What Is HRO (Human Resource Outsourcing) and How Does It Work?

Human resource outsourcing (HRO) firms support companies by taking on their everyday HR tasks. Learn more about HRO services (and their benefits) here.

Shannon Hodgen
Written by Shannon Hodgen
April 22, 2022

Between onboarding new team members, managing payroll, and overseeing workforce management, many HR teams are stretched thin. The overwhelm is widespread in the US: 72% of HR professionals say their department works beyond capacity. 

Human resource outsourcing (HRO) helps small business owners and HR professionals win back time, focus, and resources to focus on core business activities. In this article, you’ll learn about the services and benefits HRO firms offer and how to select the right HRO firm for your company.

What is HRO (human resource outsourcing)?

An HRO (human resource outsourcing) firm is an independent third-party company that provides businesses with HR services like payroll, policy creation, employee benefits administration and other administrative tasks.

You might come across the term selective outsourcing—or Business Process Outsourcing (BPO)—when researching HRO firms. Selective outsourcing is when you outsource one or more specific HR functions to an HRO firm instead of outsourcing your entire HR function.

When you choose an HRO firm, you’ll likely be assigned an HRO specialist who will manage your account, provide HR support, and help guide your business strategy.

What services do HR outsourcing firms offer?

HROs offer a wide variety of HR services to lighten your team’s workload, improve your employee experience, and help with compliance risk management. They’re especially helpful if you’re a small company with limited HR staffing. 


Payroll administration and taxes

Payroll outsourcing, also known as HRO payroll, takes recurring payroll processing tasks off your HR manager’s plate. An HRO firm can set up payroll for new employees, manage deductions, and ensure payroll taxes are compliant with federal laws. 

Your HRO company will process your payments depending on your pay period and ensure you meet filing deadlines. Some HRO firms will also track employees’ PTO and absences.

Employee training and development

HRO firms can take the lead on developing or improving your employee training programs. They can also make training feel less like a compliance matter and more like a rewarding element of career development. 84% of HR professionals agree or strongly agree that recognition positively affects employee engagement, but managing these programs is time consuming. 

Instead, an outsourced firm can monitor your performance management data, identify candidates, and coordinate their rewards.

Healthcare and benefits administration

Through HRO firms, companies get access to more comprehensive and cost-effective packages for mandatory benefits, non-mandatory benefits, and healthcare that they otherwise wouldn’t have access to.

Your HRO firm can then manage the annual enrolment process, support full-time employees by answering administrative and coverage questions, and determine eligibility for:

  • Health insurance and life insurance claims
  • Short and long term disability
  • Employee assistance programs
  • Unemployment claims
  • Workers’ compensation


Compliance and workplace safety

Compliance tasks are some of the most commonly outsourced HR functions since they typically require a specialized knowledge that goes beyond the traditional HR scope of work, including:

  • Filing W2s and IRS form 1099-NEC
  • Ensuring compliant employee onboarding
  • Staying on top of labor and employment laws 
  • Educating employees on regulations and legal requirements
  • Investigating work-related accidents, incidents, and inspections
  • Conducting background checks on candidates


Policy creation and workforce administration

While HR software can help you automate most HR tasks, some workforce administrative duties require a human touch. Outsourcing these tasks to an HRO firm means your employees will always get the support they need: clear, supportive HR processes improve your company culture and employee relations. 

Your HRO firm can ensure all everyday HR responsibilities and one-off projects are taken care of, such as:

Data-driven decision-making

Even though 73% of leaders view data and analytics as a company priority, 55% say they still need help putting basic people analytics into practice.

HRO companies can monitor and track your team’s HR data to perform applicant tracking, evaluate recruiting channels, reduce bias in the hiring process, and predict candidate retention to make sure your business isn’t flying blind. 

Overwhelmed or understaffed HR teams don’t have the time to monitor these patterns. But an HRO company can automatically create reports on your HR trends and provide advice on how to solve the core issue.

Say your HRO specialist reviews your HR reports and notices an uptick in overtime or after-hours work. A pattern like this can signify workload overwhelm, which leads to employee burnout—something you want to get ahead of. The HRO specialist can flag the issue, present the solution to your team, and help you implement the necessary changes.

Why should you use an HRO?

Companies that outsource HR solutions realize more cost reduction than companies that don’t. But cost savings isn’t the only motivator for using an HRO firm. HR outsourcing can provide companies with a competitive advantage due to the following factors: 


Reduce bias when solving HR complaints and issues

By working with an HRO firm, in-house HR staff no longer have to mitigate employee complaints or escalating issues. Instead, you can introduce an independent third party and reach a faster resolution. 

Conscious or unconscious bias can influence an HR team’s actions since they’re familiar (and sometimes friendly) with the people involved. Letting an HRO company take over conflict resolution helps reduce bias, since they have no personal connection to the employees.

When researching HR outsourcing companies, look for a company that matches your team’s preferred communication style and values to create a seamless experience for your employees.

Learn more about creating an inclusive company culture.

Hire and onboard employees faster

If you want to streamline your hiring and onboarding process, look for an HRO firm that covers the entire employee lifecycle and can screen and interview candidates before onboarding new employees. Some HRO firms can take over even earlier in the hiring process by writing compelling job descriptions and publishing them on job boards to attract top talent to your company.

Having a dedicated hiring and onboarding team can also improve the employee experience. When an in-house HR team is stretched thin, it’s harder for them to provide new hires with the ideal onboarding experience. By outsourcing the process to a dedicated HRO team, your new hires will receive undivided attention and support, leading to a more efficient and enjoyable experience.

Keep contracts and documents will stay up-to-date

Most HRO firms can help you create compliant documents for all types of employee contracts. They can also educate your team on regulatory compliance and employment laws, reducing your risk of making common compliance mistakes and facing penalties.

By outsourcing these HR functions, your team can feel more confident in your workplace safety regulations and compliance status and stay on top of compliance deadlines. Plus, you can avoid hiring a lawyer and paying high hourly fees for them to review your contracts.

Save more time to focus on your team and business initiatives

When HR teams are overrun with tasks, training, and new workplace software to learn, they have little time to improve their own skills and processes. With an HRO firm, they’ll spend less time completing recurring tasks and fielding HR questions from employees, and more time focused on the HR initiatives that drive organizational change.

Who should use HR outsourcing services?

An HRO firm can support a business with one-off projects or ongoing work. HRO is typically the better choice for small businesses and medium-sized businesses who want to hand off select HR functions, while larger companies usually choose a PEO or EOR to outsource their entire HR department.

HR outsourcing may be the right move for your company if you:

  • Have an HR team but want them to focus on your people development and business strategy, not transactional functions
  • Have a limited budget and need support for daily tasks
  • Want to be more confident in your compliance status and legal responsibilities
  • Want to avoid common payroll mistakes
  • Need help building core documents and processes (policies, procedures, employee handbooks)

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HRO vs. PEO: What’s the difference?

Both an HR outsourcing company and PEO (professional employer organization) can take on human resources management you don’t have the time, resources, or expertise to handle. The main difference between the two services is the employment model.

When you work with an HRO, you remain the sole employer of your employees. The HRO firm is independent of your company—they simply manage and are responsible for the HR tasks and functions you’ve assigned to them.

With a PEO, you enter into a co-employment agreement and share employment responsibilities (liabilities) with them. If you’re looking into international expansion (or are a globally dispersed team) then you should look for a global PEO that can assist you with the more complex functions involved and take full employment liability.

Learn more about the differences between PEO vs. EOR vs. GEO vs. AOR

How to choose an HR outsourcing firm

Some HR outsourcing providers specialize in specific industries (retail, manufacturing, sales) while others focus on certain functions (payroll, hiring, compliance). Here’s how to identify which HRO firm is the best fit for your organization:


Conduct an HR needs gap analysis

When you conduct an HR needs gap analysis, you evaluate the current state of your HR department, establish an ideal future state, and develop a plan to bridge the two via human resource outsourcing. During your evaluation, consider the following:

  • What skills do your current HR team members have?
  • What skills are your HR team members missing?
  • What tasks or functions can you automate using HR technology?
  • What HR duties do you want to keep in-house (if any), and why?
  • What tasks are your team spending the most time on?
  • What functions are the easiest for someone else to take over?
  • What HR projects or tasks have been placed on the backburner, and why?
  • What new HR functions do you want to implement?
  • What are your HR goals for the next quarter, year, five years, and so on?


By answering the questions above, you can start building a prioritized list of services you want to outsource and the skills gaps you want to fill with an HR outsourcing company.


Compare HRO services, pricing, and reviews

Once you’ve made your list of must-have HRO services and needed skills, vet potential HRO firms by following this checklist:

Services

  • Do they offer the services you need?
  • Do they offer service bundles?
  • Do they offer selective outsourcing?
  • Will you work with a dedicated account manager, or a team?


Pricing

  • What are their base-level services and prices? 
  • How do their prices scale?
  • Is their pricing dependent on the services you select or the number of employees you have?

Support

  • Do they provide on-site support or virtual support?
  • Do they have 24/7 customer service support?
  • Do they have a live chat option on their website or app?

Contracts

  • Do they offer short- or long-term contracts?
  • Do they offer term flexibility?
  • What are their cancellation, termination, and renewal options?

Expertise

  • What do their reviews say? (Check multiple sources)
  • Do they have specific knowledge of your industry?
  • Do they provide online educational resources for your team?

Technology

  • Can their platform or software integrate with your other HR tools?
  • Is their website intuitive and easy to use?
  • Do they have a mobile-friendly app for your team to use?
  • What security measures do they take to protect sensitive employee data?

 

Get a quote from your top HRO firm choices

The HRO firms you’re researching should have an easy and intuitive way for you to get a quote. To provide a quote, they’ll need some background information on your business, like location and the number of employees you have. Some may have transparent pricing on their website or offer consulting services that follow a separate pricing model.

Get global payroll support (and more) with Deel

Looking to the future, HR professionals predict their greatest barriers to achieving their organizational priorities will be limited time and dedicated personnel. 

With an EOR (employer of record), you can give your team the relief and HR support they need, especially when it comes to global hiring and payroll. 

Through Deel, you can fund payroll with just a click and automatically calculate taxes without lifting a finger. Our multiple currency options and various withdrawal methods make it even easier for your team to get paid on time, every time, so that you can have one happy team.

Sound like something your business could use? Reach out, learn more about Global Payroll, and book a demo to see Deel in action.

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