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Human resource functions have been tied to the operations of businesses since time immemorial — after all, people serve as the foundation of every business, regardless of the industry or the size of the organization.
With workplaces (and human resource functions) becoming far more complex, with constantly changing labor regulations, challenges in the labor market, rising employee expectations, and the constant need to retain staff, the role of human resources in businesses today has grown beyond its traditional administrative nature.
Over the years, as businesses evolve, approaches to HR have evolved, too.
Among the changes on this front is the rise of human resources outsourcing (also dubbed HRO, HR outsourcing, outsourced HR, and other similar terms you’ve probably heard of by now). As a fast-growing industry with a current market value of almost $40 billion, human resources outsourcing is among the most popular services provided by offshoring and outsourcing companies, particularly those based in the Philippines.
When you consider the costs and efficiency that outsourced HR services bring to businesses, it’s almost too easy to think of it as an advantageous option that businesses all over the world can adopt. But it’s business — and in business, you want to make sure that every investment you make is worth every dime.
So, in this article, we’ll provide business owners like you with a guide to Human Resources Outsourcing Services: everything you need to know about the industry from its benefits to the common misconceptions about its nature. From there, we’ll help you as you decide whether HR outsourcing is the best choice for your business, today and long into the future.
Keep reading.
What are Human Resources Outsourcing Services?
In essence, Human Resources Outsourcing is the business practice of delegating some (or even all) of your organization’s HR functions to a third-party provider. That said, outsourcing HR functions can be done with inshore companies (those also based in the US) or with an HR outsourcing provider offshore, like those based in the Philippines.
Instead of handling every HR process in-house, this option allows your business to partner with the top HR Outsourcing companies in the Philippines that bring specialized expertise, and, as an added (but equally considered) benefit, at a fraction of the costs you would have to pay if you hire an in-house HR expert.
As mentioned above, there are two ways to outsource HR functions:
1. Full-service HR Outsourcing
Full-service HR outsourcing is when you work with an external provider who will manage EVERYTHING from payroll to recruitment to employee engagement.
You may, however, also opt for:
2. Selective HR Outsourcing
This option allows you to outsource specific payroll functions that will augment your current HR team, such as payroll processing, benefits administration, or compliance administration. This is a good option for when you already have an in-house HR professional, but you want to get some of the tedious tasks off their plate.
Some of the most commonly outsourced HR roles and functions include:
- payroll processing and tax compliance
- talent acquisition and onboarding
- benefits and compensation management
- employee training and professional development
- employee relations and performance management
- legal and regulatory compliance management
There are HR outsourcing providers in the Philippines who offer some or all of these functions, it’s just a matter of choosing (1) the right provider and (2) the right engagement model that will work best for your business.
Now that we’ve covered what HR Outsourcing is, it’s also important to discuss what it’s not. Despite growing popularity, HR outsourcing is often misunderstood. Many business owners hesitate to explore it due to myths and hearsay about the nature of this service.
Let’s clear up some of the common misconceptions about outsourcing HR services.
1. “Outsourcing HR means losing control of my employees.”
One of the biggest fears business owners have is that outsourcing HR functions will strip them of control. In truth, outsourcing HR does not mean relinquishing authority at all. It simply means delegating administrative and compliance-heavy tasks to a specialized partner. As a business owner, you still set the overall HR strategy, company policies, and cultural direction. The HR outsourcing provider’s role is to execute tasks efficiently and in compliance with the relevant employment law, freeing you up to focus on high-value tasks.
2. “Outsourced HR is only for big companies.”
While large corporations were the early adopters of HR outsourcing, SMEs stand to benefit just as much, if not more. Small and medium-sized businesses often lack the in-house expertise or budget to build a full HR department. By outsourcing, they gain access to specialized HR professionals, advanced HR technology, and compliance knowledge without the overhead of full-time salaries. In fact, for growing businesses, outsourcing HR can be a cost-effective way to compete with larger firms when it comes to employee benefits, payroll efficiency, and overall people management.
3. “Employees won’t like it if we outsource our HR.”
Some employers worry that outsourcing HR will create distance between employees and the company. In reality, employees often appreciate the improvements outsourcing brings. With faster payroll processing, streamlined benefits administration, and more responsive HR support, employees typically feel more satisfied and secure. Outsourced HR providers also often bring modern self-service portals, allowing employees to access payslips, request leaves, or update records conveniently. If anything, outsourcing HR functions boosts employee satisfaction and experience.
In the end, it’s all about maximizing the benefits that HR outsourcing providers offer. Speaking of which — we now move on to the benefits of outsourcing your HR functions.
Why outsource your HR? How does HR outsourcing benefit your business?
In a fast-paced market where your people are your greatest assets, you need a strong team to manage said assets and ensure that they are at their best (because that’s how businesses thrive). Here are the reasons why more and more companies are now opting to outsource their HR department:
1. HR Outsourcing saves business costs.
With an HR outsourcing service, the need, and subsequently, the associated costs of hiring, training, and maintaining a large, in-house HR department are eliminated. With a solution like this, business owners only pay for the services they need, reducing overhead costs, while maintaining the quality of HR expertise.
2. Outsourcing HR services allow you to access global expertise.
HR service providers in the Philippines employ specialists in people management, compensation and compliance strategies, benefits administration, and workforce management. With talent from global pools, your business gets a level of expertise that will not be available to you otherwise.
3. Outsourced HR providers empower you with HR tech.
Often, outsourced professional employer organizations utilize human resource information systems (HRIS), applicant tracking systems, and payroll software. When you outsource HR functions, you get to leverage this advanced technology as well, streamlining your HR administration and providing your team with valuable workforce insights.
4. HR Outsourcing makes it easier to scale up (or down).
Businesses are as agile (and sometimes unpredictable) as they are competitive. So, if you are looking for an HR solution that can match your unique business’ needs, HRO is an ideal option. You can use outsourced HR services to onboard seasonal hires and then scale back afterwards, without worrying too much about the costs and implications of hiring (and then firing) internal HR staff.
5. With an HR Outsourcing solution, you can refocus on your core business.
Business leaders (usually the ones running a small business) tend to spend too much time managing HR-related tasks instead of focusing on growth-focused initiatives. By outsourcing, business leaders can concentrate on their core competencies and delegate the complexities of workforce management to reliable HR specialists.
Of course, while HR outsourcing offers many benefits, it’s not without challenges.
What are the risks and challenges of HR Outsourcing?
Let’s discuss some of the potential issues that business owners need to be mindful of when choosing to outsource an HR department or specific HR functions. Bear in mind, however, that the best HR outsourcing services providers already have systems in place to address these concerns.
1. Data Security Concerns
Outsourcing HR requires sharing sensitive employee information including, but not limited to, salary details, tax records, and personal identification data. If not handled properly, a breach could expose employees to identity theft, fraud, or data misuse, while damaging the company’s reputation. To mitigate this, businesses should partner with providers that have robust cybersecurity practices, including encrypted systems, multi-factor authentication, secure cloud platforms, and compliance with international HR standards.
2. Cultural Misalignment
In managing people, culture is quite an essential aspect. If the outsourcing provider does not understand or align with the organization’s values, miscommunication and employee disengagement can occur. For example, how a provider handles performance evaluations or employee conflict resolution may not match the company’s preferred style. The key here is to establish regular communication, clear guidelines, and alignment meetings to ensure the provider reflects your company’s unique culture.
3. Hidden Costs
Not all HR outsourcing contracts are straightforward. Some providers may charge extra fees for services like urgent recruitment, advanced training programs, or integration with new HR systems. Without careful review, businesses may find themselves paying more than expected. To prevent this, companies should negotiate contracts carefully, request full pricing transparency, and clarify what is included in the base package before signing an agreement.
If you still have these concerns and are not sure whether HR Outsourcing is right for your business, that’s totally understandable. After all, this is a rather big move as it concerns both your financial and human resources.
To help out, here’s something that can help you out as you decide. Before working with an HR outsourcing firm, consider these:
10 Questions to Ask Before Hiring an HR Outsourcing Provider
- How do you ensure payroll accuracy and compliance?
- What data security measures do you have in place?
- Can your services scale as my business grows?
- What HR technologies do you use?
- How transparent is your pricing model?
- What industries or businesses have you worked with before?
- How do you handle employee concerns and communication?
- What happens if there’s a disruption in your services?
- How do you ensure cultural alignment with our company?
- Can you provide references or case studies?
By asking these 10 questions, you’ll move past marketing claims and see whether an HR outsourcing provider can truly deliver the human resources outsourcing services that you need and match the overall, long-term goals of your business.
Ready to get started?
Ask KDCI these questions today — we’re happy to discuss your HR outsourcing needs.
At KDCI, we specialize in finding HR experts who have the skills and experience you need, as well as the attitude and cultural fit that will allow them to easily integrate with your in-house team. Whether you’re looking to hire one full-time offshore HR generalist, a couple of payroll specialists, or looking to build a dedicated offshore HR department in the Philippines, KDCI has the right tailored outsourcing solution and engagement model for you.
KDCI has options specifically made to support your business’ day-to-day operations and overall growth in the long run. Contact us today to learn more about HR outsourcing and how it can support your growing business.
