It is clear that human resources (HR) or people management is a strategic and crucial task. HR professionals are responsible for crafting employee experiences, from onboarding to performance management and company culture, all of which directly impact employee satisfaction.
While it may seem counter-intuitive, outsourcing in the Philippines, India, Singapore, Malaysia, Vietnam, Sri Lanka and other countries nearshore and offshore can help enterprises provide their employees with the best employee experiences. The growth of the human resources outsourcing market is a testament to the value it adds to the industrial ecosystem.
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The State and Growth of the Human Resources Outsourcing Market
Human resource outsourcing pertains to a business organization transferring one or more HR functions — even the entire human resources department — to a third-party provider.
Benefits and compensation management and administration, employee learning and professional development, employee records management, and resource planning are some HR functions organizations typically outsource.
There is a thriving global human resources outsourcing market. Digital Journal says the HRO global market was valued at $35.2 billion in 2021. It is expected to grow at a 6.7% compound annual growth rate (CAGR) and will be worth $53.8 billion by 2028.
This robust global HRO market growth agrees with the findings presented in Deloitte’s 2021 Global Shared Services and Outsourcing Survey Report. The report says HR is the second most popular function for shared services centers (SSCs) across industries. It also reveals that payroll — an innate HR function — is the third most outsourced function among survey respondents.
Specifically, the companies included in the Deloitte survey report 49% of their full-time equivalent (FTE) human resource professionals come from global business services providers. The percentage of their FTE payroll employees outsourced to a global business services (GBS) provider is even higher at 80%.
Important note: SSCs are business units designated to perform specialized tasks for an entire organization, including its subsidiaries. It works like outsourcing but technically isn’t because an SSC is still part of the organization.
Multinational corporations can establish shared services centers as offshore companies in overseas locations. These offshore companies are like outsourcing agencies. However, they are owned and operated by the corporations they support instead of being independent, third-party business process outsourcing (BPO) providers.
Why Do Companies Outsource HR Functions?
It is apparent that companies are making full use of outsourcing (or similar models). The question now is why. It’s also time to circle back and discuss how outsourcing can help manage people’s experiences and improve employee satisfaction.
The following are the significant benefits of human resources outsourcing.
1. Cost Savings
Outsourcing HR functions can save an organization money in several ways.
It can eliminate the need to hire and train additional HR staff, which can be expensive and time-consuming. Outsourcing firms can also provide economies of scale, which means they can offer services like benefits administration at a lower cost than an organization could achieve on its own.
Furthermore, outsourcing can help reduce the risk of costly HR mistakes, such as compliance violations, which can result in fines and legal fees.
HR outsourcing firms specialize in providing HR services. They have a deep understanding of HR best practices and compliance requirements. This can be particularly valuable for small and mid-sized organizations that may not have the resources to hire an experienced HR professional in-house.
Outsourcing firms can provide expertise in areas like employment law, benefits administration, and employee relations, which can help ensure that an organization complies with all applicable laws and regulations. Additionally, outsourcing firms typically stay up-to-date on changes to laws and regulations, which can be difficult for organizations to do on their own.
3. Focus on Strategy
Outsourcing HR functions can free up an organization’s internal HR staff to focus on more strategic initiatives, such as talent development and succession planning.
By outsourcing administrative tasks such as payroll processing, benefits administration, and employee data management, an organization’s HR staff can spend more time on activities that can significantly impact the organization’s overall success. This can help increase productivity and improve the overall efficiency of the HR function.
4. Access to Technology
HR outsourcing firms have access to advanced HR software and platforms that can help streamline HR processes and improve data management.
These platforms can provide significant features, such as online benefits enrollment, employee self-service portals, and automated payroll processing, which can help reduce the administrative burden on HR staff.
Additionally, outsourcing firms can help ensure an organization’s HR technology is updated and properly integrated with other systems, such as accounting software or time and attendance systems.
5. Improved Employee Satisfaction
Human resources outsourcing can contribute to employee well-being and satisfaction in many ways.
It frees employees from typically tedious administrative, clerical, and other back-office HR tasks. Instead of wasting an employee’s time reviewing and screening job applicants and performing due diligence tasks, a company can outsource this function to a third-party provider. The company’s internal HR officer can still conduct final interviews and make hiring decisions.
Outsourcing routine and recurring processes can lead to seamless onboarding and efficient benefits and compensation implementation, calculations, and disbursement. Smooth onboarding can help companies leave a positive impression on their new hires, improving retention rates. Employees will also be naturally happy when they can receive their correct compensation on time, all the time.
And since third-party outsourcing partners can take on the grunt HR tasks and field inquiries about benefits and compensation, internal HR officers can focus on nurturing and enforcing company culture, which can then improve employee engagement.
Also, HR outsourcing means taking advantage of established systems and processes and the specialized HR expertise that an outsourcing partner brings to the table. This way, a small to medium-sized company without the necessary HR best practices knowledge can still provide their employees with superior people experiences with the help of their HR outsourcing partner.
Take Advantage of HR Outsourcing
The global human resources outsourcing market is growing, and for good reason.
HR outsourcing can provide many benefits, including cost savings, expertise, improved efficiency, access to advanced technology, and enhanced employee satisfaction.
By outsourcing HR tasks to a trusted provider, organizations can free up internal resources to focus on more strategic initiatives while ensuring that HR functions are handled promptly and efficiently.