Outsourced IT

Outsourcing HR Functions

What are Outsourced HR Functions?

HR professionals perform many essential functions within an organization, making their time a valuable commodity. Fortunately, there are many solutions available to outsource certain HR functions, allowing HR professionals to focus on more strategic endeavors. HR outsourcing is a contractual agreement between an employer and a third-party provider to assume the management of certain specified HR functions1. Some HR functions that may be suitable for outsourcing include:

Compensation. Compensation is a commonly outsourced HR function that may include payroll, salary surveys, job evaluations, executive compensation designs, and expatriate compensation. Reasons for outsourcing this function may include cost savings, customer service improvements, and expanded access to technologies unavailable in-house. Types of solutions include:

  • Point solutions where the vendor provides hosted software to support the compensation administration process and, often, call center support, while still having the organization perform some functions.
  • Single-process outsourcing where the organization selects a single vendor to perform all of its compensation administration.
  • Integrated HR outsourcing where compensation administration is outsourced in conjunction with a broader outsourcing arrangement that includes workforce administration. This is the most commonly used compensation solution.

Workforce administration. Workforce administration refers to the following HR functions: HR information system development, maintenance, and operation; staff policy and procedure support; staff self-service and customer service; staff data management and record retention. Workforce administration outsourcing is a foundation for the outsourcing of other HR functions and is often done in conjunction with other outsourced HR functions.

External recruitment. With recruitment-process outsourcing (RPO), organizations can take advantage of a variable expense model that is adaptable based on marketplace fluctuations. This can reduce fixed expenses and help organizations to recruit high quality talent.

Relocation. There are many HR functions under the umbrella of relocation including claims assistance, shipment monitoring, expense tracking, and reimbursement.

Employee awards and recognition. This HR function is ideally suited for outsourcing, as programs designed to improve productivity, sales, workplace safety, service years, and cooperation are all worthwhile, but can all be time-consuming to administer.

Benefits administration. Benefits administration takes up a significant portion of HR professionals’ time. Benefits administration outsourcing can ease this burden and provide benefits such as call center support, eligibility management, eligibility audits, improved carrier oversight, and compliance functions.

In order to transition to outsourced HR functions, a business-process outsourcing (BPO) service agreement will contain fundamental deal terms and conditions, as well as a pricing model that is efficient, predictably, and competitive. Agreement terms should also address regulatory compliance, control of personnel, and liability limitations. A structured approach to vendor governance helps organizations to build trust and to enhance communication, so organizations should establish this collaborative way of working with vendors.

1 SHRM, 2022, “Outsourcing the HR Function”