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What Is HR Outsourcing?

Today, lots of top companies outsource their HR. Even companies who have an entire staff of human resources professionals on the payroll likely outsource at least one their business’ HR functions.

When you hear the term “outsourcing,” odds are that it doesn’t necessarily bring warm thoughts to mind. Over the years, outsourcing has picked up a negative connotation as it’s become erroneously interchangeable with “offshoring,” so much so that people decide to shy away from the concept altogether. But outsourcing doesn’t mean sending jobs overseas; outsourcing is simply obtaining goods or services from an external source, instead of internally. If you could save your business time and money by using an outside vendor, why wouldn’t you?

So what does HR outsourcing mean, exactly?

Most businesses get to a point when they realize they can no longer manage all of their HR functions on their own — simply put, they need a little help. Instead of taking on additional overhead and hiring someone who may not work out, many of these companies choose to outsource their human resources functions to an outside company that specializes in HR.

There are a wide variety of human resource functions that companies can choose to outsource to an HR company:

Companies who outsource HR usually partner with one of four types of HR providers:

HR Consulting Firms

This arrangement works best for businesses that need limited assistance or assistance with a specific project. Similar to other business consultants, HR consulting companies help businesses identify problem areas or weaknesses they may have in regards to human capital management, and then work with the company to develop a plan to address those issues. Once the project or issue is resolved, the partnership ends.

HR Technology Vendors

Some companies have the infrastructure and resources to manage their HR functions internally, but just lack the tools or technology to do so efficiently. In these cases, the businesses engage a third-party vendor to provide access to a program or online platform. The HR function most often outsourced in this arrangement is payroll processing. Businesses who use HR technology vendors are still required to do most of the heavy lifting when it comes to whatever they’re outsourcing, however.

HR Outsourcing (HRO) / Administrative Services Organizations (ASO)

Companies who decide they need more expertise or ongoing service may choose to outsource all or some of their HR functions to a human resources outsourcing (HRO) firm or administrative services organization (ASO). Under this arrangement the outside provider actually takes over one or more of tasks associated with human resources, including but not limited to: payroll processing, benefits administration, regulatory compliance, etc.

Professional Employer Organizations (PEO)

Companies looking for a turnkey HR department often choose to partner with a PEO. In a professional employer organization (PEO) arrangement, businesses enter into a co-employment relationship with an HR company, naming the PEO as the “employer of record” for the organization’s employees. This designation allows the PEO to perform employment-related tasks for the employees on the company’s behalf, like procuring and administering health insurance and other employee benefits, file payroll taxes, manage unemployment insurance claims, and more.

Still a little unclear about the differences between ASO and PEO service models? Check out our blog post all about the subject: ASO vs. PEO.


Want to learn more about HR outsourcing? Click the image on the left to download a copy of our free report: The Secret To Shedding Administrative HR Burdens.

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