What is Human Resources Outsourcing All About?


In Human resources the focus is on developing strategies and policies, standards in wide range of areas such as:

  1. Recruitment, selection, this includes developing job descriptions, preparing advertisements, checking application forms, shortlisting, interviewing and selecting candidates;

  2. Organizational design and development

  3. Business transformation and change management

  4. Performance, conduct and behavior management

  5. Industrial and employee relations

  6. Human resources (workforce) analysis and workforce personnel data management

  7. Compensation, rewards, and benefits management, Payroll, employee benefits (Health, Medical, Life insurance, cafeteria, etc), maintaining records relating to staff

  8. Interpreting and advising on employment legislation;

  9. Training and development (learning management), analysing training needs in conjunction with departmental managers.

  10. Administration (producing checks, handling taxes, dealing with sick time and vacations)

  11.  working conditions, performance management, equal opportunities, disciplinary procedures and absence management;

  12. hiring and firing, risk management (workers’ compensation, dispute resolution, safety inspection, office policies and handbooks) and others.

What is HR Outsourcing?

For most business, personnel is its largest cost. People are talented, dedicated and valuable, but they're also expensive and sometimes complicated to manage. A familiar concept to numerous entrepreneurs is the practice of utilizing outside firms that handle the work that is performed in a company, small businesses have done so by outsourcing their accounting, payroll processing and distribution along with other important responsibilities and functions of a HR department. Large companies do the same simply because it is cost efficient.
HR Outsourcing Is the process where a Company takes certain parts (or the whole) of its existing Human Resources responsibilities and it is outsourced to be managed on an ongoing basis by another company.
It does not however, remove your control over your own HR, and in fact provides you with a far greater degree of control. This is achieved by providing the Line Managers with high quality advice, methods, processes and systems, which allow them to more efficiently and effectively manage their staff and their HR.
HR outsourcing services generally fall loosely into four categories: PEOs, BPOs, ASPs, or e-services.




A Professional Employer Organization (PEO) assumes full responsibility of your company's human resources administration. It becomes a co-employer of your company's workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and the amount of money employees make. The PEO and business owner become partners, essentially, with the PEO handling all the HR aspects and the business handling all other aspects of the company.
By proper definition, a service is only a PEO when it takes legal responsibility of employees. But take note--some HR outsourcing services like to use the recognized term "PEO" when they handle the primary aspects of HR like payroll and benefits, yet they do not take this legal partnership.


Business Process Outsourcing is a broad term referring to outsourcing in all fields, not just HR. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process.
Specifically in HR, a BPO would make sure a company's HR system is supported by the latest technologies, such as self-access and HR data warehousing.



Application service providers host software on the Web and rent it to users—some ASPs host HR software. Some are well-known packaged applications (People Soft) while others are customized HR software developed by the vendor. These software programs can manage payroll, benefits, and more.



E-services are those HR services that are Web-based. Both BPOs and ASPs are often referred to as e-services.


Why Outsource HR?

More and more businesses are turning to Human Resources Outsourcing as a way of removing the burden of administration and changing their focus back to people focused strategies. They are looking for operational efficiency, the ability to provide excellent   service to their employees and looking to save costs on Human resources, which often is not even carried out at the same location.  It is one thing that can make the difference between efficient and inefficient employment of resources for businesses, especially small and medium-sized concerns. Resources not utilized fully could lead a business towards higher operating costs and loss. Setting apart a substantially large chunk of the company’s resources and income for an HR department prevents the resources from benefiting the company’s productivity and capacity for greater income generation.


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Pros of Outsourcing HR

  1. HR outsourcing enables businesses to concentrate on their core competencies, ultimately resulting in better productivity and results for the company.
  2. With HR outsourcing, client companies can utilize their resources more effectively, as the human resources department is taken care of. It results in streamlined business processes.
  3. HR outsourcing enables employees of client companies to enjoy benefits typically offered in larger companies, these being outsourced from the professional employer organizations (PEO’s) employee leasing organization. The comprehensive benefits package offered by PEOs increases the buying power of companies in the job market and facilitates greater retaining of employees.
  4. The PEO consists of experts in the business and legal fields, who can positively influence the client company and help it make better decisions.
  5. To aid organizational growth: Fast-growing organizations can lack the HR capacity to deliver business objectives, making HR outsourcing an attractive solution
  6. If you opt for an online service (ASP/e-service), you don't have to purchase software, install it, and worry about configuring it. An ASP business model is hosting software, so you don't have to bother with additional software or installation.

Potential Benefits and Reasons for HR Outsourcing

When organisations put forward a business case for HR outsourcing there are a number of potential benefits that many cite. In practice, these benefits are not necessarily mutually exclusive and a number of them could be achieved through some alternative solution rather than via outsourcing. Commonly mentioned benefits include:

  1. Increased efficiency.
  2. Access to improved HR IT systems without capital outlay
  3. Improved people management information (including human capital metrics).
  4. Access to HR expertise not available internally
  5. Increased flexibility and speed of response to HR problems.
  6. Part of an overall strategy (for example the organisation is outsourcing a number of its support functions, of which HR is just one part).
  7. Reduced risk as it is possible to scale up and down more efficiently.
  8. HR resources can operate more strategically.
  9. Freeing up manager’s time from implementing staff initiatives

Finically Driven Reasons

  • Reduces Investment and frees up these resources for other purposes
  • Reduced cost for example a full time HR manager may cost around £40, 000 per annum.