An Introduction to HR Outsourcing

July 24, 2020

To outsource or not to outsource? It is a question many small to mid-sized businesses ponder as they expand and scale their operation. As with any business decision, thorough research is necessary to ensure the right partner is selected.

This is not a one size fits all approach. There are many companies who “play” in the HR outsourcing space, and there are often differences in their offerings. So, let’s run through some of the basics of HR outsourcing to consider the important factors when selecting a provider.


How does HR outsourcing work? 

An HR outsourcing provider is engaged to take on some, or all, of a client’s Human Resources function. This can range from outsourcing payroll and benefits administration to recruitment and onboarding or employee performance management. The HR outsourcing provider is paid a fee by the company for performing these functions.

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When should you outsource HR? 

Companies typically seek to outsource HR tasks when they are experiencing growth beyond that which their current infrastructure can effectively handle. Or they may be preparing to expand into a market in which they have not previously operated.  Many small business owners find it more cost-effective to outsource HR rather than invest in building an in-house function.


Why do companies outsource HR? 

Other than those mentioned above, there are many reasons why it might make sense for a company to outsource HR. 

  • HR functions can be outsourced to help a company realize substantial cost savings, both in terms of time and overheads. 
  • Processing payroll and administering benefits is an arduous and detailed task. Lack of experience in this area can lead to processing errors. When you outsource this task, you are mitigating that risk
  • Expansion into a new market or territory requires compliance with local tax and labor laws, which vary between localities. Working with an outsourcing company that has experience operating in a particular area helps ensure regulatory compliance.
  • Data security is of the utmost importance when you’re dealing with sensitive information.  A reputable outsourcing company will have advanced systems and software encryption to keep data secure.

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How do you choose an HR outsourcing partner? 

When researching HR outsourcing companies, you’ll want to research a variety of factors. 

  • Look into their time in business as well as whether they work with any companies similar to yours. You want to work with a stable, healthy business with experienced HR professionals. 
  • Ensure they have a track record of successfully operating in the location you wish to conduct business. This is to ensure compliance with local tax and employment laws.
  • Understand what type of technology they use. You will want a platform that enables you to manage the employee lifecycle and keeps your company’s data secure. 

What does their servicing model look like? Would you have a designated point of contact or would you be working in a portal? Is the service you’re looking to procure a part of their core business? Or is it an ancillary part of their business? This will be a determining factor in terms of the service you’ll receive.


What services does an HR outsourcing company usually provide? 

HR outsourcing companies can offer a full-service HR department. Or they can take on a portion of the tasks that HR staff is responsible for. This frees up time to focus on more strategic priorities. Outsourced HR services often include: 

  • Calculating payroll including wages, tax with holdings, payroll taxes, wage garnishments, pension contributions and leave accrual. 
  • Benefits administration including employee enrollment and subsequent with holdings. 
  • Many HR outsourcing companies offer an Employer of Record service. This is especially helpful if you are expanding into new territory without a registered legal entity. 
  • Training programs that can offer employees personal and professional development opportunities. 
  • Employee performance management programs to help your organization operate at the highest level.

Is it an “all or nothing" approach? 

No! The decision whether to outsource or to keep your operation in house does not have to be a holistic approach. In fact, there is often a very viable third option, and that’s “co-sourcing”.

In this case, the outsourcing provider and the company would take an honest assessment of the strengths of both organizations and figure out what should remain in-house and what should be outsourced to a specialist.

This usually creates a much deeper, and more relevant, supplier/client relationship.

Deciding on a HR outsourcing partner


Whether you’re looking to outsource specific functions or for a full-service HR solution, there are many options. You’ll want to conduct thorough research to ensure you select the right partner for your Human Resource outsourcing.

This post was written by: Liz Fiumara - Content Development Manager