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How Outsourcing Works

Human Resources Outsourcing
Many companies outsource corporate human resource functions including recruiting and hiring.
Many companies outsource corporate human resource functions including recruiting and hiring.
Photographer: Maxexphoto | Agency: Dreamstime

For most business, personnel is its largest cost. People are talented, dedicated and valuable, but they're also expensive and sometimes complicated to manage. It's no wonder more businesses are turning to outsourcing for their human resources needs.

A human resources vendor can recruit and screen potential employees, manage their benefits and payroll after they're hired, navigate government regulations and employment laws and even handle disciplinary actions, all at an employer's direction.

A human resources outsourcing firm can improve efficiency and help align a company's workforce with its long-term goals. When a company chooses to outsource human resources, it purchases not only the services but the vendor's expertise and experience in selecting top-quality employees who are well suited for their role.

Outsourcing human resources allows the company to shed the paperwork and business processing aspect of its workforce. It also can choose to turn over recruiting responsibilities to the vendor, which can be an expensive time-consuming chore. Human resources vendors will also manage employee benefits, such as payroll, customer service, Family-Medical Leave Act administration, defined benefit administration, performance reviews and retirement contribution administration.

It's up to the company to choose a service level. On one end of the spectrum, a company may outsource a handful of selected repetitive services such as managing annual open benefits enrollment, administering flexible spending accounts or conducting background checks on prospective employees. This sometimes is called "discreet services."

On the opposite end is total human resources outsourcing, in which a company turns over virtually all human resources functions to an outside vendor. This can include recruiting, payroll, in-house communications and customer relations. The vendor also might consult with the company on long-range workforce recruitment planning and training.

Some disadvantages to outsourcing human resources can include a sense of distance between the company and its employees, dissatisfaction among employees with the vendor and a poorly matched vendor alienating a company's employees through poor practices.

As markets continue toward globalization and technology improves, outsourcing will continue to grow. Companies continue to re-evaluate and re-invent the way they do business, and outsourcing goods and services is often a consideration. Despite some political opposition, the practice continues to offer cost-benefit incentives, which can help companies all over the world be more competitive.

For lots more information about outsourcing and related topics, check out the links on the next page.