The Many Benefits of Outsourcing HR Business Processes

Business process outsourcing (BPO) is a outsourcing part of your business functions to external service providers. The outsourced functions are generally non-core aspects of the business, such as accounting or human resources management. BPO helps to free up businesses time so they can focus on business strategy and main objectives, helping them become more competitive in their markets.

Outsourcing also helps companies save money and time. The outsourced operations can be as broad as a company’s human resources administrative tasks or as specific as a single function, such as payroll processing. Outsourced processes often rely on technology, so BPO is sometimes referred to as information technology-enabled services (ITES).

In this article, you will learn about the evolution, functions, benefits, and challenges of business process outsourcing. We'll discuss BPO for human resources functions and list the primary types. We will also look at when you should consider outsourcing HR, the costs of HR BPO and how to choose an HR BPO vendor.

The Evolution of BPO

Business process outsourcing originally was associated with manufacturers who outsourced parts of their supply chains. Now, businesses in many sectors, nonprofit organizations, and government agencies use BPO as a cost-effective solution. It's a way to increase efficiency, save time, improve productivity, focus on core missions and benefit from technology and expertise not held in-house.

Today, when people think of business process outsourcing, call centers may come to mind. However, BPO can cover a far wider range of functions. To see how popular BPO is now, consider its reach and growth. In 2023, the global business process outsourcing market was valued at $280.64 billion and is projected to grow 9.4% annually until 2030.

Functions of HR BPO

Businesses look to HR business process outsourcing to help handle HR administrative tasks and more. Depending on a company’s needs and the functions it chooses to outsource, outsourcing can cover a lot of ground.

Payroll taxes and payroll

Getting payroll and payroll taxes right is crucial for the smooth running of a business. With HR outsourcing, a business can free up the time of its in-house staff, optimize cost, streamline and navigate the complexity of federal, state and local payroll and tax rules and requirements. BPO companies may help:

• Calculate regular and overtime pay, time off, deductions, and net pay.
• Make payments to employees via check or direct deposit.
• Keep payroll records.
• Provide employees with pay stub information.

Some HR BPO vendors may administer payroll taxes to help the business.

Benefits

A BPO vendor may administer client-sponsored benefits for a client's employees, handling functions such as:

• Providing information about benefit plans to employees.
• Providing the application for employee to enroll into plans.
• Supporting employees through the open enrollment periods.

BPO vendors often offer a self-service portal to employees so they can enroll and update their information on their personal devices at any time. Professional employer organizations (PEOs), one type of HR BPO, provide small and medium-sized companies with access to premium benefits that they otherwise may not be able to access.

Recruitment and hiring

HR business process outsourcing can streamline the recruiting and hiring processes to help save you time, help you attract the top candidates for your company and get new hires off to a good start. Outsourced services may include:

• Posting jobs on targeted sites.
• Sharing job postings on social media.
• Tracking applicants through the various stages and organizing the data.

A BPO vendor also can help onboard new employees.

Performance management

HR business process outsourcing can make your performance management processes more useful and efficient. A BPO provider provide the performance management tool and consulting so you can:

• Determine the best intervals for performance reviews.
• Schedule reviews.
• Facilitate feedback and other related communication between managers and the employees they supervise.
• Develop individualized training plans for employees.

Business process outsourcing can help you develop employees' leadership skills and grow their careers while meeting the specific needs of your company.

Risk mitigation

HR is governed by employment-related rules and requirements. Small businesses may find it hard to keep track of all the relevant federal, state and local employment-related rules and requirements. A BPO provider can help you navigate this complexity so you can stay on top of HR compliance. Also, by using up-to-date technology to handle processes such as calculating payroll, the BPO system can help processing payroll be less vulnerable to errors that could raise concerns. Some BPOs also offer best practice guidance from professional HR experts.

Benefits of Outsourcing Business Processes

HR BPOs provide many benefits to the companies that hire them. Outsourcing these processes can:

• Conserve resources. HR business process outsourcing is usually a more cost-effective way to handle HR administrative tasks compared to keeping them in-house.
• Increase time spent on your company’s core functions. When you outsource time-consuming and repetitive tasks, you free up your employees' time and creative energy to advance your core business goals.
• Improve efficiency and performance. HR BPO employees are often specialists in particular areas of HR. This enables them to handle HR functions more efficiently than a client's in-house employees, who lack the same in-depth knowledge and background.
• Give you access to up-to-date technology. Because HR is their core focus, BPO vendors are aware of HR technology trends. They also invest in high-quality, up-to-date HR technology, which can be difficult for small businesses to do on their own.
• Provide HR expertise. While it’s difficult and time-consuming for a small company to keep up with the changing employment landscape, BPO vendors often have experts who help you navigate this landscape so you can comply.
• Offer access to a global workforce solution. Some HR BPO partners with global workforce solution provider, who can help you expand globally.
• Help you scale up or down. If your company is growing and hiring new employees, HR business process outsourcing can help you by providing the tools to help with recruitment and hiring, making the processes more efficient and effective. If your business is seasonal, and you need to temporarily grow and then shrink your workforce, HR BPO can help with that too.
• Increase employee satisfaction. HR BPO contributes to employee satisfaction through features like employee self-service portals, access to premium benefit packages, and access to training and career development tools.
• Enable strategic decision-making with data analytics. Powerful data analysis tools provided by a BPO can give you insights to guide your future business strategies.

Challenges of Outsourcing

While there are many benefits to HR business process outsourcing, there may be challenges too. If the workers handling your outsourced tasks are in other countries, there could be concerns with language barriers and time differences. There may also be security issues. Because you will be sharing sensitive employee data with your BPO, be sure to choose a BPO that puts a high value on maintaining data security and has robust measures in place to protect your information.

Types of HR BPOs

The type of HR BPO you choose will depend on your preferences and needs. Some HR business process outsourcing vendors provide comprehensive services, while others offer more of an a la carte approach.

PEO

A professional employer organization (PEO) provides HR experts and technology for a comprehensive HR outsourcing solution for a small or mid-sized company’s HR outsourcing needs. Services include access to benefit plans otherwise that may only be available to big companies, risk mitigation, payroll administration, payroll tax administration, and workers’ compensation insurance and claims handling. A PEO and the client are in a co-employment relationship, wherein both the PEO and its client business share certain responsibilities as allocated in the client agreement.

ASO

An administrative services organization (ASO) typically offers tiers of services, which you can choose from according to your needs. Service tiers may range from payroll tax support to a full-service option that covers most of your HR administrative functions. Unlike a PEO, an ASO does not enter into a co-employment relationship with its client business. The business is the sole employer of record. While an ASO can administer your benefits package, it does not actually provide access to benefits, nor does it provide workers’ compensation insurance.

One thing that both ASOs and PEOs do for their clients is provide access to HR technology and teams of expert professionals to help with your HR functions so they are handled efficiently, and to give you best practice guidance when you need it.

Managed services

The managed services option is a good choice for companies that want to outsource some specific HR functions while keeping others in-house. It allows you to pick and choose the services you need. Options include payroll processing, administering client-sponsored benefits, providing expertise to navigate HR compliance, talent management, recruiting, and training. Using managed services outsourcing also gives your company access to the latest HR technology and digital tools, so you gain access to technological innovation without having to maintain and update all the systems in-house.

When Should I Outsource HR?

If you haven’t yet tried it, how do you know when you should outsource HR? There are several factors that could lead a small business to decide that now is the time to consider an HR BPO:

• You’re having trouble handling all your HR functions. As your company grows, you’ll have more HR processes to deal with. For a small company, this can exceed the staff's capacity. Rather than hiring and training more HR in-house personnel or investing in new computers and software, consider whether HR business process outsourcing would be easier and more cost-effective.
• You’re not attracting the right job candidates. If you’re not filling your open positions with the top-tier talent that you want, HR business process outsourcing can help enhance and streamline your recruitment process. A BPO can also help provide a consistent and productive onboarding experience for your new hires.
• You want to expand to another state or country. If you’ve held back on expanding to other locations because of the complexities of hiring employees in other states, an HR business process outsourcing company can help. Choose a BPO with expertise in the employment-related rules and requirements, as well as a solution if you want to expand globally.
• You’re concerned about mitigating risk. It’s often not practical for a small business to spend the time and resources to keep up with changing employment-rules and requirements. A BPO can provide the expertise you need to help you navigate these compliance concerns.
• You are dealing with change and want to be more flexible. Change is inevitable in today’s business climate. A BPO can provide technological tools, such as data analytics, that will help you anticipate and take advantage of changing conditions.

Things to Consider About Outsourcing HR

When you are considering using an HR BPO, it’s helpful to keep certain things in mind.

• Set your goals. The more clarity you have about what you want to accomplish, the better you’ll be able to find the right BPO provider for your needs. Do you want to be more cost-effective by not having an in-house HR department? Do you want access to certain types of expertise from HR professionals? Do you want HR compliance and risk mitigation support? Get input from the stakeholders in your company and draw up a list of your outsourcing goals.
• Decide what functions you want to outsource. Do you want a comprehensive solution that will help handle your HR functions? Or are there specific processes you want to outsource? If the latter, make a list of the processes you want to outsource and set priorities, distinguishing between must-have and nice-to-have services.
• Take into account the specific needs of your industry. You may face concerns that are specific to your industry. The type of work that you do will also influence your outsourcing needs. Look for a BPO that has experience working with companies in your industry.
• Account for time zone differences. If a BPO vendor is in a different time zone, it may be more difficult to access live customer service and support.
• Make data security a priority. A BPO will need access to sensitive employee data to help handle payroll processing and other HR functions. Look for a BPO with strong measures that put data security as an importance.

Outsourcing costs

Outsourcing costs depend on what type of BPO company you work with, how many and which services you want to outsource, and the number of employees in your company. Other factors may include whether your industry is highly regulated, whether you are operating in multiple states or countries, and whether you are in a high-salary industry or location.

The most common pricing models that HR BPO providers use:

• Per employee per month or year
• A percentage of employees’ earnings
• Pay per service
• Retainer fees
• Project-based pricing
• Custom pricing

When considering costs, you should always keep in mind the ROI you gain by outsourcing HR processes. Base your decisions on whether it’s cost effective by outsourcing. Looking at PEOs, for example, the average annual ROI for using a PEO is more than 27%*.

The outsourcing agreement

When you work with a BPO provider, your company will need to enter into a contract to govern your relationship. This agreement should be detailed, covering all applicable terms, including pricing. The most common types of BPO contracts are time and materials, fixed-price, and flexible scope.

The most important item in the BPO agreement is the scope of services, which specify the provider's duties and responsibilities. Other items include the service levels and enforcement, payment structure, base price and all other fees. Also consider these terms such as data security, warranties, a limited liability clause, dispute resolution procedures, monitoring and audit protocols, how to terminate the contract, and exit management.

Making a Choice on Business Process Outsourcing

Global large company providers that offer HR business process outsourcing are oriented toward large businesses and may not be the best choice for smaller companies. TriNet, on the other hand, is built especially to serve the needs of small and medium-sized businesses.

TriNet offers PEO, ASO, and HRIS (human resources information system) services to best meet the varied needs of clients. We provide the up-to-date technology platform and teams of expert HR professionals. We know the challenges that small and medium-sized companies face, and we have the solutions. We make HR easy for you so that you can focus on making your company thrive and grow.

TriNet received recognition as the best simple HR and payroll platform in Forbes Advisor’s 2024 list of the best HR outsourcing services. To find out more about what TriNet’s HR business process outsourcing can do for your company, book a demo today.