HRO, or human resource outsourcing, is an arrangement in which a third-party administers HR on behalf of another business, allowing it to focus more attention on growth-related objectives. Options range from basic HR services and help desks to partnerships with professional employer organizations (PEO) that provide a combination of strategic planning and day-to-day administrative support.
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What services does HRO typically offer?
HR outsourcing companies generally have dedicated service teams that deliver day-to-day support in the following areas:
- Payroll and tax administration
- Employee training and development
- Policy creation and workplace safety
- Recruitment and onboarding
- Benefits administration
- Compliance and risk management
Why should a business consider HRO?
Whether employers want to stay involved in HR and payroll administration or prefer to be hands-off, the right HRO provider can provide the support needed to navigate the ever-changing world of work.
Here’s a closer look at what employers can expect from an HRO:
- Payroll and tax administration
An HRO will optimize an employer’s payroll processes and may integrate the payroll system with HR and time and attendance solutions to improve the flow of data.
- Human resources
Through an HRO, employers can access knowledgeable professionals, best practices and tools to help them manage their workforce more effectively, support compliance and drive employee engagement and retention.
- Compliance guidance
HROs keep up with congoing changes to HR and pay regulations at the federal, state and local levels. They will then guide their clients on how to respond to the changes and maintain compliance.
- Talent management
Employers can get the help they need to have a strong talent strategy across the entire employee lifecycle – from attracting and hiring the right talent to training and managing performance.
- Benefits administration
HROs lend support with open enrollment, COBRA administration, invoice reconciliation and reporting. They may even field benefits-related inquiries from employees and managers.
- Employee and manager support
An HRO can help answer daily questions without disrupting the employee experience. Consequently, the in-house HR team may have additional time to work on more strategic and impactful initiatives.
- Maintain the status quo.
- Hire an in-house HR and payroll team. This approach can take time and cost more money and resources than are available.
- Build the necessary HR technology. This option means having to learn and maintain an HR system and training teams to use it.
- Partner with an HRO provider to increase efficiencies and gain access to people support, guidance and expertise.
- Should I consider an HRO provider if my organization already has an HR or payroll department?
Every service model is different, depending on the provider. However, organizations with or without an in-house HR or payroll team can benefit from the value delivered by HRO. - How much does HRO cost?
Although fees vary, HRO providers typically charge by the number of employees and the specific services needed. It often helps to get quotes for comparable services. For example, there may be a monthly fee for payroll or a charge per payroll processing. - Can I choose which services and features I want?
Some providers have an all-in-one technology suite for HR, payroll, and benefits, whereas others give clients the flexibility to purchase individual solutions according to their needs. - What level of support does the service team offer?
HRO providers might offer clients a team of professionals focused on specific areas, like benefits administration, payroll processing, talent management, etc. Other providers may have a single point of contact with more limited assistance. In some cases, only technology support and troubleshooting is available. - Are you doing the work in-house or outsourcing to a third party?
Providers may have the scalability and capacity to manage HR independently for their clients, or they may rely on additional third-party vendors. - Will I lose control of my business?
There is a misconception that an HRO removes control or oversight from the client, but that’s not always the case. Employers who have reservations should check with the provider to ensure they’re comfortable with the service and support model offered.
Is outsourcing human resources necessary?
In truth, not every organization may need an HRO provider. To determine the best solution for future growth, employers should first identify their organization’s needs and priorities. They can then decide which of the following paths make the most sense for their business:
Choosing the right HRO provider for your business
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When they’re in the market for an HRO, employers generally ask the following questions to determine if a provider is a good fit:
Frequently asked questions about HRO
What is the role of HRO?
The role of HRO is to help businesses with their human resource responsibilities. Outsourcing may also lead to cost control though economies of scale and improved regulatory compliance.
What is HRO payroll?
HRO payroll is when a third-party provider handles all aspects of payroll, including paying employees and depositing and filing taxes, on behalf of a client business. This type of arrangement is also known as full-service payroll.
What is selective outsourcing?
Selective outsourcing or business process outsourcing (BPO) is a type of HRO that allows employers to choose which HR functions to outsource and which to maintain themselves. This flexibility makes HRO ideal for business owners who need help with HR, but also want to keep some measure of control.
This guide is intended to be used as a starting point in analyzing HR outsourcing. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
