HR outsourcing (HRO): an in-depth guide

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HR outsourcing (also known as HRO) is the process of sub-contracting human resources functions to an external supplier. Reviews of business processes have led many organisations to decide that it makes business sense to sub-contract some or all non-core activities to specialist providers. HR, as a non-profit centre, is an obvious candidate for outsourcing. There are many ways in which outsourcing human resources can be done:

• Business process HR outsourcing (also known as BPO), where an external supplier manages discrete HR activities, such as payroll administration or recruitment, or perhaps the whole human resources function.
• Shared service HR outsourcing, where only the transaction or administrative elements of HR’s activities are subcontracted to an external supplier. This may include the personal interface with employees.
• Application (and facilities) service HR outsourcing, where external providers look after the technological (and physical) infrastructure to support human resources activities.

Outsourcing human resources or some of its processes to an external provider is a major business decision as, while it may be cost-effective, it introduces new elements of risk, including:

• Loss of control
• Impact on the employer/employee relationship
• Loss of flexibility
• Failure to deliver cost benefits
• Legal or regulatory requirements
• Industrial relations issues

The operation of any HR outsourci