Human Resource Outsourcing
What is human resource outsourcing and what gets outsourced?
Human resource outsourcing (HRO) is the practice of contracting third-party providers to handle specific HR functions or the entire HR function. Common outsourced areas include payroll processing, benefits administration, recruiting (RPO), background checks, learning and development, and full HR through Professional Employer Organizations (PEOs). Smaller employers often outsource heavily; mid-size and large employers typically outsource specialized functions while keeping strategic HR in-house.
HR outsourcing exists on a spectrum from outsourcing single transactional functions (payroll, background checks) to outsourcing the entire employment relationship through a Professional Employer Organization. The right level varies by company size and stage. Startups under 50 employees often run on full PEO arrangements. Mid-market companies typically outsource payroll, benefits administration, and specialized recruiting. Enterprise organizations outsource selectively for specialized expertise but keep strategic HR in-house.
What Gets Commonly Outsourced
Payroll processing (ADP, Paychex, Gusto). Benefits administration. Recruiting Process Outsourcing (RPO). Background checks and drug screening. Learning and development content. Workers' comp insurance. PEO arrangements bundle multiple functions plus shared employer responsibility.
PEO vs. ASO vs. Standalone Outsourcing
PEO (Professional Employer Organization): co-employment arrangement, shared employer ID, bundled HR services. ASO (Administrative Services Organization): outsourced HR functions, employer keeps direct relationship. Standalone outsourcing: single function (just payroll, just benefits). Each has different cost and control tradeoffs.
When HR Outsourcing Makes Financial Sense
Under 50 employees: PEO often saves money on benefits buying power. 50-500 employees: standalone payroll and benefits admin. 500+ employees: selective outsourcing of specialized functions only. Above 2,000: typically mostly in-house with select RPO or specialty consulting.
Choosing What to Outsource and What to Keep In-House
Outsource transactional, specialized, or low-volume work. Keep strategic, customer-facing, and high-volume HR. Reassess annually as headcount and complexity grow. See HR consulting for project-based outsourcing alternative and payroll service for the most common outsourced function.
.svg)
.svg)