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6 Types of HR Outsourcing You Need to Know About

Posted by Ramsha Tausalkar

February 27, 2024

Setting up your HR team for the first time? Here’s everything you need to know about HR outsourcing and its types.

When defined in the simplest way possible, HR is about people.

The Human Resources department of any company is concerned with its employees. They mainly deal with recruitment, administration, and training. They also worry about employment engagement, conflict management, and complaint handling. With so many tasks, the work can become overwhelming. This is where HR Outsourcing comes in.

HR Outsourcing is when companies team up with an external agency to carry out HR duties within the organization. Look at it as seeking external help. HR Outsourcing offers many benefits like:

  • Saving time: When companies outsource, they have more time to ideate and focus on building the organization.
  • Expert guidance: The outsourcing services organizations have years of experience and expertise, so their support is exceptional.
  • Compliance with government laws and regulations: There are strict legislations in place that must be followed while running an organization. Keeping up with all these is exhausting. Outsourced companies are well-versed in them, so that’s a big task taken off one’s plate.
  • Cost efficiency: Having an in-house HR team for all its functions has a high cost. Outsourcing specific tasks has a considerably lower price.

To understand HR outsourcing better, we must look at its main types:

1. Professional Employer Organization Outsourcing (PEO)

In this type of outsourcing, the company enters into a co-employment contract with the outsourcing agency. While the outsourced company handles employee wages and tax payments, the leading company controls employee contracts, termination, and day-to-day administration. The leading company pays the outsourced organization for its services. So, while significant tasks are outsourced, the company still has responsibility and control over its employees. Although PEO offers its services to all kinds of businesses, it specializes in working with organizations that have less than 50 employees. This way, even small businesses can benefit from joining hands with a more prominent company.

Talk to us about how Escalon’s PeopleOps can help you streamline payroll processes.

2. Administrative Services Organization Outsourcing (ASO)

As compared to PEO, this is an approach that keeps you closer to your employees. Under this type of outsourcing, the third-party firm remains strictly third-party. That means they are more of a helper than a co-employer. They provide all HR services, but the employee remains strictly under the leading company. This approach is ideal if you want more control over your employees and choose to work directly with them but want an administrative team to look over day-to-day HR functions and operations. The third-party firm can only decide on hiring, termination, or anything else with your approval.

3. Human Resources Organization (HRO)

This type of outsourcing is ideal for organizations that generally have the capacity for a full-time, in-house HR team but need targeted help for specific areas. In this case, the third-party firm offers them many options from which they can choose. It may be something periodic like a month-long training program or a longer, more permanent process like hiring and training. HROs have specific specializations, such as workplace engagement or financial administration. They thus offer a selection of these services. Self-sufficient large organizations often employ them but could do with some extra help.

4. Software-As-A-Service HR Outsourcing (SAAS)

This outsourcing type is software provided to the business by a third-party vendor. This is great for companies that want to cut costs while having an in-house team. It must be noted that an HR team still handles this software, and it is partially automatic. Some common examples of SAAS outsourcing are HR Management Systems that keep track of finances, employee data, training, and performance management, among others.

5. Business Process HR Outsourcing (BPO)

In this type of outsourcing, a company employs a third-party firm for a specific HR function. This is usually done for complex processes, and the firm providing this service possesses expertise. They offer personalized support and help you save time by caring for one particular zone in your company.

6. Single Source HR Outsourcing

In this type of outsourcing, a third-party firm fulfills all HR needs of a business, right from hiring, training, and employee management to upskilling, conflict management, and termination. The two parties involved negotiate on how much involvement the outsourced firm has. This type is ideal for companies that don’t want an in-house HR team and want external support for all such functions.

Final Word

Remeber, there’s no one-size-fits-all solution for a company. So, consider your company’s needs and find the best fit for yourself. Remember that there’s no suitable solution. Each appeals to different companies for different reasons, so it is a decision best made after assessing your specific needs.

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Want to know more? In addition to taxes, accounting, bookkeeping, and CFO services through its FinOps, Escalon’s Essential Business Services include PeopleOps (HR, benefits, recruiting, and payroll) and Risk (business insurance). Talk to an expert today.


Ramsha Tausalkar
Ramsha Tausalkar

Ramsha Tausalkar is a freelance journalist and media aspirant. She has also been a food content creator since 2016. Mainly, she is a writer; from technical content to poetry. She best describes herself as a creative aspirant, with her hands on everything: from video to audio and from technical content to poetry. When she is not pursuing one of her many interests, you can find her petting a cat or reading up on random articles on the internet.

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