Human resource outsourcing (HRO) is a process which involves an organization subcontracting a specialized company to take over some HR duties. While some companies may outsource all the HR tasks, most will outsource only the time -consuming and non-core tasks. It is common for smaller businesses to outsource payroll, tax payment and risk management.

A service level agreement is usually drawn between the two parties and it usually helps in outlining expected performance levels and the various penalties for noncompliance.

Ways of human resource outsourcing

There are a couple of ways through which human resource outsourcing can be achieved. These are: business process, shared service and application service HR outsourcing. With the first type, the whole HR function may be outsourced while with the second option only a part of the HR’s function is subcontracted. The latter method involves outsourcing the caretaking responsibility of the technological infrastructure that helps the HR activities.

Advantages of HR outsourcing

HR outsourcing can be very beneficial especially to companies, with the statistics showing overall positives from the practice. Some of the benefits include:

  • The company’s HR is freed up to assume a more strategic role in the company
  • Outsourcing reduces costs of man management.
  • The company experiences reduced risks as it can outsource the tricky parts
  • There is increased efficiency

Small businesses are more probable to outsource their HR functions such as recruitment as well as payroll administration. It is hard, even for the small companies to outsource everything as the company still needs a way to communicate with the employees without having to go through the third party company.

Firms looking to establish on foreign soil also enjoy the perks of HR outsourcing. This is because an HR outsourcing company based in the target nation is already adept with the cultural practices and expectations.

Drawbacks and possible risks

HR outsourcing, as advantageous as it is, comes with some risks and drawbacks. For starters, the employer-employee relationship will deteriorate because of poor communication since the contracted company is not adept at the organization’s culture. Further havoc may be wrecked when employees of other departments start fearing their jobs may be outsourced too.

Outsourcing means trusting another company with sensitive information. A poorly managed HR outsourcing company could oversee the leakage of such information. Instances of inadequate service provision and worse of all bankruptcy by the subcontracted firm may leave the company exposed and vulnerable.

Lastly, superior HR companies have been known to hold contracting companies hostage.