6 Types Of Outsourcing Every Business Needs To Know
To ensure a smooth workflow, businesses today need a host of human resources (HR) functions. But not all companies are ready to hire a full-time HR team or even need one. That’s where outsourcing, specifically HR outsourcing comes in. And the best part is that there are many types of outsourcing out there.
Most people and companies believe that an HR team is simply in charge of giving people their salaries and hiring new candidates when needed.
But the human resources field covers a wide array of services and functions, not just payroll and hiring.
Moreover, one of the great things about HR is that many of its functions can be outsourced so that businesses can focus on their core products and services.
In this article, we’ll be focusing on the different types of outsourcing within the HR function. We’ll also help you determine your business needs so you can make the most out of your outsourcing experience.
What is HR outsourcing?
Outsourcing in general is the process of having people outside your company perform certain tasks related to your company or business.
Companies often outsource certain projects or tasks that they cannot fulfil internally or don’t need to hire a full-time employee to perform these tasks.
Hiring freelancers is considered a type of outsourcing. And it’s a widely-used and accepted practice that comes with a variety of benefits.
Human Resources Outsourcing(HRO) is the process of having an external company perform HR tasks and functions on behalf of your organization.
This external service provider aims to help you delegate and get the most – if not all – of the HR functions that you may not otherwise be able to do inside your company.
Top HR functions
Before we get into the different types of outsourcing and the benefits of human resources outsourcing, let’s first clarify what we mean by HR functions.
While there are many functions, they mostly fall under one of these 9 functions:
- Hiring and recruitment (including talent acquisition)
- Employee relations
- Payroll and compensation planning
- Ensuring that the company complies with the country’s labor laws
- Workplace safety
- Establishing company policies and work ethics
- Employee development and training
- Performance management (including quarterly and annual performance reviews)
- Risk management
HR outsourcing models
When you consider the different types of outsourcing of HR services, you must first be aware of the different HR outsourcing models. Doing so will help you determine which of these models can fulfill your needs best.
An HR outsourcing model is how your HR service provider will provide their service to you. It’s a kind of approach that indicates how you can get the outsourced HR services you want.
Of course, when working with HR service providers like Tawzef, you can tell us what your needs are, what you think is best for you, and our team will explain which HR outsourcing model is truly the best for you.
There are 3 main HR outsourcing models:
Professional Employer Organization (PEO) :
Under the professional employer organization agreement, your HR service provider becomes responsible for several employee-related activities in your company.
These include payroll, compensation and benefits, taxes, and all government-related needs.
Professional employer organization agreements are also considered co-employment relationships or partnerships.
Under the PEO deal, your employees become part of the PEO provider including all their taxes, benefits and compensation, and others. Your salaries are paid to the PEO who pays them to your employees.
Administrative Services Organization (ASO) :
Another HR outsourcing model is the Administrative Service Organization (ASO). Under this model, you get your HR services from an external company but your employees, their records, and all their documentation remain part of your organization. Meanwhile, the ASO becomes like a trusted partner or advisor not a co-employer.
Under the ASO model, you can pick the HR services you want and exclude others.
Using an administrative service outsourcing model means you get more contact and authority over your employees, while getting organizational and administrative benefits of an HR service provider.
Human Resources Organization (HRO) :
Last but not least is Human Resources Organization (HRO), which is the most commonly-employed type of outsourcing in the HR world. The reason HRO is the preferred HR outsourcing model for larger companies and corporates is because of the variety of services it includes.
Unlike the PEO and ASO models, a Human Resources Organization provides a large number of HR services and functions for companies to choose from. Think of HRO as a menu of HR services.
HR outsourcing advantages and disadvantages
Like any type of service, outsourcing your HR functions comes with advantages and disadvantages. Let’s examine each in brief.
Advantages of HR outsourcing
By outsourcing your HR functions, your organization can:
- Get more time to focus on your core products and services without having to worry about internal requirements.
- Cut the cost of hiring a full-time HR team.
- Hire an HR service provider, like Tawzef, when needed, or for certain projects or requirements.
- Have experienced HR companies, like Tawzef, provide aspects that your company might not be familiar with like an HR strategy, manage employee relations and exit schemes.
Disadvantages of HR outsourcing
Despite the benefits, there are a few downsides:
- Your team may not feel that HR is part of the broader team and interaction becomes less personal.
- Some recruitment challenges. The recruitment process is generally full of problems. Outsourcing talent acquisition may result to a recruitment agency may see some challenges if the agency isn’t thorough or well-versed in your talent needs.
Moreover, some candidates hired by an agency may (or may not) be in line with your company’s culture.
Types of outsourcing in HR
Now that we’ve covered the different HR outsourcing models, let’s explore what areas of HR can businesses outsource.
1- Manpower outsourcing
Manpower outsourcing is the process of asking another company, usually an HR consulting firm or recruitment agency to carry out employee-related tasks.
With manpower outsourcing, these tasks usually include hiring and talent acquisition (including part-time staff), and payroll services.
That said, it’s worth mentioning that manpower outsourcing differs from payroll outsourcing.
2- Payroll outsourcing
One of the mostly widely outsourced HR functions is payroll. Many smaller businesses cannot afford to hire an HR professional but need to manage the process of paying their employees. That’s why they outsource the entire payroll function to a service provider like Tawzef.
Business process outsourcing (BPO) or business process HR outsourcing is when a company outsources its business processes.
Using this outsourcing type, your company enjoys a personalized support experience from its service provider. You also get any HR software your organization might need.
4- HR strategy outsourcing
Many companies don’t know this but they need an HR strategy to support their business, its functions, and development. Having an HR strategy helps companies identify and understand their internal hierarchy, including salary grades, and employee development.
And with many companies today not having – or needing – an entire HR department, they often struggle without a strategy in place.
But the thing about an HR strategy is that can be outsourced to an HR-focused recruitment company like Tawzef, which understands the business and creates an HR strategy to suit and manage its needs.
5- Single source HR outsourcing
With single source outsourcing, your company outsources all its HR needs to one services provider and enjoys support across the entire employee life cycle. Single source outsourcing includes talent acquisition, performance management, payroll and compensation, among other services.
The outsourcing type is considered to be a flexible one because it automates much of the process, giving companies more time to focus on hiring needs and business operations.
6- Software-as-a-Service (SaaS) outsourcing
In the case of software-as-a-service, your company is able to manage some basic HR functions using software. Usually subscription-based, the HR software helps businesses get flexible solutions and enjoy organization support.
While SaaS HR outsourcing is considerably low cost, you may need to use various software or applications to cover your needs.
The human resources field offers many benefits to companies. And while the general perception is that it’s just about hiring and paying employees, HR is a lot more than that.
But as more companies today seek to focus on their operations to generate higher profitability, they need to have strategies and rely on different types of outsourcing to meet their needs.
If you need HR outsourcing such as strategy, payroll, or even consulting, we’re here to help. We want you to focus on the business-side of things, while we’ll handle your HR side of the business.
Or Contact Us Now and our team will support you all the way.