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Human resource outsourcing (HRO), or the business practice of assigning certain HR duties and responsibilities to outside service providers, is a huge market. According to a study by Verified Market Reports, a leading global research and consulting firm, the HRO market size was valued at $18.65 billion in 2023 and is expected to reach $31.14 billion by the end of 2030. 

HRO includes a wide range of services, such as hiring or recruitment, payroll processing, benefits administration, and talent management. A company may avail of HRO services as an alternative to or in tandem with an in-house HR professional or internal HR department. 

Many BFSI (banking, financial services and insurance), healthcare, IT, hospitality and retail firms make use of HRO services to streamline their operations, among other things. Here are some of the reasons why companies outsource HR.

Simplify HR Procedures and Maximize Operational Effectiveness

An employee’s stay within a company follows a roadmap that is set and managed by HR professionals or the HR department. This pathway starts with recruitment and ends with offboarding. 

In between these stages, HR also has to make certain that business goals are met while ensuring employees are supported through onboarding, payroll and benefits administration, training and development, and performance management. 

Each of these stages have their own set of objectives and follow their own procedures, but all of them are interdependent. If the procedures are complicated or adversely affect the other stages in some way, the results will be inconsistent or chaotic. 

So, the role of an HRO company is to streamline HR procedures. By doing so, they not only maximize the organization’s operational productivity and effectiveness but also improve employee performance and keep their morale high.

Concentrate on Core Competencies

We all know how routine work and small tasks can eat up valuable time that could have been spent on more productive business activities. Instead of getting tangled up in payroll, benefits administration or taxes, business owners who think strategically will hire an in-house HR professional or the services of an HR outsourcing service provider to do these things for them. This results having more free time to focus on their primary business goals or core competencies. 

“I remember the first year I owned a business and tried to do my taxes on my own,” business owner Mike Taber wrote in his blog “Ten hours later, I wasn’t even half way done.” 

Another example: Staff of a clinic can focus on assisting patients instead of filling up paperwork. Or, an in-house HR professional can focus on the training and development of new hires. 

Control Expenses or Save on Costs

As a business grows, so do its HR needs. If a business owner used to do the payroll and taxes when there were only two to five employees, once their business scales and they hire more people that task will become burdensome. They might assign an employee to take care of that in the meantime, but because they’re not an HR professional, it might only result in costly mistakes.

Hiring a dedicated HR professional is an option, but they can only handle so much. Plus, you’ll also need to pay them their salaries, and provide benefits and office space. With HRO, you can delegate routine tasks to people with the tech necessary to automate those jobs at a much lower cost than hiring HR staff. 

Why not just buy software and use that instead? Well, because software can be expensive and there’s a learning curve to using them that your business might not have the time or resources to go through. 

Depending on your needs, an HR outsourcing provider might charge a flat monthly fee or one that’s equivalent to between 4% and 8% of each employee’s pretax monthly earnings, according to ADP. So, an HRO service provider is a good and cost-effective solution. 

Leverage Specialized Knowledge and Expertise

As HRO companies service many clients, they are exposed to more HR issues and will be better able to handle problems that you might have a hard time dealing with. So, they have specialized knowledge and expertise that your business can tap into, for instance, they are familiar with HR best practices. 

In addition, these HRO firms also keep abreast with the best HR tech in the market and can provide detailed reports and analytics useful for decision-making. They also monitor laws and regulations that may affect HR.

Improve Compliance and Mitigate Legal Risks

Understanding and navigating laws and regulations can cause a headache to most people. However, complying with laws and regulations is important.  Non-compliance, or not following regulations and the law, can result in expensive penalties and other serious repercussions like suits or litigation. 

“This is basically the same as health/dental care. You’re just not qualified to do it,” business owner Mike Taber wrote in his blog “If you know what to look for, you can certainly cut down on the amount of work that your attorney has to do by pointing out your concerns, but don’t think that you can completely replace him. There are nuances to the law that you’re just not familiar with.”

When it comes to laws and regulations, HRO companies typically have a team of specialists that will help your business comply with all applicable HR regulations at all times. Their team will have experts in all HR procedures, such as recruitment, payroll, taxes, benefits administration and employee relations. These specialists will notify you how a new or revised law can affect your business as well as advise you on how to comply with them.

By hiring an HRO service provider, you’re minimizing your legal risk. Similar to having your trusted doctor do a surgery or other medical procedure, an HRO company can give you peace of mind when it comes to HR regulation compliance. 

“Obviously, if you don’t know how to do something, then you should outsource it,” Taber advises. “The trick is being able to differentiate between what you need to do yourself, and what you could do but makes more sense to outsource from the standpoint of either time or money.”

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