Outsourcing HR to the Philippines: Pros and Cons

Posted on:
June 6, 2024
min read
Table of Contents
What are the benefits of outsourcing to developing countries?
What are the challenges of outsourcing to developing countries?
Top 5 Most In-demand Developing Countries for Outsourcing
What are some successful examples of companies that have outsourced to developing countries?
What are the best practices for outsourcing to developing countries?
The Pros & Cons of Outsourcing HR to the Philippines
KDCI Outsourcing
June 5, 2024

Managing human resources, ensuring they’re paid, keeping them engaged, while complying with labor laws and regulations can be a bit much even for established companies. This is why more and more are outsourcing HR, especially to developing countries like the Philippines.

Find out more about Human Resources Outsourcing and discover why you should or shouldn’t outsource human resources to the Philippines!

HR Outsourcing (HR): Definition & Examples

HR Outsourcing, Human Resource Outsourcing, or HRO, is the process of contracting an agency or individual to manage a function or the whole process of human resources or HR. This typically involves outsourcing HR services such as recruitment, payroll, and training and development to help reduce costs, increase efficiency and productivity, and improve scalability and flexibility.

Some of the most commonly outsourced HR roles are HR generalist, compensation and benefits analyst, payroll specialist, training and development specialist, and HR compliance officer.

Pros of Outsourcing HR to the Philippines

Human Resources Outsourcing (HRO) is a growing industry, with the Philippines as one of the fastest-growing markets. If you’re thinking of where to outsource HR and you’re considering the Philippines, below is a list of benefits that may help you decide!

Cost Efficiency

One of the main reasons why the Philippines is an increasingly popular destination for HR outsourcing is because of its lower labor costs. While it costs $3900/month to hire an HR specialist in the US, outsourcing an HR specialist to the Philippines costs about $1500/month. 

Not only is the rate much lower, but the outsourcing cost already covers operational costs, resources like laptops, internet, and power stations, as well as benefits, on top of the basic salary. This allows companies to save up to 70% in labor and operational costs.

High-Quality Talent Pool

The Philippines puts a strong emphasis on education, having a 97% literacy rate. It also produces a large number of graduates yearly and has an active workforce of 49.48 million people in 2024. Not to mention, Filipinos have made a name for themselves in the outsourcing industry with the Philippines as the world’s call center capital. 

These highlight the caliber of Filipino HR professionals, making it easier to find the right person with the set of HR skills and experience you’re looking for.

Cultural Compatibility

When it comes to human resources, soft skills matter a lot. That’s why outsourcing human resources functions is a more delicate matter than outsourcing other functions that require less cultural compatibility.

However, thanks to the Philippines’ Westernized culture, Western business practices and corporate culture are no longer new, and any learning curve when working with Western organizations is short, making collaboration much smoother.

Not to mention, Filipinos are culturally very hospitable and optimistic. In fact, the Philippines was voted as one of the friendliest countries in the world. Such traits manifest well in the HR profession, a testament to the service orientation and adaptability of Filipino HR professionals that make them effective in handling employee relations and customer service functions.

Expertise and Specialization

When it comes to the number of specialized HR outsourcing services, including payroll processing, recruitment, employee training and development, benefits administration, and compliance with local labor laws, the Philippines is never going to come up short.

There are plenty of HR service centers in the Philippines with extensive experience serving various industries, including IT, healthcare, finance, and customer service, providing tailored solutions to meet specific business needs.

Many Filipino HR professionals also obtain globally recognized certifications, such as those from the Society for Human Resource Management (SHRM) and the HR Certification Institute (HRCI), which help maintain high standards and keep them updated with global HR practices

Scalability and Flexibility

One of the beauties of outsourcing is it provides scalability and flexibility to companies. This is even more so in the Philippines because its outsourcing companies have a large pool of ready-to-work HR professionals and the country’s BPO industry is so large, that hiring, training, and getting them on board is a quick process that boosts scalability and flexibility even more.

This means Philippine HR outsourcing companies can act fast, allowing companies to more quickly adapt to changing business needs, without the delays and costs associated with hiring and training new staff internally.

Additionally, HR outsourcing in the Philippines comes in multiple engagement models, and agreements often come with flexible terms, enabling companies to choose HR outsourcing services that best fit their requirements and adjust them as needed.

Technology and Innovation

Filipino HR outsourcing service providers leverage the latest human resources software and technologies, offering companies access to advanced tools for payroll management, performance tracking, and employee engagement.

Moreover, the outsourcing industry in the Philippines is known for its focus on continuous improvement and innovation, ensuring that HR processes remain efficient and up-to-date with global standards.

Regulatory Compliance

HR involves quite a number of laws and regulations that vary depending on your geography. To ensure your compliance, there are plenty of Philippine HR outsourcing companies that have worked with other companies in your location – this makes it easy for them to navigate HR requirements in your area, ensuring compliance and reducing the risk of legal issues for foreign companies.

It also helps that Philippin HR outsourcing agencies have protocols in place to keep them updated with changes in legislation and best practices, providing you with peace of mind regarding their HR compliance.

Cons of Outsourcing HR to the Philippines

Even if the Philippines is a popular destination for HR outsourcing, there are disadvantages that you should consider. Below are some of the most common pitfalls of outsourcing human resources to the Philippines, along with some tips on how to mitigate them.

Communication Barriers

A common challenge that companies may encounter when outsourcing to an offshore location like the Philippines is time zone and cultural differences. The Philippines is in a different time zone from many Western countries, which can lead to challenges in real-time communication and coordination. This may affect the responsiveness and timeliness of HR functions.

And though Filipinos speak very good English, there are cultural nuances in the English language that may still lead to occasional misunderstandings, impacting the clarity of communication.

While there’s little one can do about inherent cultural differences, practicing clear and open communication always helps. Meanwhile, time zone differences can easily be bridged by setting your offshore team’s work shift to match your hours to ensure smooth collaboration. 

Data Security and Privacy Concerns

Outsourcing involves sharing of data, which opens up companies to privacy and security threats especially if the outsourcing partner doesn’t observe proper safeguards and protocols. While the Philippines has data protection laws (such as the Data Privacy Act of 2012), they may not be as stringent as those in the US or EU. Ensuring compliance with international data privacy standards can be challenging.

To ensure utmost security and privacy, finding a reliable outsourcing company that meets data protection standards such as General Data Protection Regulation (GDPR) is a must. Better yet, you should prepare a risk management and recovery plan to cover all your bases. 

Lack of Control

Outsourcing HR functions can lead to loss of control over key HR processes, which may make it challenging to maintain the same level of management and influence as with in-house human resource department. This can mean misalignment in terms of company policies, culture and values, or lack of quality control, both of which can impact HR service delivery in the form of inconsistent HR practices and employee experiences.

It can also mean challenges in the integration of the outsourced HR provider’s systems with the company’s existing HR and IT infrastructure can be complex and require significant effort and resources.

When it comes to these challenges, assigning an in-house liaison and setting clear expectations and preparing for a smooth transition are key. 

An in-house HR expert who can focus on the outsourcing partner’s management helps ensure alignment. Meanwhile, having set KPIs and a QA process or even having your outsourcing partner assign a dedicated QA specialist helps ensure consistency in HR services quality. 

As for integrating outsourced and in-house HR systems, develop a phased integration plan with thorough assessments, robust data migration protocols, continuous monitoring, and regular communication between internal IT and the outsourced provider to ensure smooth and efficient system integration.

Hidden Costs

While the cost of outsourcing HR is typically agreed upon during contract signing, there are instances where additional costs are incurred due to unexpected integration challenges, the need for specialized software, compliance with new regulations, or unforeseen increases in service requirements.

Not only that, some Philippine outsourcing agencies require long-term contracts which can lock companies into agreements that may become less favorable over time. Renegotiating or exiting these contracts can also incur additional costs.

To avoid these, it’s best to carefully weigh the costs and benefits of offshore outsourcing before signing any contract. Find out potential additional costs as soon as possible even if they are not yet relevant to you. And if you think there’s a possibility of terminating contracts early, opt for Philippine outsourcing companies that offer shorter contracts. 

Employee Morale and Engagement:

When outsourcing HR functions, in-house staff may feel threatened or undervalued, impacting the organization’s morale and lowering engagement. Effective communication and change management are crucial to mitigate these effects.

Meanwhile, the physical distance between the outsourced HR team and the company’s employees can lead to a lack of personal connection, potentially affecting employee satisfaction and engagement as well.

Dependence on the Outsourcing Partner

Companies become dependent on the reliability and performance of the HR outsourcing provider. Any issues with the agency, such as financial instability or service disruptions, can directly impact the company’s HR functions.

Not to mention, over-reliance on outsourced HR services can lead to a decline in in-house HR expertise, making it difficult for the company to bring HR functions back in-house if needed.

To mitigate dependency on HR outsourcing providers and maintain in-house expertise, companies should diversify their outsourcing sources, retain critical HR functions internally, and invest in continuous training for their HR staff. Additionally, establishing clear service level agreements (SLAs) and having contingency plans for potential service disruptions or provider instability are essential.

Outsource HR to the Philippines

Considering outsourcing HR to the Philippines? With the country’s robust HR staffing services, there are many agencies and even more HR professionals available, making it overwhelming to choose the right people for your offshore HR team.

At KDCI Outsourcing, we specialize in finding the best people who not only fit your needs but also mesh well with your in-house organization to ensure you’re building your offshore HR team for success!

Learn more about HR outsourcing in the Philippines, contact us today!

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