Boost your employer brand and attract and retain the best talent by becoming a CIPD People Development Partner Show
Membership Become a member
Renew your membershipCome back into membershipUpgrade your membershipManage your membership
Membership grades
Membership feesMember benefitsStudent hub Experience AssessmentMake your HR or L&D experience count Find out moreProfessional qualificationsGet an internationally recognised qualification Find out moreKnowledge hub Cost-of-living crisis: Help for employeesRemote and hybrid workingCoronavirus (COVID-19) hubTackling racism in the workplace hubLet's talk menopauseTopics A - Z
Practical guidance A - ZLatest research and guidanceCIPD PodcastsBusiness publications and journalsHR and L&D archive databaseHR-inform: practical HR and employment law resourcesCIPD BookshopStudent hubAll you need to know about being a CIPD student as well as access to a wide range of resources Find out moreCIPD BookshopBrowse and purchase our range of textbooks, toolkits and e-books Find out moreCIPD HR-informThe essential companion for busy HR professionals Find out moreNews, views and policy CIPD NewsViews on the world of work
In a NutshellCIPD podcastsCampaigns
Policy engagement
CIPD Press releasesBlogsGain insight on issues that matter to HR and L&D Find out moreCOVID-19 hubAccess resources to support your response to the pandemic Find out moreAbout us Who we are
Media centre
Contact usWhat we do
Working with us
CIPD TrustFuture of the professionOur profession plays an important role in ensuring work benefits everyone. Help shape its future Find out moreAnnual ReportLearning together, leading together – investing in our whole community Find out more
People Management PM jobs
Share19 Oct 2022HR outsourcing An overview of HR outsourcing, its use within organisations and its alternatives On this pageOn this page
IntroductionOutsourcing any activity to an external provider can offer benefits, such as increased efficiency and access to expertise. But it can also present challenges, such as loss of local knowledge and processes, and fragmentation of the service provided. Payroll is the most commonly outsourced HR activity, followed by providing advice on complex specialist topics. This factsheet introduces HR outsourcing and its use by organisations, outlining some of the alternatives, such as shared services, employee self-service, and buying-in consultancy services. It highlights the need to consider the business case for outsourcing HR work and the questions to ask in deciding whether outsourcing is the most appropriate solution. Finally, the factsheet offers guidance on selecting a provider and sets out some issues to consider when managing the move from in-house to a third-party service. See the full A-Z list of all CIPD factsheets. What is HR outsourcing?The practice of outsourcing involves buying one or more business services from an external provider. This could include HR and/or other services such as IT. The specific processes included within any HR outsourcing arrangement will vary from organisation to organisation – some may outsource virtually all their HR processes while others select specific components such as payroll or recruitment. Our People profession in 2020 survey found that outsourcing models are used mainly by SMEs. Compared to larger organisations, payroll was more commonly outsourced in SMEs compared with those larger firms surveyed. Complex case loads are also more frequently outsourced in SMEs compared with larger firms. Alternatives to HR outsourcingHR outsourcing isn’t the only solution that organisations can consider if they want to change the way their HR service operates. Other options can work either as an alternative to, or in conjunction with, outsourcing. There’s no single model for delivering HR that’s suited to all organisations. An organisation should structure its HR activities based upon its organisational strategy, wider organisational structure and current business needs. Shared servicesThe term 'shared service' refers to the creation of an internal ‘hub’ for the delivery of HR services that are shared across an organisation (or sometimes, a range of organisations). Currently, more organisations appear to prefer setting up internal shared service centres than adopting a full-scale outsourcing approach. See more in our HR shared services factsheet. OffshoringOffshoring may sometimes relate to outsourcing, and the two terms are often, but incorrectly, used interchangeably. Offshoring is the process of outsourcing business activities or services to a third party overseas and/or moving business activities or services to another country as a direct or indirect employer. So offshoring does not necessarily involve the services of an external provider. ‘Nearshoring’ is a term sometimes used when services are moved to countries close to or bordering the country of operations. Adopting offshoring arrangements is likely to be driven by cost considerations. Some commentators believe that offshoring may be most appropriate for process transactions rather than more personal services such as call centres. Self-service systemsIncreasingly, some organisations are using technology to introduce comprehensive HR self-service systems that allow employees and managers to carry out some HR-related activities themselves via a portal or intranet. In an employee self-service system, individuals may be able to update their own personal details, while in a manager self-service system, managers might review absence records, manage leave or record development activities for all their staff. Buying in consultancy servicesExternal consultants might be used to advise on specific HR issues or on implementing particular HR processes (for example, the introduction of flexible benefits). Typically, consultants do not manage or deliver these services once implemented – this is taken on by the internal HR team. Benefits and challenges of HR outsourcingCreating a business case for HR outsourcing is an important initial step for any organisation considering such a move. The organisation must ask at the outset why it needs to change the way it’s HR function currently operates. What aspects of the existing service are unsatisfactory or would benefit from improvements? By probing such issues, HR can focus on the scale and type of changes required before moving on to consider whether HR outsourcing might be an appropriate response (as opposed to the types of alternatives detailed above). A number of potential benefits and challenges are associated with HR outsourcing. Potential benefitsWhen organisations put forward a business case for HR outsourcing, the potential benefits are frequently cited. In practice, these benefits are not necessarily mutually exclusive, while conversely they might be achieved through some alternative solution rather than via outsourcing. Commonly mentioned benefits include:
Potential challengesPotential challenges to bear in mind when considering outsourcing include:
Selecting a provider and managing the transitionSelecting a providerA number of actions and decisions must be taken when selecting a suitable HR outsourcing provider. Many are similar to those taken when entering into any contractual arrangement with a third party. For example:
Managing the transition to HR outsourcingManaging the transition from in-house to third-party service will need similar considerations to managing any large-scale organisational change. In addition, there will be significant changes to existing HR processes, maybe including HR self-service systems and/or formalised HR call centre provision for staff and managers. It’s therefore crucial to make sure sufficient HR leadership and expertise remains internally to manage the change as well as providing ongoing strategic direction. Clarity over who is accountable for resolving problems during the transition is also key - is it the outsource provider or the outsourcing organisation? The outsourcing organisation’s HR leaders cannot simply delegate. Clear understanding by both parties of what’s involved will also mean misunderstandings are minimised. An open dialogue is needed between the outsourcing company and the provider. Finally, it’s possible that changes will be needed to the roles and skill sets required of the remaining HR staff as well as other employees and managers. This could involve re-deploying certain staff as well as providing additional training to many others. Recognising that these processes take time to introduce needs to be factored into any change programme. Open and ongoing communication to staff about the whole process is vital for success. Further readingBooks and reportsINCOMES DATA SERVICES. (2011) Outsourcing HR. HR Studies. London: IDS. REILLY, P. and WOLFE, H. (2004) HR outsourcing in the UK. Brighton: Institute for Employment Studies. SCOTT-JACKSON, W., NEWHAM, T. and GURNEY, M. (2005) HR outsourcing: the key decisions. Executive briefing. London: Chartered Institute of Personnel and Development. Journal articlesGLAISTER, A. (2014) HR outsourcing: the impact on HR role, competency development and relationships. Human Resource Management Journal. Vol 24, No 2, April. pp211-226. LEWIS, D. (2018) The pros and cons of outsourcing HR. People Management (online). 25 September. REICHEL, A. and LAZAROVA, M. (2013) The effects of outsourcing and devolvement on the strategic position of HR departments. Human Resource Management. Vol 52, No 6, November/December. pp923-946. ROPER, J. (2016) HR's hokey-kokey. Human Resources. March. pp26-31. CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR. Members and People Management subscribers can see articles on the People Management website. Download factsheet This factsheet was last updated by Steve George: Digital Learning Portfolio Manager, HR and Employment Law, CIPD Steve manages content for all CIPD’s HR and Employment Law learning. He is a CIPD associate member. Explore our related contentFactsheets Understand the principles of shared services, how they work, and the benefits they can bring to an organisation Reports A collection of thought pieces from lead thinkers, academics, practitioners and consultants on the future of the HR function Factsheets Explore how to manage, enable and support change management initiatives effectively
People Management PM jobs Copyright © The Chartered Institute of Personnel and Development 2022. Incorporated by Royal Charter, Registered Charity no. 1079797 What types of HR functions are most typically outsourced?The compensation functions commonly outsourced are payroll, job evaluation systems, salary surveys, executive compensation design and expatriate compensation. Outsourcing to third-party administrators for payroll and related tax duties helps employers meet filing deadlines and deposit requirements.
What HR functions can be outsourced?Key takeaway: Common HR outsourcing functions include payroll processing, benefits administration, employee relations, hiring and employee counseling.
What types of HR functions are most typically outsourced quizlet?HR functions that are typically outsourced include benefits and payroll administration because they are transformational activities.
What are the types of HR outsourcing?What are the Different Types of Human Resource Services?. Professional Employer Organization Outsourcing (PEO) ... . Administrative Services Organization Outsourcing (ASO) ... . Human Resources Organization (HRO) ... . Software-as-a-Service HR Outsourcing (Saas) ... . Business Process HR Outsourcing (BPO) ... . Single Source HR Outsourcing.. |
