Human resource outsourcing (HRO)

What is human resource outsourcing?

Human Resource outsourcing (HRO) refers to the process of hiring an external service provider to manage some or all of an organization's human resource functions, which may include payroll, benefits administration, recruitment, training, and development. HR outsourcing is aimed at reducing costs, improving efficiency and productivity, and accessing specialized expertise that may not be otherwise available.

HRO can be either a comprehensive or selective process and can be done onshore or offshore. In some cases, companies may outsource their entire HR department, and in other cases, they may outsource specific tasks or processes, it all depends on the organization’s specific requirements, its financial resources, and its legal ability to outsource.

What are the benefits of human resources outsourcing?

There are a number of key advantages that HRO offers to companies regardless of their size or the industry they work in. Here are the five top reasons why HRO can be useful for your organization.

1. Cost savings: Outsourcing HR functions can reduce costs associated with hiring and retaining an in-house HR team.
2. Access to specialized expertise: HRO can provide organizations with access to specialized expertise and resources that may not be available in-house.
3. Improved efficiency: Outsourcing HR functions can help organizations streamline their HR processes and improve efficiency.
4. Risk management: HRO providers are typically well-versed in employment laws and regulations, and can help ensure that organizations remain compliant with these requirements.
5. Scalability: Outsourcing HR functions can provide organizations with the flexibility to scale their HR operations as needed.

What companies benefit most from HRO?

HRO can be carried out in a manner that would benefit most companies, but of course, some will profit from the concept more than others. Let’s go into more detail:

Small businesses

Small businesses may not have the resources or expertise to handle all aspects of human resources, such as payroll, benefits administration, compliance, etc. Outsourcing these tasks to a third-party provider can prove to be more efficient

Expanding companies 

As companies grow their HR requirements become more complex, and it can take time to keep up with the changing regulations and laws. HR outsourcing can provide access to specialized expertise and technology, which can help growing companies manage their HR more effectively.

High turnover organizations

High employee turnover can be costly and time-consuming for companies. HR outsourcing can help companies manage employee recruitment, onboarding, and retention more effectively, which can save them money in the long run.

Restricted industry organizations

Some industries, for example, healthcare, are subject to strict regulatory requirements. HR outsourcing providers can help companies in these industries stay compliant with regulations and reduce the risk of costly fines and penalties.

What are the drawbacks of using HRO?

While Human Resource Outsourcing (HRO) can provide significant benefits to organizations, there are also some potential drawbacks to consider. These include:

1. Loss of control: Outsourcing HR functions can result in a loss of control over critical HR processes, including recruitment, employee engagement, and performance management.
2. Communication and coordination challenges: Outsourcing HR functions may lead to communication and coordination challenges between the internal team and the external provider.
3. Data security and confidentiality risks: HR outsourcing involves sharing sensitive employee data with a third-party provider, which may create data security risks.
4. Cost unpredictability: Although outsourcing HR functions can lead to cost savings, there may be unpredictable costs associated with outsourcing, such as contract termination fees or unexpected service charges.
5. Negative impact on employee morale: Outsourcing HR functions may negatively impact employee morale and trust.

How do you implement HRO?

First of all, you need to identify which HR functions you want to outsource and whether you want to outsource everything in one go. Once you’ve identified your specific needs you can then research outsourcing providers that specialize in those areas. It’s essential to develop a clear service-level agreement that outlines the scope of work, responsibilities, and expectations between your company and the outsourcing provider, so be clear and transparent in your expectations.

Communicating with your employees about the decision to outsource HR functions is essential as it will affect their work so make sure all information bout the HRO initiative is easily accessible. Consider the benefits of your HRO plan and explain them to your employees in detail to dispel any issues with recalcitrance. Finally, you should monitor and evaluate the outsourcing arrangement on an ongoing basis to ensure it meets your company's evolving needs.

Are you interested in learning more about HRO, or in buying a HRM system that makes all aspects of your human resources processes simpler? Then drop us a line, one of our experts would be happy to help you out.