HR outsourcing (HRO) is simply the allotment of some or all the human resources functions to a more specialized third party service provider through subcontracting. In the event that human resources are outsourced to another country, it’s known as HR offshoring.
Appraisals of business processes have led many business organizations to decide that it makes business sense to outsource some or all non-core tasks to specialist service providers.
In most businesses, the Human Resource department is a non-profit center, hence a non-core department. This puts it in the front line for outsourcing.
There are several arrangements in which outsourcing for human resources can be done:
- Business process HR outsourcing (BPO) – An external expert service provider administers distinct HR functions, such as recruitment or payroll administration, or maybe takes over the entire human resources department.
- Shared service HR outsourcing – This is done by outsourcing only the transaction or administrative elements of your HR function to an external supplier. Personal interface with employees might also be included in this outsourcing.
- Application (and facilities) service HR outsourcing – This is done when outsourced service provider seeks after both the physical and technological HR infrastructure to brace the human resources activities.
The activity of any HR outsourcing arrangement ought to be overseen by a service level agreement. This will outline the required standards of performance by both the outsourcing and outsourced parties, and any fines for defaulters. A service level agreement is a very important document that must be negotiated carefully to alleviate any of the potential setbacks.
Human resource management plays a vital role in conveying organizational performance. Therefore, the resolution to outsource human resources should therefore not be overlooked. There are various circumstances under which outsourcing HR functions can deliver substantial advantages to the organization. For instance, by releasing HR experts to dedicate more time to a vital organizational role could go a long way in supporting business performance.
Potential benefits of HR outsourcing
- Reduced operating cost
- Less risk involved
- Management will have more time to focus on the specific goals of the organization
- Due to specialization in the field, the service provider has improved HR IT systems
- Improved management, information is readily available online
- Can easily access experts who are not available internally
- Improved flexibility and speedy response
- To free HR resources hence operating more tactically
Potential pitfalls of HR outsourcing
- The HR outsourcing provider’s solution might not be the most suitable for your organization’s needs. So you need proper understanding of your HR needs, way before you engage an outsourcing firm.
- Outsourced providers may miss out on the knowledge about the company and employees’ culture that’s already in place. In an event of a bad culture, it would have a negative ripple effect on the performance of most internal employees.
- Businesses keep changing with time. HR outsourcing arrangements, being long term (5-10 years), may not put into consideration the business future strategies. Changing businesses in these forms of contracts may be complex. Understanding company future profile is good as it helps to avoid entering into hostile contractual arrangements.
- Local knowledge and processes are lost since information resides with the outsourcing service provider.