How to Outsource Human Resources: A Step-by-Step Guide for Businesses

Human resources is the key that holds your business together. While HR departments play a significant role, managing them comes with its own set of challenges, such as labor shortages, burnout, skill gaps in AI, budget constraints, and operational inefficiencies. To address these challenges, businesses resort to human resources outsourcing. 

HR outsourcing offers significant advantages that in-house HR teams can’t. If this strategy is on your radar right now, this guide will teach you how to outsource human resources the right way. 

How to Outsource Human Resources In 8 Steps

This tutorial helps you understand the process and best practices for outsourcing human resources. Put the following procedures into action, and you can reap the many benefits of outsourced HR.  

Step #1: Research and Understand HR Outsourcing

If outsourcing is a new venture for your company, you have to understand what outsourced HR is as well as its benefits and drawbacks. 

To start, HR outsourcing is a process of delegating HR functions to a third-party vendor in a foreign country, providing HR support in outsourced human resource management, background checking, benefits administration, payroll, HR management, and recruitment. 

Some of the benefits of outsourced HR include:

• Cost Savings: Costs of outsourcing human resources are cheaper overseas than hiring in-house or inshore, making it easier to build an offshore HR team. In addition, since human resources outsourcing companies are equipped with HR technology solutions, you can save on upgrade costs. 
• Scalability: HR outsourcing allows you to scale your business according to demand and workload volume.
• Operational Efficiency: Outsourcing HR promotes a fairer distribution of labor, leaving core HR activities in-house and administrative tasks to offshore HR professionals.

On the other hand, HR outsourcing has its drawbacks, such as:

• Cybersecurity Risks: To a certain extent, outsourcing is risky as it exposes data to cyber threats. However, an HR outsourcing company with state-of-the-art IT facilities and strict data security measures can help minimize these risks.

• Natural Disasters and Unforeseen Circumstances: Unforeseen events can disrupt operations and compromise productivity. Thankfully, many HR and payroll outsourcing providers have business continuity plans to maintain uptime.

By researching HR outsourcing, you’ll know what to expect and make smart decisions for your business.

Step #2: Know Your Reasons for Outsourcing HR Services

HR outsourcing is not an overnight decision; it’s a commitment and an investment for long-term success. Before you outsource human resources, it’s important to have a good, hard look at your company’s HR functions — some even use HR consultancy services to find clear answers. For starters, here are four signs you need to outsource human resources:

• Your HR Team Is Overwhelmed With Administrative Tasks: Talent acquisition and onboarding, benefits administration, payroll processing, and HR compliance — all these tasks take too much of your HR staff’s time. By outsourcing these HR services, your internal team can focus more on valuable HR and business matters, driving both innovation and operational efficiency. 

• You Want to Improve Retention: Let’s face it — no job is easy. But when your HR employees start to pack their bags and leave negative reviews, your company becomes less attractive to potential candidates. 

Remember, employees are looking for more than just a good paycheck. They also want to work for companies with ample professional development opportunities, competitive benefits, and a non-toxic work environment.

HR outsourcing providers can enhance your talent acquisition and retention strategies, refine your training programs, and improve your workplace culture, so you can attract and retain high-performing employees. 

• Your HR Department Still Relies On Manual Processes: In this day and age, HR technologies are a must-have, and more companies are investing in them to streamline business operations. In fact, according to Fortune Business Insights, the 2023 value of the HR technology global market amounted $37.66 billion USD, with 2024 and 2032 forecasts of $40.45 billion USD and $81.84 billion USD, respectively. 

This data exemplifies the demand for automation and efficiency while addressing evolving workforce needs. However, when done in-house, technology upgrades can be expensive. 

But when you outsource human resources, the service provider can integrate advanced HR technologies and tools into your day-to-day workflow to automate tedious processes and simplify the HR experience for internal staff. 

• Your HR Department Struggles With Compliance: Compliance is one of the most complex tasks of an HR professional. Because employment laws and regulations continuously evolve, HR departments must remain up to date with changes, lest the company face penalties and lawsuits. 

Outsourced HR compliance officers can take care of your compliance needs, leveraging their expertise to ensure your company is free from workplace hazards and discriminatory employment practices. 

Just by looking at the signs above, you already have a rationale for outsourcing as well as a clear idea of which HR services to outsource. Don’t solely rely on observation, though. Interviews, surveys, and data analytics can shed light on blind spots and provide data-driven insights on the current state of your HR department and workplace. 

Step #3: Prepare Your Budget

HR outsourcing may be a more cost-effective venture, but it doesn’t mean coming in unprepared for all the possible costs you might incur. When you outsource human resources, expect the following expenses:

• Implementation fees
• Labor costs
• Technology fees
• Management costs
• Training costs
• Compliance fees

Scope of work, project complexity, experience level of outsourced employees, headcount, pricing model, and location can also affect your total outsourcing fee. 

While it’s hard to determine the exact amount of money you’ll need for outsourcing HR, understanding outsourcing costs can help you prepare a realistic monthly budget, minimize overspending, and measure your outsourcing ROI. 

Don’t forget to account for long-term business goals. At some point in the partnership, your business will grow, and you’ll want a budget that will scale to your current business needs. 

Step #4: Scout for HR Outsourcing Companies

It’s so easy to be overwhelmed by the ubiquity of human resources outsourcing companies online. Even Googling “HR outsourcing companies” yields a lot of results. 

If you’ve grown tired of the classic Google method, consider chatting with ChatGPT for prospects. Here’s a fun fact: Our lead asked ChatGPT for the best Philippine AI companies, and one of the recommendations included KDCI Outsourcing. 

By using ChatGPT, you can find and shortlist potential outsourcing providers much faster than a traditional Google search. These recommendations are not random, though. In fact, they are based on multiple factors, such as the company’s reputation and expertise as well as the SEO rankings and quality of published content. These data make it easier for ChatGPT to curate HR outsourcing companies.

Another method — albeit a more human one — is by asking your network (virtual or otherwise) for suggestions. All it takes is the right people to help you find the right provider. 

Step #5: Screen HR Outsourcing Providers

Whether you’ve found 10 or 20 potential outsourcing companies, the next step is to vet your prospects. When evaluating potential outsourcing partners, take note of the following:

• Cost: Cheap and high service quality don’t mix. In most cases, it’s better to invest in an outsourcing partner with a higher price point if you want world-class HR outsourcing services. Still, always choose a provider that fits your budget. Some vendors also offer flexible pricing options.

• Service Quality and Expertise: You can assess an HR outsourcing company’s expertise and quality of services through its case studies. Snippets of client success stories and reviews may not tell the whole story, so it’s better to reach out to the clients themselves for more holistic feedback. 

• Software Expertise: HR outsourcing BPO companies excel in a variety of HR outsourcing software solutions. Naturally, you’d want a service provider that specializes in your software to minimize productivity losses.

• Cybersecurity: When you outsource human resources, you can’t scrimp on cybersecurity. Choose an outsourcing provider with robust cybersecurity capabilities and data security certifications.

• Work Ethic: This is difficult to quantify until you’ve worked with your outsourced team. If you want to err on the safe side, we recommend asking the company’s past or current clients about their offshore team’s work ethic and professionalism.

• Shared Values: Shared values are important in an outsourcing partnership. Without these, you and your outsourcing provider will be more susceptible to conflicts of interest down the line.

At this point, you’ve probably removed a few potential partners from your list. Let’s move on to the next step.

Step #6: Book A Meeting

The vetting doesn’t stop at the initial screening. Booking a meeting with an outsourcing partner is a huge opportunity to dive deep into their capabilities as a provider. Here are questions you can ask during the meeting:

General:

• How do you ensure business continuity?
• What steps will you take to meet the specific needs of my HR department/business?
• What sets you apart from other HR outsourcing companies?
• What is the company’s experience with scaling?
• What are your oversight policies?
• What are your remote work policies?

Cost:

• Can you provide a detailed breakdown of costs? 
• What is your billing cycle? 
• How much do your outsourced HR services cost?
• If I decide to end the partnership, will there be a termination fee? 

Recruitment and Workplace Culture:

• Can you tell me more about your hiring process?
• Are clients expected to participate in employee interviews?
• What’s the culture like at the company?
• How do you maintain good employee retention and satisfaction?
• How do you assess a potential employee for culture fit?

Security:

• What are your cybersecurity capabilities? 
• What are your risk management strategies?
• How do you manage security risks?
• Has the company experienced a data breach or any cybersecurity risk caused by human error, negligence, or an insider threat? What steps did you take?
• How often does the company conduct security audits?
• What are your data security practices?

Transparent and trusted outsourcing providers are more than eager to answer all your questions. They understand that you’re risking your data and investing money into their services, so they want nothing but the best for you. 

Most importantly, use this meeting to set your expectations and performance metrics with the vendor. 

Step #7: Accept the Trial Period

It’s normal to feel reluctant when making big decisions. Most of the time, marketing claims are just claims until they’re proven right in front of your eyes. Those answers from your interview questions? Maybe they’re not enough to make you fully commit to the partnership. Thankfully,  HR outsourcing companies offer trial periods.

Think of trial periods (or trial projects) as a “demo” or “preview” of the provider’s expertise and service quality. What’s great about accepting a trial project is that it exposes most of the green and red flags of your offshore HR team and the HR outsourcing company itself.

Here are the green flags to look out for:

• Your offshore HR team is receptive to feedback.
• Outsourced employees meet performance standards and communicate regularly.
• You work with culture-fit offshore employees.

Conversely, here are the red flags:

• Your offshore employees exhibit unprofessional behavior. 
• The quality of work remains subpar despite feedback.
• Offshore employees violate data security practices or share sensitive information without prior authorization.

If the trial period did not work out as expected, it’s okay to move on to other prospects. It’s better to go through the whole vetting process than waste time and money on the wrong HR outsourcing partner. 

Step #8: Outsource Human Resources

What if my offshore HR employees passed the trial period? Congratulations! You can now officially outsource human resources. To build a long-lasting outsourcing relationship, follow these tips:

• Check in on your outsourced employees. 
• Consistently assess their performance to identify areas for improvement.
• Learn your employees’ culture and language. 
• Be ready to compromise and arrive at a middle ground. 
• Be open to insights and recommendations from your HR employees.

Outsourcing partnerships take time to build. So long as the relationship is grounded in trust, accountability, and shared responsibility, there’s a huge chance that it will last for years. 

Ready to Outsource Human Resources to KDCI Outsourcing?

At KDCI Outsourcing, we help medium to large-sized businesses scale their in-house HR department with a dedicated offshore HR team from the Philippines. Our staffing solutions are designed to augment your existing team with outsourced roles in payroll, HR data analysis, recruitment, talent acquisition, and many more. 

With our strict hiring process and commitment to innovation, we ensure that our AI- and human-driven HR services exceed your expectations and meet your business needs.

If you’re looking to outsource human resources and build your own team, contact us now for assistance!