Your people are your greatest assets. Every leader in a growing business knows this. It’s the reason why there is an HR department in every organization, no matter the size. Even Forbes reports cite that the current average ratio is at 2.57 HR staff per 100 employees (a little over the recommended average of 1.4 HR staff per 100 employees).
So, this is not for us to convince you just how important HR is. Our point here: there is a better, smarter way to build your HR team.
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, especially those who are currently in a growth phase. In fact, the same report we have cited above noted that the HR-to-staff ratio is below average for medium and large organizations. This is why more and more are outsourcing HR, especially to developing countries like the Philippines.
In this article, we’ll explore the pros and cons (as well as how to address them) of HR outsourcing to help you assess it as a viable option as you scale your business. Find out more about Human Resources Outsourcing and discover why you should or shouldn’t outsource human resources to the Philippines!
What is HR Outsourcing? (HR): HRO 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 or department of human resources or HR. This typically involves outsourcing HR services to dedicated HR outsourcing companies that specialize in core functions such as recruitment, payroll, and training and development. When businesses outsource their HR functions, it’s usually to help reduce costs, increase operational 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. Depending on the specific needs and business goals, a business may opt to hire one HR professional offshore or build an entire team through an external HR outsourcing company. It may look different for every business, but the end goal of this solution is to get high quality service for managing the people aspect of the business, at a significantly lower cost.
What are the Pros of Outsourcing HR to the Philippines?
Human Resources Outsourcing (HRO) is a continuously growing industry, with the Philippines as one of the fastest-growing markets. The Philippine BPO industry is now home to a number of outsourced HR professionals — one of which might just be your next team member!
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!
1. Increased 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, savings that could then be redirected and invested back into the business.
2. 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. This way, there are more options for you as you find the HR experts that will fit your business’ unique needs.
3. Cultural Compatibility
When it comes to human resources, soft skills matter a lot. You need people skills, dedication, and professionalism among others. 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, especially those in the United States, 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.
4. 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. With a dedicated team from the Philippines, you get the right support that your business needs.
5. Scalability and Flexibility
: One of the beauties of using human resources outsourcing services 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 with clients often come with flexible terms, enabling companies to choose HR outsourcing services that best fit their requirements and adjust them as needed.
6. 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, even and especially as AI adoption comes into the picture and largely impacts the HR industry.
7. 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 Philippine 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.
While outsourcing your HR comes with several benefits, it also naturally comes with risks and challenges. To help you make an informed decision, we’ll now be discussing the cons of outsourcing human resource services to the Philippines.
What are the 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.
1. 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. Since your dedicated team in the Philippines serves as an extension of your inshore team, connecting with them like so can make all the difference. Meanwhile, time zone differences can easily be bridged by setting your offshore team’s work shift to match your hours to ensure smooth collaboration.
2. 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. You can discuss all these with the HR outsourcing company in order to avoid issues with data security and privacy down the road.
3. 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 departments. 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, you can 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.
4. 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.
5. Impact on 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.
However, with the rise of remote work options worldwide, there are now far more options to bridge these gaps and build a strong, hybrid team — even if half of it is across the other side of the globe. With HR experts who are dedicated and trained to manage people and the right technology in place, higher employee engagement can still be accomplished remotely.
6. 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.
…we have now covered the pros & cons of HR outsourcing!
As a continuously developing industry that serves a number of businesses, HR outsourcing is designed to grow alongside the businesses that it serves and empower business growth in the process. With these pros & cons in mind, it’s now up to you to check your options and see whether HR outsourcing is the best solution for your business (and your team).
If you still have questions about HRO, its benefits, and the challenges that come with it, do not hesitate to ask. Our team at KDCI Outsourcing have provided several clients with HR outsourcing solutions and we’d love to answer your questions based on actual experiences.
Outsource HR to the Philippines with KDCI.
Considering outsourcing HR to the Philippines? With the country’s robust HR staffing services, there are many human resources outsourcing companies 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!
