HR business process outsourcing (BPO) is the process of delegating an organization’s HR functions to an external provider. Many businesses find outsourcing some or all HR tasks to experts beneficial, as it frees up internal resources for other priorities.
In this guide, our experts will walk you through the benefits, drawbacks, scope, and types of HR BPO to help you understand why it could be a valuable option for your business.
Table of Contents
What Is Human Resources BPO?
Human resources BPO outsourcing can include HR tasks like sourcing, hiring, onboarding, employee training, payroll management, and even termination. Essentially, it covers all functions typically handled by an internal HR department.
HR BPO is one of the most common outsourcing types, and, according to the Global Human Resource Outsourcing Market study, the sector is projected to expand by 10.90% from 2022 to 2026.
Key Benefits of HR BPO
There are several reasons why outsourcing HR processes proves beneficial for organizations in the long run. Here are the most important ones:
1. Saves Costs
The foremost benefit of HR BPO is cost saving. Outsourcing HR services means that companies no longer need to manage things in-house. This leads to reduced payroll expenses and lower training costs. Utilizing offshore BPO services can be even more financially rewarding.
Additionally, many HR BPO agencies adopt a shared service model through which they can deal with numerous clients simultaneously. This, in turn, allows them to negotiate more favorable terms, such as reduced insurance premiums, resulting in cost-effective solutions for their clients.
2. Reduces Legal Complexities
There is no denying that HR involves a lot of legal paperwork, often more so than any other department in an organization. This paperwork can be complex and requires a dedicated team to manage it properly; even minor mistakes can lead to costly lawsuits.
By partnering with an HR BPO vendor, organizations can offload these legal responsibilities and compliance concerns. These service providers typically comprise teams of experts with considerable experience in HR, ensuring a high quality of work.
3. Prevents Overworking of Employees
In-house HR teams often manage more work than they are capable of within a specific period. With HR, the scope of work and responsibilities is often undefined, which can pose a challenge. It can lead to overworked employees juggling too many tasks, apart from their core HR work.
One of the primary benefits of outsourcing HR activities is that it allows internal employees to focus on more critical tasks and avoid over-exhaustion. BPO firms have dedicated HR professionals who can efficiently handle these tasks and responsibilities.
HR BPO Drawbacks
Before choosing to outsource your HR processes, you should also consider its potential drawbacks. Here are a few challenges you might encounter:
1. No Connection With Employees
The first challenge you may face is how your outsourced HR department connects with your employees. Seeing that HR in this way is no longer part of the company, many employees may find it difficult to share their problems with the manager. Additionally, they may lack understanding of your company’s culture or team dynamics.
2. Longer Times To Fix Problems
Having an external HR team can lead to delays in resolving issues. Say an employee is dissatisfied with their workload and wants to discuss their position. The manager can hear them out, but it’s always best to involve HR to smooth things over. With HR BPO, this meeting might be prolonged, as it can take days or weeks until the HR company is able to send someone over to address the situation.
3. Privacy Concerns
With outsourced HR, privacy is a major concern since external providers handle sensitive employee information. Always ask for assurances from the HR company you’re outsourcing. This includes insurance and guarantees that they won’t mishandle or share your confidential data with third parties.
Additionally, ensure that they have data protection measures and security protocols in place as a precaution to protect your organization and its employees.
HR Business Process Outsourcing Service Scope
Depending on your organization’s strategy and plan, you can outsource numerous HR activities. Here are some of the most outsourced HR activities:
1. Tax Administration and Payroll
Dealing with several tax and legal obligations is often the most painstaking part of HR administration. These are vital tasks that only people with formal training and considerable experience should handle.
Outsourcing the tax administration responsibilities to an agency instead of handling these in-house saves time and resources. HR vendors assist companies in managing their payroll and taxes by paying salaries and benefits and calculating the applicable taxes of each employee. The service providers also file taxes and other documentation with authorities while also resolving issues relating to these areas.
2. Recruitment
Hiring the best talent is a priority for every organization. A dedicated HR BPO team can efficiently handle recruitment by sorting through candidates and finding the most suitable ones. They are experts in advertising vacancies, filtering applications, conducting subsequent interviews, and negotiating offers.
Additionally, HRO experts can train the new hires, helping them integrate faster.
3. Complete HR Outsourcing Solutions
Human resources BPO can either delegate or outsource specific HR activities or hand over the entire HR operations. Small businesses that need a global HR overhaul should ideally go for complete HR outsourcing solutions.
HRO agencies, by taking up the entire HR process, can significantly lessen the workload. They offer end-to-end services ranging from drafting the HR business strategy to detailing the HR process that ultimately decides the HR delivery model.
They are also responsible for the administration of employee benefits and legal compliance. This means organizations no longer have to conceptualize and implement everything on their own.
Types of Human Resources Business Processes Vendors
Depending on an organization’s desire, HR BPO can either manage a few HR tasks or handle the entire HR process. Broadly, there are two types of HR BPO agencies:
- Human Resource Outsourcing (HRO) firms
- Professional Employer Organizations (PEO)
Let’s see how they differ from each other based on how they handle crucial HR tasks:
1. Setting Up Services and Decision-Making
HRO providers assist clients with tasks like payroll, talent recruitment, and taxes when it comes to service setup. They handle a somewhat fixed workload while the client organization manages all the major HR admin decision-making.
On the other hand, PEO takes over an organization’s full-cycle HR process. They take care of all the activities from hiring to training and performance management. Unlike HRO firms, PEOs oversee significant HR decision-making.
2. Tax and Legal Matters
HRO agencies act as service providers to your company and not as full-fledged employees of the organization. They charge a fee in return for the client's tasks specifically assigned to them. Hence, they do not handle the tax and legal implications that result from HR activities executed in-house.
As PEOs take complete control of the HR processes, they file taxes related to HR activities. They are also able to manage the legal issues surrounding any of the HR functions.
3. Employer Status
HRO firms do not typically meddle with the status or decision-making function of the employer organization. They are neither direct employees nor co-owners of the business. They are responsible for the tasks assigned to them and nothing beyond that.
With PEO, the scenario is quite different. PEOs are integrated with businesses and become an extension of the company. They take up the HR data and responsibilities and play a crucial role in HR-related business decisions.
Drafting the HR BPO Agreement
For any outsourcing process or transaction to occur, it is essential to start with a BPO Agreement. Drafting this detailed but optimal HR outsourcing agreement requires the HR professionals to understand the business issues and settle on a price for the defined services.
An HR BPO agreement contains the primary terms and conditions and substantive exhibits. Some organizations also use a Master Services Agreement (MSA), another common type of outsourcing agreement. Large global companies that enable local affiliates to adhere to country-specific business expectations and legal requirements use the MSA.
Irrespective of whether the organization is using a BPO agreement or an MSA, the key exhibits should be the following:
- Scope of services defines the set duties and responsibilities that the outsourcing vendor will take up. This is the first and the most important point in an agreement.
- Pricing should include the base price of the BPO services. Organizations arrive at a fixed price after considering a lot of critical factors.
- Service level fundamentals include an understanding and documentation of the vendor’s commitments to performance. Specific service levels and methods for enforcement are also a part of the service level fundamentals.
- Exit plans to underline the automatic rights of terminations in mission-critical service failures or consistent poor performance.
- Additional contract terms include regulatory compliance, control of personnel, and liability limits.
HR BPO Tools
Here are some tools you can use to help out with your HR tasks:
1. Trello
Trello is a great web-based app that allows all employees to track their work and HR managers to monitor their progress. With the Buttler automation tool, you can now also automate tasks and workflows, making it easier to assign work and track it.
Trello can also be integrated with various other apps and allows linking your favorite tools with the Trello app.
Price:
- Free
- Standard: $5/user/month
- Premium: $10/user/month
- Enterprise: $17.50/user/month (50 users minimum)
2. Zoho People
Zoho is a well-known name in the management industry, especially for Zoho People — a cloud-based HR software that allows quick employee adaptation, helping HR management become more agile and effective. With this tool, BPO HR managers can track employee leaves, time-ins, task completion, and more.
You can get insights on how each team is performing and even track every employee’s growth. Zoho People also provides learning spaces for employees.
The industries that have benefited the most from this tool are IT, advertising, education, healthcare, and finance — but that’s not to say others can’t!
Price:
- Essential HR: $1.25/user/month
- Professional: $2/user/month
- Premium: $3/user/month
- Enterprise: $4.50/user/month
- People Plus: $9/user/month
3. Dialpad AI
Outsourcing HR tasks is not just about tracking the employees’ success and managing their leaves. HR managers also have to talk to the staff and see if there are any issues and devise ways to resolve them. With BPO human resources, having these talks can be difficult since they’re not in the same company.
Luckily, tools like Dialpad AI can help with that. This tool allows teams to connect no matter where they are in the world. What sets it apart from the competition is the built-in live AI transcriptions. Moreover, Dialpad AI can be linked to your Microsoft 365 Calendar or Google Calendar as a reminder of any meetings.
There are also time management tools, call summaries, follow-up calls, and more!
Price:
- Business Communications: $27/user/month - $35/user/month
- AI Meetings: Free - $20/user/month
- AI Contact Center: $95/user/month - $170/user/month
- AI Sales: $70/user/month - $170/user/month
Human Resources BPO Takeaways
Human resources BPO offers an excellent way for organizations across domains to save costs and increase operational efficiency. It enables you to focus on the core competencies without compromising equally essential HR activities.
With numerous outsourcing options available, companies have no trouble finding and collaborating with top HR BPO agencies that best fit their unique needs.
