Human Resources outsourcing, or HRO as it is often called, is a term that is frequently thrown around in the business world, but many may not be aware of what it actually means. By definition, HRO is the process of hiring a third party company to take on some or all of the functions of the Human Resources department. What functions does an outsourcing company handle? What are the benefits to outsourcing certain HR activities? Here’s everything you need to know: 

There are several types of HRO, depending on what tasks you are outsourcing to the third party company. For example, some companies choose to hire a third party company to handle business-related activities such as payroll and recruitment for open positions. Other companies choose to outsource the entire Human Resources department. There is also application service HR outsourcing, which means a third party company would be responsible for maintaining the IT infrastructure that supports human resources activities. In this arrangement, the Human Resources department would maintain control over all business- related activities such as benefits, payroll, compliance, and handling employee concerns. Most HRO companies will allow you to pick and choose which HR functions you would like them to handle. It’s up to you to work with the third party company to determine your business needs and how outsourcing can help you.

You may be wondering, “If a company has a Human Resources department, why would they need to outsource these activities?” The answer is simple. Senior level executives have started to expect more and more from their HR departments. Besides the administrative tasks such as payroll and benefits, HR departments are now also expected to strategize on how to engage and retain employees to reduce turnover and the money spent on recruiting and onboarding new employees. But, they often don’t have time to do both. In fact, it is estimated that HR leaders spend over half of their time on tasks such as auditing and maintaining company records. If HR leaders could take these tasks off of their plate, they would have more time to devote to thinking strategically and helping the company grow. Therefore, it is often wiser to outsource the non-strategic tasks so the company can utilize every member of the department in other ways.

Outsourcing also allows the HR department to clearly show how they are impacting the company’s bottom line. How? Now that the HR department does not have to focus on administrative tasks, they can put all of their man- power behind strategic tasks such as figuring out how to retain employees and increase job satisfaction. If they implement their strategies and find success, the HR department can show how their efforts made a difference. For example, they can compare turnover rates and calculate how much the department saved the company in recruiting and onboarding costs. This will show upper level executives the value of the HR team, so in the future, they may entrust the HR department to handle more important strategic tasks.

Your employees may also find that their issues are resolved much faster if you have outsourced your HR functions. This is because the third party is devoted to keeping you and your employees happy, so answering questions and resolving issues is their first priority. A good outsourcing company will quickly respond to questions, update employees on the status of outstanding issues, and assist you in every way possible to keep you satisfied. However, if you don’t outsource HR, an employee’s question or concern may end up buried in a busy HR worker’s inbox.

Labor laws and policies are constantly changing, which can make it difficult for people in HR to keep up with what’s going on. But, this is another benefit of outsourcing your HR to a third party company. If you ever have questions about a policy or law, you can touch base with the outsourcing company and put your heads together to figure out the answer. In fact, hiring one of these companies could give you access to legal and HR expertise that you may not have internally. This takes a lot of pressure off of the HR department’s shoulders and helps them make better, more informed decisions.

Finally, it’s possible that your company does not have access to high quality HR IT systems. Outdated IT systems can make it difficult for you to perform basic activities related to payroll and benefits, but if you outsource these tasks, you can work with a company that has advanced systems. This makes life much easier for both you and your employees who will no longer have to struggle using the older systems.

The company you hire will be responsible for performing important tasks that impact your business and affect your employees. Because of this, it’s important to have an agreement that outlines the responsibilities of both parties so you have everything in writing. You should also take the time to thoroughly research the company you work with to ensure you are hiring a company with a track record of success. HR functions are too important to outsource to an unreliable or untested company, so you shouldn’t take a chance working with someone without much experience in the industry.