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Every business needs human resources (HR) — from recruitment to payroll to employee engagement, that’s a long-established business fact. HR services often come at a significant cost, yet another business fact.
But should that always be the case?
Yes, as companies grow, HR responsibilities scale quickly, and with that comes rising costs. For medium to large businesses in the US, maintaining a full in-house HR team can easily become one of the biggest overhead expenses.
That’s why more organizations are turning to HR outsourcing (HRO) to the Philippines as a smarter, more cost-efficient solution.
This raises the question: how much does it actually cost to outsource human resources?
Truth is, the answer is quite nuanced. HR outsourcing costs vary depending on the provider, scope of services, company size, and even the country where the outsourced team is based. Still, by looking at industry benchmarks, we can provide realistic estimates that business leaders can use to guide strategic decisions.
In this blog, we’ll break down:
- why businesses outsource HR in the first place;
- the typical outsourcing models and services available;
- the costs of outsourcing HR vs hiring in-house;
- factors that influence HR outsourcing costs;
- pricing models and how providers charge for services; and
- whether HR outsourcing is worth it for your business.
By the end, you’ll have a clear picture of the investment required as well as why HR outsourcing could be one of the smartest financial and strategic moves that you can make for your growing company today.
Ready? Let’s get started.
Why US Companies Outsource HR to the Philippines
While the default used to be having a full in-house HR department, more and more businesses are now opting to work with an external provider, typically those located in the Philippines. For medium to large businesses that are looking to scale their operations, this is a far more sustainable option — a strategic HR initiative that empowers the team with experienced HR, sans the excessive overhead costs.
Before we delve into the actual cost of outsourcing HR, it helps to understand why several US companies opt to work with HR outsourcing providers in the Philippines. Here are just some of the key reasons:
- Lower labor costs
As most businesses already know, the costs of outsourcing to the Philippines are significantly lower compared to hiring inshore. The same thing applies to outsourcing HR services. Here’s how that looks: while hiring a skilled HR specialist in the US might cost around $3,900 per month, a comparable, highly capable professional outsourced to the Philippines could run approximately $1,500 per month (inclusive of office space, utilities, and equipment). That translates to around 70% in cost-savings for your business.
- Strong English skills & cultural alignment
English is an official language in the Philippines (adopted from Americans), and it is widely used in education and business, ensuring that communication barriers are minimal. This high level of fluency minimizes friction and reduces the chances of miscommunication on complex HR matters like benefits administration, policy explanation, or internal coordination. Furthermore, the strong historical and cultural ties between the two nations mean that Filipino professionals are generally familiar with US business norms.
- Mature outsourcing infrastructure
The Philippines maturity in the BPO industry as a whole translates to a ready supply of specialized HR service providers — from large global BPO firms to smaller, niche specialists — who operate with established, international-standard processes. This environment is supported by mature payroll platforms, rigorous compliance firms, and reliable technology infrastructure, giving US companies confidence that their sensitive HR data are handled professionally.
- Scalability & flexibility
When working with an HR outsourcing company from the Philippines, a business can rapidly scale its HR team up to handle peak seasons and then scale down just as quickly during slower periods. This ability to adjust capacity efficiently is crucial for operational health. By using outsourced HR services, companies avoid the significant financial and administrative burden associated with hiring and firing costs, including the complex process of recruitment, onboarding, and potential legal issues related to workforce reduction.
- Time zone advantage
While the time difference between the US and the Philippines is substantial (often 12 to 15 hours), this gap can be strategically leveraged. The Philippine team can work in the US evening and night shifts, handling HR administrative tasks, processing payroll, updating employee records, or managing support requests while the main office is closed. This effectively extends a company’s coverage to nearly 24 hours a day.
With all these benefits and advantages considered, working with an HR outsourcing service provider from the Philippines is a clear strategic move for agile and growing US companies looking for both reduced costs and increased operational efficiency.
How HR Outsourcing Works: Engagement Models
There are several distinct engagement models of HR outsourcing that define the scope of services, the degree of shared responsibility, and the legal relationship between the client and the HR outsourcing service provider.
Choosing the correct framework is the first critical step in a successful outsourcing partnership, as the model determines whether a company offloads all administrative tasks, shares co-employment responsibilities, or simply outsources one highly specialized function. If you’re looking to outsource your HR, there is generally four options to choose from:
1. Full-Service HR Outsourcing (HRO)
Full-service HRO is a comprehensive model where a company outsources most HR functions — payroll processing and payroll taxes, compliance, recruitment, etc. It’s best for companies that need to offload administrative burden while retaining full control over their dedicated offshore HR team, making it a frequent choice for establishing a team in the Philippines.
2. Professional Employer Organization (PEO)
The PEO model uses co-employment, where the PEO shares legal employer responsibilities, handling taxes and group benefits. It is primarily used by smaller companies that want access to enterprise-level benefits and specialized compliance expertise they couldn’t otherwise afford on their own.
3. Recruitment Process Outsourcing (RPO)
RPO is focused exclusively on talent acquisition (recruitment). This model is ideal for companies that need to scale quickly or face high-volume hiring needs, leveraging the specialized RPO provider’s dedicated recruiting infrastructure to rapidly fill roles.
4. Specialized or Partial Outsourcing
This offers the most flexibility, allowing a company to outsource only specific functions like payroll, training, or compliance. This model is mostly used by small businesses or medium-sized companies to gain specialized expertise or administrative relief in targeted areas while customizing the monthly or annual fee and retaining control over other functions.
Ultimately, the choice of an outsourcing engagement model — whether comprehensive like HRO, co-shared like PEO, or highly targeted like RPO or Specialized Outsourcing — depends entirely on a company’s strategic goals, current HR pain points, and desire for control. With the model selected, the next step is to drill down into the specifics of the partnership.
What HR Services Can Be Outsourced?
Now that the engagement models are clear, let’s briefly discuss the specific services that you can get through an outsourcing provider. While outsourcing the entire HR department is a popular choice, outsourcing specific HR services or functions (depending on your business’ needs) is also an option.
To guide you, here are some of the most commonly outsourced HR roles and functions:
- recruitment, talent acquisition, and onboarding
- payroll processing and payroll administration
- tax compliance (with respect to relevant employment laws)
- benefits and compensation management
- employee training and professional development
- employee relations and performance management
- legal and regulatory compliance management
As you can see, your business has the flexibility to choose an engagement model and the specific services that perfectly aligns with your operational needs; whether you need a full-service partnership or a specialized, task-based support.
Back to the main point: the ultimate purpose of this strategic delegation of HR administrative tasks is to achieve dramatic financial efficiency. Therefore, the next logical step in any outsourcing decision is to move beyond function and focus squarely on the bottom line. Let's analyze the expected cost reductions by exploring the actual costs of outsourcing HR staff.
General Cost Overview: Outsourcing HR Staff
As we go through the numbers, keep in mind that these are general estimates from the available data on HR outsourcing. If you want to get a bespoke quote that matches your exact HR needs, feel free to talk to our team at KDCI Outsourcing about your HR needs.
In the meantime, let’s do a focused, ballpark HR cost comparison to establish the true financial advantage of offshore HR staffing. To contextualize how much a company can save through outsourcing services, we’ll first outline how much it typically costs to hire an HR expert locally, in the US.
How much does it cost to hire HR staff in the US?
To accurately frame the savings, we first benchmark the full cost of comparable domestic talent: a mid-level HR Specialist or Generalist in the US typically commands an annual base salary in the range of $70,000 to $100,000+.
When including the additional costs — mandatory employee benefits, health insurance, paid leaves, and retirement contributions — the employer’s (your business) total cost is significantly higher. For private industry workers, total benefit costs average approximately 42% of the base wage, giving you a total of around $98,000 to $150,000 annually per HR staff.
How much does it cost to outsource HR staff from the Philippines?
Now, consider the investment required to staff the same HR functions through a Philippine-based HR outsourcing provider:
The full cost per HR staff member in the Philippines (including salary, government-mandated benefits, and the provider’s operational & management margin) generally falls in the range of $1,200 to $5,000 per person per month — depending on the outsourcing provider, the skill level of the staff, and the level of engagement among other factors (which we’ll also discuss later).
Even if you get HR services at the higher end of the range, the HR outsourcing cost total would only be around $60,000 annually per HR staff. As such, by moving the equivalent of these HR functions offshore, your company has the potential to reduce its operational spend on a per-person basis, resulting in a cost reduction of up to 80% compared to having an in-house HR staff.
Again, this is merely a generalized starting point. The final, actual cost will be defined by the specific HR services you prioritize, the complexity of your requirements, and the pricing structure of your chosen outsourcing partner.
6 Key Factors That Affect HR Outsourcing Costs
Having established the significant financial advantage of leveraging offshore HR talent and detailed the cost benchmarks for specific outsourced functions, the critical next step is to understand how those costs are actually structured and billed.
Here are the factors that will push costs up or down:
1. Scope of Services
The cost is driven by the number and complexity of functions outsourced. Generally speaking, a single, transactional service (say, payroll services only) is the lowest in terms of cost. The price escalates significantly for a full-scope model, which bundles strategic functions like recruitment, advanced compliance, and technology. The more services you bundle, the higher the fixed flat fee or per-employee fee.
2. Complexity & Compliance Load
Higher legal and operational complexity directly increases the price. Costs rise when the outsourced team must support intricate financial and legal scenarios, such as managing multi-state US payrolls, processing complex variable compensation plans, or ensuring compliance with specialized labor laws. This complexity requires the HR outsourcing providers to dedicate higher-skilled, more expensive resources.
3. Number of HR Staff Hired
Pro-tip: outsourcing providers typically reward volume. Small engagements (1 to 4 staff) often incur a higher per-employee-per-month (PEPM) rate due to fixed overhead costs. However, once a company scales to 5 or more dedicated HR staff, it starts qualifying for tiered pricing, volume discounts, and bundled administrative rates, which effectively drive the per-person cost downward.
4. Provider Tier & Reputation
The market standing of the HR outsourcing company and technological infrastructure directly influence their fee structure. Top-tier, global HR outsourcing companies command a premium for their minimized risk profile, robust technology, and comprehensive global compliance. Smaller, boutique providers offer lower pricing but typically present tradeoffs in technology, service redundancy, or global compliance breadth.
5. Tools, Technology & Reporting
The inclusion of advanced technological capabilities introduces recurring supplementary costs. The fees for the utilization, licensing, and management of advanced systems — such as comprehensive HRIS, ATS, reporting dashboards, and workforce automation — are typically passed on to the client using the HR outsourcing services as an additional subscription or technology fee, layered over the base labor cost.
6. Local Benefits and Incentives
When offshoring to the Philippines, the total operational cost must legally and financially account for fixed local employment requirements. The fully loaded cost includes mandatory employer contributions to the state-run social insurance (SSS), national health insurance (PhilHealth), housing fund (Pag-IBIG), and the government-mandated 13th-month pay. These government-set employee benefits must be calculated and included by the provider in the total monthly investment figure.
These factors, then, would constitute the total costs you have to pay for when outsourcing HR staff. Remember: a good outsourcing provider will discuss all these costs with you upfront so you’re not surprised by hidden fees when the invoices come along.
While we’re on the subject of invoices, let’s talk about how businesses actually pay for outsourced HR services when working with an external provider.
How Services are Billed in HR Outsourcing: Pricing Models
When you partner with an HR outsourcing provider, the costs are delivered through one of several structural pricing models designed to align the provider’s fee with your risk appetite, management style, and scale.
- Per Employee Per Month (PEPM)
This is the most common pricing model, especially for Employer of Record (EOR) services. The client pays a fixed, recurring service charge for each employee. EOR provider fees typically range from $190 to $900 per employee per month. It offers clear, predictable budgeting for rapidly scaling teams.
- Flat Monthly Retainer
In this option, the client pays a single, set monthly retainer or flat fee for a defined scope of service, regardless of minor headcount changes. This is preferred for budget stability, with full-service retainers often ranging from $1,000 to $5,000 per month.
- Percentage of Payroll
This model is less common for full-scope EOR services in the Philippines but is sometimes used by PEOs and BPO firms for administrative functions. Under the Percentage of Payroll structure, the provider charges a fee that is a defined percentage (typically 2% to 8%) of the total gross payroll they manage for the client.
- Project-Based or Hourly Rates
For non-recurring tasks that fall outside the standard scope, providers will switch to a Project or Hourly Rate basis. This model is used for one-off advisory services such as a legal compliance audit, custom policy design, or specialized consulting. The client pays for the actual time spent and materials used, with hourly rates for general HR support.
- Hybrid or Tiered Models
Most large engagements use a hybrid pricing model, combining a core PEPM base rate with variable add-ons for specialized services. Crucially, volume discounts are applied as the client scales their headcount, making it the most common and cost-effective structure for a growing offshore team
The pricing model will be decided based on the services you need and the engagement model you prefer. At the end of the day, it’s still about finding the exact HR solution that matches your business’ specific goals — and the framework that will help you achieve them.
Now, we answer the most important question:
Is HR Outsourcing Worth It for Your Business?
The short answer is yes. After all, that’s what the numbers are suggesting.
The biggest, most obvious win, of course, is the cost advantage. We’ve established that labor and operational costs for HR talent in the Philippines are significantly lower than in the U.S., translating to savings of up to 80% per HR staff. This allows you to scale up your support team without completely blowing your budget. That’s an ROI that one can see almost immediately.
However, the longer-term value of HR outsourcing is about empowering your internal team. Think about all the time your current high-cost managers spend on transactional, time-consuming HR administrative tasks like processing payroll, administering benefits, and handling routine compliance paperwork. By delegating this tedious work to a specialized, cost-effective team overseas, your HR leaders are freed up to focus on the things that actually drive your business such as talent retention, cultural development, and strategic planning.
At the end of the day, outsourcing makes the difference between HR being a costly administrative necessity and a strategic tool for growth. And the way we see it is this: any investment towards business growth is always worth it.
Scale smarter with KDCI’s HR Outsourcing services.
You now know the numbers: you can save up to 80% by outsourcing your HR function.
If your business is ready for growth and you need to scale your HR support quickly and cost-efficiently while maintaining total compliance assurance, the question isn’t if you should outsource — it’s who you should partner with.
At KDCI Outsourcing, we specialize in building dedicated HR teams tailored to your business’ needs. From payroll and compliance to recruitment, training, and employee engagement, we deliver solutions that let you focus on strategy while we handle the complexities of workforce management. Whether you need support for specific HR functions or a broader outsourcing partnership, we have flexible engagement models that help you scale with confidence.
Let’s talk about how we can support your HR needs. Contact KDCI today.
