Best Practices for Outsourcing Human Resources in 2025

Human resources departments juggle multiple tasks, including getting up to speed with compliance regulations, industry trends, and new technologies. 

Since HR departments are swamped with workload and menial administrative tasks, work-life balance is tipped towards perpetual productivity and employee burnout — leaving little to no room for strategic, more purposeful HR tasks.

This is where outsourcing human resources comes in. Human resources outsourcing (HRO) is a godsend for overwhelmed HR departments, as it divides the labor between internal and offshore teams and innovates HR systems while driving up cost savings. 

While there have been success stories, there are also stories of failed outsourcing initiatives. Statistics found that in two years, there’s a 20 to 25% chance that your outsourcing partnership will fail. By the fifth year, this goes up by 50%. 

If you want a successful outsourcing experience, read on for our six best practices for outsourcing human resources. 

Why Do Outsourcing Partnerships Fail?

Outsourcing partnerships fail due to:

• Poor communication
• Unreliable offshore workforce
• Cheap, low-quality HR outsourcing services
• Misaligned expectations
• Lack of feedback

Thankfully, these issues can be avoided (or at least mitigated) with the right human resources outsourcing company.

6 Tips for Outsourcing Human Resources

Before entering the negotiation table, here are six human outsourcing tips to keep in mind:

1. Know Your Needs and Objectives for HR Outsourcing

HR outsourcing, like any form of outsourcing, is a long-term investment for your HR department and whole company. Hence, it’s important to identify your HR needs and define your objectives for outsourcing human resources. These questions can guide you in your needs assessment:

• What are the strengths and weaknesses of all my company’s HR functions?

• What skills and knowledge does the company need?

• Is the company’s HR technology outdated or unable to handle HR processes?

• Has there been an increase in employee turnover?

• Does my HR staff spend too much time on routine administrative tasks?

• Has my company faced issues with non-compliance?

Beyond observation, aim to understand your employees’ perspective. You can do this by conducting interviews, giving survey questionnaires, or forming focus groups. Benchmark reports, SWOT (strengths, weaknesses, opportunities, threats) analysis, and exit interviews can be used as data-gathering tools.

The goal here is to see the big picture from different perspectives and understand the ripple effect of HR challenges on your company. 

From here, you can establish clearer, more specific objectives for outsourcing human resources. Whether it’s to attract potentially culture-fit candidates or improve benefits administration, your objectives must align with your short- and long-term business goals. 

2. Prepare A Budget

One big outsourcing mistake to avoid is being unprepared for the costs of outsourcing HR functions. Understanding what goes into these costs helps you prepare an appropriate budget, avoid overspending, and enjoy the ROI of outsourcing HR services. Below is a general breakdown of expenses when outsourcing human resources:

• Labor Expenses: These refer to the cost of labor, taxes, and benefits of your offshore personnel.  

• Start-Up/Transition/ Implementation Fees: These one-time expenses encompass the costs of data migration, onboarding, software installation and integration, and training associated with setting up an account with an HR outsourcing company. 
• Management Fees: These include the cost of quality assurance and technology infrastructure. 

• Compliance Fees: These expenses encompass the cost of compliance with data security and intellectual property standards. 

Since each business has unique HR needs, outsourcing expenses may vary from one company to another. Before outsourcing human resources, be sure to account for the following factors in your budget: 

• Experience/Seniority Level of Personnel: The cost of hiring junior employees is lower than that of senior-level employees. Likewise, HR leadership roles are costlier than non-leadership positions. 

• Task/Project Complexity: Complex HR projects that require executive-level personnel entail higher costs. Less specialized tasks, however, are cheaper. Costs may also increase should you decide to expand your project scope. 

• Currency Exchange Rates: Exchange rates are dynamic and can influence your monthly outsourcing costs. Keep an eye out for exchange rates to anticipate shifts in costs. 

• Pricing Model: HR and payroll service providers offer different pricing models — all of which can influence your outsourcing expenses 

While some factors (like foreign exchange rates) are outside your control, it’s recommended to keep your outsourcing budget flexible and review it periodically. You may also consider negotiating with the HR outsourcing provider if its services are already exceeding your budget. 

3. Work With the Right HR Outsourcing Provider

We can’t stress this best practice enough. An outsourcing HR provider can make or break your HR goals. Working with a third-party vendor doesn’t mean sacrificing quality for cheaper services, costing you financial and productivity losses. 

The best BPO companies for HR are highly expertised, transparent, and reliable. But how do we know if a service provider is the right fit for you? It boils down to the following:

• Client Testimonials/Track Record: You can find these testimonials on the provider’s official website. If possible, reach out to the clients themselves for first-hand, unfiltered feedback about the HR outsourcing company. Carefully weigh their feedback and make sure the positives outweigh the negatives. 

• Experience and Expertise: You can gauge a vendor’s expertise and specialization based on its case studies, which are found on the website. These should include detailed information about the company’s previous HR projects and their impacts on clients’ HR operations. Stay away from outsourcing providers with no (or thin) case study portfolio. 

• Values: An outsourcing partnership with no shared values is bound to fail. Shared values entail synergies and a smoother relationship between you and the HR outsourcing service provider. Heading towards the same goal is also easier because both parties are on the same page.

• Employer Net Promoter Score (eNPS): This metric sheds insights into employee satisfaction and retention. An HR outsourcing provider with high eNPS signals to a potential client its commitment to making their employees happy in the workplace. Working with a happy, loyal team translates to consistent levels of productivity and service quality.

• Technical Expertise: The HR outsourcing provider must have the right technology to support your human resource needs. For example, if your HR department needs AI integration, then an outsourcing company that leverages cutting-edge AI technologies would greatly benefit you. Likewise, finding a service provider that specializes in your HR technology would save you the time to train your offshore HR staff.

As a client, evaluating a potential outsourcing partner is the most challenging part of outsourcing. You’ll come across outsourcing service providers who are not compatible with your values and goals, or may not provide you with the expertise or technology you need. 

What’s important is choosing an outsourcing provider that fits into your business like a glove and can support your HR operations now and in the future.

4. Assess the Provider’s Infrastructure and Cybersecurity Practices

In today’s hyper-connected world, no company can afford to take cybersecurity for granted. While cybersecurity is typically an IT job function, HR can also do its part in protecting employees from online threats. Since HR departments process volumes of data, they become an attractive target for cyberattacks (28%). 

If you’re outsourcing HR functions, choose an ISO-certified HR outsourcing partner with a robust cybersecurity infrastructure and industry-standard data security practices. Thankfully, many HR outsourcing companies are transparent with their cybersecurity capabilities. 

Before signing a contract, here’s a checklist for assessing a provider’s cybersecurity capabilities:

• Frequency of Security Audits: How often does the provider perform security audits? Regular security audits enable the immediate detection and remediation of security vulnerabilities. 

• Risk Management: How well does the HRO provider handle or mitigate cyber threats? While cyber threats are caused by human error, you’ll want an outsourcing partner that knows what they’re doing. Most importantly, ask questions if the company has experienced any data breaches or ransomware in the past year or several months. 

• Data Processing and Encryption: How is data processed and stored? Look into the provider’s data processing and encryption practices. It’s also important to know who will have access to data. 

• Workplace Security: Are CCTVs installed in the office? What policies are enforced to protect data from insider threats? According to Cybersecurity Insiders, most companies (71%) reported being “moderately vulnerable” against such threats. 

Some employees are malicious and can use sensitive information for their own gain. Hence, we also recommend asking the provider about their screening and background-checking processes. 

• Remote Work Policies: How do remote employees ensure cybersecurity? Some BPO employees work remotely, so it’s also important that your HR data is protected even outside of the office vicinity. 

• Compliance: Does the human resources outsourcing company comply with data privacy regulations? Non-compliance results in hefty penalties, legal repercussions, and reputational loss. Naturally, you’d want an outsourcing company that values legal compliance.

By outsourcing HR services, you are entrusting a third-party vendor to handle and store employee data. The last thing you want is a data breach or ransomware that could put your employees’ information at risk. The right human resource outsourcing company will prioritize cybersecurity and your peace of mind.

5. Create and Negotiate A Service-Level Agreement (SLA)

Doing business is about mutual interest and benefit. This is where the SLA comes in. This document includes the expectations and responsibilities of both negotiating parties — that is, you and the HRO provider. Below are the main components of an SLA:

• Agreement Overview/Summary: This part is an introduction to the document. It includes key terms, contract effectiveness and expiration dates, and a summary of expected services and deliverables. 

• Objectives: This section highlights the objectives of the partnership.

• Services/Deliverables: This section provides all expected services and deliverables,  timelines, processes, technology requirements, payment details, and response times. 

• Performance Standards/Expectations: These include key performance metrics for evaluating the quality, performance, and reliability of the HR outsourcing partner. 

• Risk Management: This part includes processes and action plans for mitigating the impacts of risks. 

• Penalties: This section includes the penalties for non-compliance with the SLA. Examples of penalties are fines and termination.

The SLA minimizes conflicts of interest and confusion between parties. It also clarifies expectations surrounding deliverables, goals, performance, and data security. If your business needs evolve, negotiate the SLA with the service provider to maintain alignment on service delivery, standards, and expectations. 

A well-drafted (and negotiated) SLA strengthens outsourcing partnerships and contributes to cost savings as well as business growth. 

6. Communicate With Your Offshore HR Team

In outsourcing, communication doesn’t wait until the next month. Effective outsourcing relies on regular communication to maintain operational efficiency, productivity, and service consistency. Since interactions mostly take place virtually, there’s no excuse for not interacting and engaging with your outsourced HR team. 

If you want your HR staff to feel connected with your team, you need to prioritize communication. You can do this by:

• Setting Up A Communication Channel: Workplace communication platforms, such as Slack and Microsoft Teams, consolidate correspondence in one place. 

• Learning Your Offshore Team’s Communication Style: Outsourcing HR requires you to work with people from different cultures with different communication styles. Overcoming communication barriers through inclusivity can promote camaraderie between internal and offshore teams.

• Cultivating A Culture of Respect: If there’s no respect, how can you expect your HR team to open up and respect you back? Respect goes both ways. Be an active listener and receptive to your team’s feedback. Outsourcing is also an exchange of ideas, so active collaboration is a must for a long-lasting partnership.

• Scheduling Check-Ins: Most clients opt for weekly check-ins to report on productivity and downtimes. Upcoming tasks and changes in processes may also be discussed here. 

• Giving Regular Feedback: Clear feedback clarifies expectations in deliverables and standards as well as motivates outsourced HR staff to exceed performance metrics. 

By following the tips above, you can reap the benefits of outsourcing human resources and working with an offshore team that feels like an extension of your internal team.

Looking for more? Read: How To Outsource HR Services: A Guide.

Start Outsourcing Human Resources to KDCI Outsourcing

At KDCI Outsourcing, we understand the daily rigors HR departments face. As the best HR outsourcing service provider, our goal is to ease the burden from your internal HR team by providing you with HR offshore staffing solutions that help your company stay on top of efficiency and HR innovation.

Our offshore HR professionals will take care of everything, from payroll processing to HR compliance, so everyone on your team can concentrate on their core competencies without delay. 

Supercharge your HR department with KDCI Outsourcing. Contact us for a proposal or inquiry, and we’re happy to answer all your questions!