Outsourcing of Human Resources Functions

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A Human Resources (HR) department is a critical component of employee well-being in any business, no matter how small. Human Resources responsibilities include payroll, benefits, hiring, firing, and keeping up to date with the entire gamut of labor laws.

The outsourcing of human resources functions continues to gain popularity as an increasing number of companies, 80 percent of all firms by some estimates, rely on third-party companies for those services. "Outsourcing gives them access to that expertise at a fraction of the cost and helps them mitigate risk."

According to the Small Business Administration, small business owners spend between seven and 25 percent of their time handling employee-related paperwork. Not the most productive use of their time. But by outsourcing some or all of their employee-related functions — such as payroll, benefits, healthcare or recruitment and retention — small business owners can focus on what they do best. And in the process they can improve productivity and even save some money.

Transferring business processes- Explanation of Outsourcing.

What is outsourcing? Definition

Outsourcing is a strategic management model wherein business processes are transferred to another company. The concept is: to let a third party service provider perform the management and/or day-to-day execution of one or more business functions. This third party service provider is Insourcing those same processes. Outsourcing occurs when a company uses an outside firm to provide a necessary business function that might otherwise be done in-house.  

It is different from Subcontracting, because the function is provided on an ongoing basis, rather than for a specific project. It can be provided on the same or another location, in the same country or in a separate country (Offshoring).  

In its most advanced form, outsourcing makes it possible to build a large, entirely virtual company with only a single employee: the entrepreneur himself.  

Why business process outsourcing? Main Motives

The most important motives for outsourcing are:
• To make an organization more competitive, by staying focused on its Core Competence. • To achieve cost reduction and efficiency.
• Access to special resources or capabilities.
• To stimulate entrepreneurship in small organizational entities.

Other Potential Benefits of Outsourcing

➢ Renewed focus on core business.
➢ Mitigation of risks by reliance on an expert.
➢ Improved customer satisfaction through improved processes not part of the enterprise's culture or experience. ➢ Ability to reward workers with career opportunities in a specialty company. ➢ Project improvement.

➢ Service improvements.
➢ Skills upgrade.
➢ Skills retention.
➢ Skills access.
➢ Technology infusion.
➢ Cost accounting and overall visibility of accounting and performance in a business process. ➢ Cost reduction.
➢ Management of volatility in costs through financial engineering. ➢ Asset conversion.
➢ Avoidance of capital investment.

What is HR outsourcing?

HR outsourcing services generally fall into four categories: PEOs, BPOs, ASPs, or e-services. The terms are used loosely, so a big tip is to know exactly what the outsourcing firm you are investigating offers, especially when it comes to employee liability.


A Professional Employer Organization (PEO) assumes full responsibility of your company's human resources administration. It becomes a co-employer of your company's workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and the amount of money employees make. The PEO and business owner become partners, essentially, with the PEO handling all the HR aspects and the business handling all other aspects of the company.

By proper definition, a service is only a PEO when it takes...
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