What is HR Outsourcing

If a business is to be competitive in today’s business environment, then it must produce superior results. The push towards competitiveness must be the emphasis of every department in the organization, and that includes the HR Department.  This means that there must be a shift in focus that will allow the HR Department to be at the forefront of the strategic planning process.  That’s where HR outsourcing comes in; it allows a company to free up resources, which can then be used to create operational efficiency.

HR outsourcing refers to the transferal of aspects of an organization’s human resources processes, to an external service provider. Generally an organization will outsource some, not all of their HR processes, the scope of which would be communicated to the vendor.

The types of HR functions outsourced are generally transactional in nature.  These would include the hiring of employees, maintenance of employee records, payroll, and pension benefits.

HR outsourcing is more common among organizations that have a large  staff.  While it will result in a smaller HR department, advocates of the trend point to significant positives.  The main one being that more resources would become available in-house.  This would afford them the flexibility to focus on key business areas such as the formulation and implementation of organizational strategy.  With this type of emphasis, the HR Department would be able to play a more central role in the thrust towards competitiveness.

In recent years, HR outsourcing has become big business.  This growth has been fueled, by the increasing number of companies opting to contract out functions, which traditionally would have been performed by their human resource department. There are several reasons that may prompt an organization to make this decision.

One of the contributing factors to the shift towards human resource outsourcing is the need to reduce costs.  In times of prolonged economic downturn, companies are forced to look for ways to cut back operating costs. This means that they will have to take a critical look at all the business process, and seek out lower cost alternatives.  The functions are outsourced because it will cost the company less in the long run.

Companies also outsource human resource functions in an effort to meet the changing demand of business.  Outsourcing those functions to specialists, enables the company to better focus on the elements of business that they can perform efficiently.  This means they can focus on increasing product or service value, and satisfying customer demand.  This can lead to product innovation, improved management and control, the creation of greater shareholder value, and business performance.

If human resource outsourcing is to be effective, then the company must maintain control of those functions.  While the vendor is being hired to perform the relevant tasks, the company must not lose sight of the fact that they are ultimately responsible for those HR functions.  As a result, the business should ensure that information from the vendor can be easily accessed.

Any successful HR outsourcing strategy must begin with a clear objective of the expected outcomes of the outsourcing process.  From there, the company must seek to focus its energies on using in-house resources efficiently, while maintaining control of the HR functions that have been outsourced.