HR outsourcing is the process of offloading the HR services of an organization to an external third party. There is no denying that outsourcing some HR functions to the outsourcing agencies is beneficial in the long run.
Undoubtedly, therefore, Human Resources BPO is a thriving sector. However, many companies still believe that outsourcing might be a wrong decision, which is a misconception.
According to the Global Human Resource Outsourcing Market study, the sector will grow by 10.90% from 2022 to 2026.
Such statistics and predictions make it imperative for organizations to learn what BPO is and how crucial HR BPO is in today’s competitive market scenario.
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What Is Human Resources BPO?
Human Resources BPO, also known as HR BPO, entails outsourcing an organization’s human resource duties and responsibilities to specialized agencies.
The HR tasks range from sourcing, hiring, and onboarding to terminating employees, basically, everything human resource departments do. The distinction lies in the parent organization's partnership with an outsourcing agency.
Human Resource BPO is one of the most crucial departments in an outsourcing company. The HR practices in the BPO sector are usually more rigid than in the conventional setting. HR practitioners frequently come up with strategies to navigate the workplace more efficiently.
Key Benefits of HR BPO
There are several reasons why outsourcing HR processes and activities prove beneficial for organizations in the long run. Here are the most important ones:
1. Saves Costs
The foremost benefit of Human Resources BPO is cost saving. By outsourcing the HR services, companies no longer need to manage things in-house. This reduces the payroll expenses along with the funds spent on training staff. Offshore BPO services can be even more financially rewarding.
Also, most HR BPO agencies adopt a shared service model through which they can deal with numerous clients. This, in turn, allows them to acquire a more cost-effective plan for the clients, such as reduced insurance premiums.
2. Reduces Legal Complexities
There is no denying that HR involves a lot of legal paperwork than any other department in an organization. Often, this paperwork can be pretty complicated, requiring a dedicated team to handle it. Slight mistakes can even lead to lawsuits.
With an HR BPO vendor, organizations can eliminate the service provider efficiently and handles the legal activities-related worries like all of these. The quality of work is high because the teams comprise experts with considerable experience in HR.
3. Prevents Overworking of Employees
Sometimes, in-house HR teams have to manage more work than they are capable of within a specific period. With HR, the problem is that the scope of work is often undefined. This leads to overworking of the employees who have to manage too many things, apart from their core HR work.
One of the primary benefits of outsourcing HR activities is letting the employees focus on the more critical work and avoid over-exhaustion. BPO firms have dedicated HR professionals who can handle the tasks with efficiency.
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 commonly 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.
HRO 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.
The employees of a company can make or break it, so hiring the best talent is a priority for every organization. Outsourcing the recruitment process is a good idea because the senior managers in the HR department of a company already have loads of work. They might not be experts in recruitment, so it would be best to utilize their efforts in their niche.
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, enabling them to 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 will 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. Organizations no longer require conceptualizing and implementing everything on their own.
Types of Human Resources Business Processes Vendors
Human Resources BPO vendors are businesses that offer HR solutions to their clients. Depending on an organization’s want, they 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 their dealing of the crucial HR tasks:
- Setting Up Services and Decision Making
- Tax and Legal Matters
- Employer Status
- Drafting the HR BPO Agreement
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 holds control of 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 to performance management. Unlike HRO firms, PEOs are in charge of significant HR decision-making.
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 the HR activities. They are also able to manage the legal issues surrounding any of the HR functions.
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.
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 the 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 services. The pricing model should be such that it reflects predictability, efficiency, and competitiveness. 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.
Human Resources BPO Takeaway
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 capable outsourcing options available today, companies have no trouble finding and collaborating with one that best fits their unique outsourcing needs.