“The productive capacity of all business functions are complex and time consuming that it

depends on three factors: the capital will create difficulty in managing other important
resource, The physical resource and the thrust areas. HR outsourcing (also known as
human resource” -(Peter.F.Ducker) HRO) is the process of sub-contracting human
The role of HR is going through the resources functions to an external supplier.
Transition phase and has changed itself from
typical Traditional nonproductive area of operations
to contributing and value adding core area towards HR Outsourcing is a process in which the
strategic Business Goals. HR outsourcing can be human resource activities of an organization are
mainly classified into two categories. Transaction outsourced so as to focus on the organization`s
and administration outsourcing services and core competencies. Often HR functions are
consultancy outsourcing services. HR transaction complex and time consuming that it will create
outsourcing services include monthly requirements difficulty in managing other important thrust areas.
such as, payroll processing. HR consultancy By HR outsourcing, this problem can be avoided
services are some of the other services that can be which will enhance effectiveness by focusing on
outsourced to India. Though organizations what the organization is best at. It will also improve
outsource transaction management and HR the flexibility of the organization to the rapidly
consultancy services to India, many organizations changing business needs. Usually businesses that
still take care of strategic and policy functions within outsource HR are typically small to midsize firms
their organization. with number of employees ranging from 25 to
HR Outsourcing is a process in which the 1500.
human resource activities of an organization are
outsourced so as to focus on the
organization`s core competencies. Often HR
demand for reduced costs for HR services.

Potential benefits of HR outsourcing

 Reduced cost
 Increased efficiency
 Access to improved HR IT systems
 Improved management information (including human capital metrics)
 Access to HR expertise not available internally
 Increased flexibility and speed of response
 Philosophical reasons (for example the organisation is outsourcing a number of its support
functions, of which HR is just one part)
 Reduced risk
 To free HR resources to operate more strategically.
 1.2 What Hr Functions Can Be Outsourced?
If a company chooses to partially outsource HR, the company shares responsibilities with
the vendor, sharing information and control over the functions. If the company decides to
completely outsource, the vendor takes on all HR responsibilities. The owner or HR manager
in the original company takes on a new role, liaison with the vendor, focusing only on HR in
order to manage the vendor-company relationship. Whether partially or completely
outsourcing, companies frequently outsource the following HR functions:
 Background Screening
 Payroll Services
 Risk Management
 Temporary Staffing
 Employee Assistance/Counseling
 Health Care Benefits
 Retirement Planning
 Performance Management
 Drug Screening

4 FIVE BENEFITS OF HUMAN RESOURCE OUTSOURCING

There are many reasons that you might decide human resource outsourcing is worth your
time. Whether you're noticing that your HR employees are having to work ten hour days to
stay ahead or if you're experiencing a drop in productivity that your think human
resource outsourcing could help, there's no question that human resource outsourcing can
provide real benefits to your company. Here
are five great benefits that come from human resource outsourcing.
 Saving Money
 Business As Usual
 Avoiding Turnover Troubles
 Avoiding Turnover Troubles
 New Skills

HR Outsourcing – Need

Many factors will contribute to any organization’s decision to outsource its HR functions.

The following are some of the needs of HR Outsourcing:

i. Enabling businesses to focus on core operations

ii. Delivering cost savings – whether direct or indirect

iii. Helping to create a stable, cost-effective operating platform

iv. Transferring focus from internal processes to achievement of business goals

v. Realizing investment in HR transformation and IT systems

vi. Ensuring compliance with legal, regulatory and best practice requirements, and

vii. Transferring risk and liability for people issues.

HR Outsourcing – 3 Broad Types: Application Service Provider (ASP), Business Process
Outsourcing (BPO) and Total HR Outsourcing

HR – outsourcing can be broadly divided into three types:

1. Application Service Provider (ASP)

2. Business Process Outsourcing (BPO)

3. Total HR Outsourcing
Type # 1. Application Service Provider:

A host of companies specialise in providing hardware and software applications to support

large organisations, including application vendors like PeopleSoft, Oracle, etc. which have

developed application packages (PeopleSoft HRMS, Oracle HRMS), for supporting human

resource activities in an organisation.

They install, customise and provide support for running these applications. The major

disadvantage with ASP is the costs associated with application software. Secondly, the

successful implementation of the application software is doubtful.

Type # 2. Business Process Outsourcing:

The major difference between BPO and ASP is that in BPO, the client is in direct contact

with the employees through call centres or support centres. MNCs generally opt for BPO as

they operate in many countries and employ a large number of people. While certain firms

wish to retain the power to control human resources, others hand over the power to the

service providers.
Type # 3. Total HR Outsourcing:

In this type of outsourcing, the entire HR function is run by the service provider. There is no

specific HR department in the organisation. The client organisation only has senior HR

professionals who are also HR- strategists. A host of non-strategic functions and employee

contact is done by the service provider.

Accordingly, the following processes can be adopted for outsourcing a few of the HR

services from outside:

1. Hiring Services:

Recruitment and selection are the human resource services through which knowledge

carriers from outside are brought into a company. External market gets its supply of human

resources or knowledge carriers mainly from three sources, viz., the households, academic

institutes, and industries. All those people who look for jobs are available in different types of

markets. Prospective employees search for jobs using varieties of means and media.

2. Developmental Services:

In the area of outsourcing of external developmental resources, companies buy explicit

market developed knowledge. Since there are many other organizations who are

experimenting with newer innovations in the area of management processes, an

organization can enhance the capability of its employees by giving them exposure to those

practices of other companies. Further, there are economy of scale in acquisition and

compilation of such information.

And, some organizations, e.g., academic institutes, professional manpower training institutes

specialize in such information acquisition, structuring, and presentations to prospective

learners.

3. Performance Management:

Organizational performance evaluation involves measurement at three levels, viz., at total

organizational level, at group or at departmental level, and at individual employee level.

Performance information or data at total organization and at group or department level are

mostly explicit knowledge intensive and their measurements are less controversial though

there can be a few areas which are tacit and personalized knowledge intensive.

4. Compensation and Benefit Management:

Compensation is an important part of the human resource services which ensures supply of

adequately skilled manpower to the company and to its various positions. Unless the

compensation for various positions are adequate to remunerate the qualification and
experience that is required for the job, it may fail to attract the right people for those positions

and it will be harder to retain such employees for long.

5. Reward and Incentive Management:

Rewards and incentives are used to encourage employees to go beyond their call of duty. A

good reward system not only attracts the right kind of employees into the organization but

also encourages them to work in such a way that organizational capabilities are maintained.

A reward that is well linked with the achievement of objective outcome is a powerful

motivating force for employees to work hard and show the desired behaviour.

6. Specialized Consultancy Services:

Consultancy is a fast growing service business in many countries including India. There are

a number of reasons why this business has been growing so fast. Firstly, many big multi-

functional, multi-product companies occasionally find a glaring mismatch between manpower

required and the manpower available both in terms of number and quality in different

departments. This happens because organizational processes have inertia and are often

hostages to their past successes.

7. Management of Employment Relations for Low-Level Jobs:

Apart from outsourcing of selective parts of human resource management services, another

type of HR outsourcing is emerging as a new development where Company A allows

another Company B to manage its entire department or division. Company B will bring its

own employees in Company A premise and supervise them while they are working there.

The contract of Company A is only with the owner of Company B.

HR outsourcing has the following benefits:

1. Risk reduction and transfer (employment legislation is becoming ever more complex and

the penalties for noncompliance potentially business-threatening)

2. Flexible solutions and costs (scaleable up or down quickly)

3. Access to broad skills and experiences

4. Enable in-house HR to focus on strategic matters

5. Remove non-operational distractions from the line

6. Access to industry best practice

7. Remove pressure to recruit, manage and motivate a diverse in- house HR team

8. Give Employees a stronger career path

9. Increase commitment and energy in non core areas

10. Turn fixed cost into variable cost

11. Reduce costs to superior provider performance and provider’s lower cost structure

12. Gain market access and business opportunities through the provider’s network

13. Commercially exploit the existing skills

14. Expand sales and production capacity during periods when revenue expansion could not

be financed

15. Accelerate expansion by tapping into the provider’s developed capacity, processes and

systems.

16. Generate cash by transferring assets to the providers

17. Reduce investment in assets and fee up these resource for other purposes

18. Improve operating performance

19. Improve management and control

20. Improve risk management

21. Acquire innovative ideas

22. Improve credibility and image by associating with superior providers

23. Obtain expertise, skills, technologies that would not otherwise be available

24. Enhance effectiveness by focusing on what you do best transform the organization

25. Increase product and services value, customer satisfaction and share-holders value

26. Increase flexibility to meet changing business condition, demand for product and

services and technologies

27. Provide increased efficiency;

28. Help maximize organization resources;

29. Provide cost savings, in some cases;

30. Help public-sector organizations keep up with the latest technology and innovations; and

31. Provide improved service.

32. Allow HR practitioners to focus on their core non-administrative functions;

There’s no doubt that HR outsourcing for public-sector organizations is on an upward trend

— witness the state of Florida’s recent $280 million, seven-year deal to outsource its human-

resources functions to a company that will take over such tasks as benefits and payroll

administration and recruiting and training.