Human Resources is a strategic business function and is today perceived as a strategic business partner aligned with the organization’s vision and strategy. HR is the catalyst in helping an organization define its mission, vision, values, and goals.
HR outsourcing is the process of in which certain human resources activities are outsourced to external partners which helps the organization get advantage of specialized skills, reduce cost and enable HR personnel to focus on strategic initiatives.
Many organizations outsource administrative and transactional activities which are non-core, enabling HR Personnel focus on core activities. What activities an organization needs to outsource depends on the nature and size of the organization, internal skill sets, regulatory environment in which it operates, financial advantage, partner capabilities, key HR initiatives, culture.
HR functions which are generally outsourced are:
- Payroll and related compliances
- High volume recruitment
- Benefits administration
- Administration of employee lifecycle activities
- Labour law compliances
Key HR initiatives i.e. employee relations, compensation structuring, talent development, succession planning, performance management and HR strategy are managed internally by the HR Team.
HR outsourcing has a major impact on an organization’s functioning and is, therefore, a trend in the majority of organizations. Below are some of the reasons why:
- It helps HR personnel focus on core activities which adds value at the strategic level. As HR focus changes from operational, transactional and administrative, to strategic, it becomes aligned with organizational goals and strategy.
- It is cost effective as organizations avoid large investments on technology, save on operational costs as outsourced partners offer cost-effective solutions.
- Operational efficiencies benefits from HRO providers because HR activities are their core competencies.
- Provides flexibility in dealing with the challenges of a changing environment.
- Improved service delivery and greater employee satisfaction. HRO providers have clearly defined SLAs and TATs which ensures more efficient service and enhanced employee query response/resolution.
- Gain expertise which may not be available in-house. HRO providers can provide skill sets for certain activities which may not be available within the company, thereby helping organizations make up for the lack of in-house expertise.
- Improves compliance and avoid legal risk. Compliances related to tax, retirals, labour laws etc. are complex, and outsourcing to a specialized Service Provider ensures compliance and therefore minimizes exposure to legal risks which can lead to financial and reputational issues.
However, the key to the positive impact of outsourcing an organization’s functioning will depend on the proper identification of key HR initiatives and functions that can be outsourced, supported by the right outsourcing partner who shares the same vision as the organization.