The HRO takes full responsibility when all functions of HR are outsourced.
Administrative Services Organization (ASO) is a vendor that provides administrative services. The services offered by the organization include filing payroll taxes, payroll processing and performing direct deposits. ASO serve the business with 50 or more employees. Other functions performed by ASO include;
- Safety management
- Payroll services
- Worker’s compensation
- Pension administration
4. Screening the Service Provider
What are the factors to consider in a service provider? Here are a few considerations:
In HR outsourcing, there is the risk of delicate information leaking out. Ask for references from organizations that have already used particular outsourcing firms when considering your hiring decision.
It is vital to outsource your HR activities to a vendor that has experience in your domain. This is due to the fact that they are in a better position to understand your requirements. However, do not go for a firm that hosts your immediate competitor. This will help you to avoid more business rivalry and other conflicts.
Select a service provider that is almost your size. HR outsourcing service providers maximize their revenues based on the number of staff they assign to your company. So if they have the capability of working with bigger companies thereby earning more there is a possibility that they will give your firm limited attention. Therefore, if you’re a small firm, hire a small vendor that can give you lots of attention.
5. HR Outsourcing Agreement
In this stage, HR professionals must be fully aware of relevant business issues in order to negotiate an optimal HR outsourcing agreement. Besides, they must agree on a price for the services to be outsourced.
One of the contracts to be signed is the master services agreement (MSA). This is an outsourcing agreement that ensures compliance with a nation’s legal requirements and business expectations. A business process outsourcing (BPO) service agreement specifies the fundamental contract terms and conditions.
When outsourcing, an organization can choose to whether to use a BPO or MSA agreement. The agreement must, however, cover service level fundamentals, pricing, exit plans, and other additional contract terms.
6. The Transition
This is the riskiest step in HR outsourcing. The outsourcing company and the vendor must acknowledge that the probability of failure at this stage is very high. The outsourcing company must select a transition management team to control the deliverables and the scope of HR outsourcing. This enables the HR outsourcing company to be in charge of the transition relationship.
The benefits of the outsourcing relationship between the company and the vendor are realized through the complete implementation of the terms of the agreements.
The organization outsourcing its HR functions must ensure that:
- The transfer of activities to the outsourcing service provider is transparent
- There is minimal or no disruption of current project activities
- Work procedures and practices are established
Attainable service levels are identified and sensible metrics are put in place. The ability of the outsourcing service provider to meet the performance levels is also verified.
7. Relationship Management
HR outsourcing can involve significant spending but outsourcing to a skilled service provider can save company money in the long run. The key is to effectively manage the relationship.
At this stage, therefore, the company engaging in HR outsourcing must establish a collaborative way of partnering with the vendor to ensure trust and open communication. It is advisable for the organization to set forth all the expected benefits, targets and embracing practices proven to offer successful outcomes.
Vendor governance goes beyond resolving problems and approving payments. An organization must understand how the vendor works in order to offer consistent direction for the third-party to meet contractual and legal obligations specified in the contract.
Due to several reasons such as saving on costs and the need to concentrate on more strategic issues, HR functions are among the activities each organization may choose to outsource.
Is our organization looking to get into HR outsourcing? Follow this guide to successfully outsource your HR functions!
SHRM. (2015, November 6). Outsourcing the HR Function. Retrieved from