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What is HRO and How Can It Benefit My Business?

November 19th, 2021 | 3 min. read

By Gia Rolen

HR is like the gate that guards your home. It protects you from intruders and prevents your kids or dogs from running away, giving you and your family a sense of security.

In the same way, Human Resources (HR) protects your business from legal situations that can ruin your company and its reputation. It also helps prevent you from mismanaging your team and overlooking pertinent employee concerns.

If you're a small business, hiring an HR manager may be the least of your worries right now, and you might be concerned that you cannot afford it. As you continue to grow and hire more people, you eventually will need someone to fill this role whether it's a new hire or working with an outsourced team to fill those needed duties.

Human Resources is a vast and complex world of regulations, labor laws, and policy updates. An HR manager has to juggle activities that range from creating a handbook to strengthening company culture to staying on top of OSHA guidelines.

And let's not forget planning the holiday parties and total reward programs.

In a small or midsize business, HR is usually someone's second hat. We define this second hat as tasks and responsibilities that aren't your primary role. Instead, it's a gap in your business that doesn't justify a full-time hire right now.

An administrator, hiring manager, or even you as the owner of your company can wear this second hat. When it's not someone's only responsibility, some critical HR tasks can be overlooked.

This article will help define human resource outsourcing, the reasons someone might want to try something new with HR, and what type of business is an ideal fit.

What is Human Resources Outsourcing (HRO)?

Outsourcing is the business practice of hiring an outside party to perform services or create goods traditionally performed in-house by the company’s employees and staff.

Human Resources Outsourcing (HRO) is a relatively new term, but it follows the same idea. HRO refers to a process in which the employer transfers responsibilities and risks for HR functions to an external provider who performs the task for the company.

HRO can look different based on which core HR functions a company outsources. Since HR and critical objectives are complex and time-consuming, businesses can outsource the whole department or pieces of it.

Companies realized that critical outsourcing functions were not a sign of weakness but confidence and wise leadership. “I don’t know what I don’t know” is a common phrase spoken by business leaders.

HRO allows companies and leadership to focus on the areas they do know.

What services do HRO companies typically provide?

Now that we have established what HRO is and why the need arises let's look at some common areas that a company may outsource.

HRO gives strategic support while still providing business leaders with tools to improve day-to-day talent management and operations. HR outsourcing companies can offer a full-service HR department or take on a portion of the HR staff's tasks.

Critical functions/areas that HRO typically cover are the following:

  • Recruiting, training, and personal/professional development
  • Planning organizational structure and staffing requirements
  • Tracking company objectives, goals, and performance evaluations
  • On-boarding and orientation programs
  • Calculating payroll including wages, tax withholdings, payroll taxes, wage garnishments, pension contributions, and leave accrual
  • Administering benefits, including employee enrollment and subsequent withholdings
  • Staying up to date on people compliance, policy updates, and OSHA guidance

Who is an ideal fit for HRO?

As you can see above, HRO is a multi-faceted beast. Some companies may outsource the entire department, while others may choose to keep their HR manager in-house.

How do you know if you should outsource your HR? Well, it begins with the concept of intent.

  1. What is the intent or objective your company is striving to meet?
  2. What area of your business needs this?
  3. Does your company have the talent internally to accomplish the job?

This is often the biggest struggle for a company to identify. If you don't define what this means for your business, you'll be unsure of the direction and potentially spend a lot of money purchasing a service that you don't need.

Outsourcing critical HR duties are complicated enough - so not identifying exactly what you need can lead to additional confusion and errors.

Each company is unique and implements strategies and mission statements that align with what they want to become. The same goes for HRO.

As long as the company accomplishes the first step and develops a clear picture of the most effective use of outsourcing, any company can be an ideal fit.

Looking ahead

This article helps define what HRO is and if it's an option for you and your business.

A contractual agreement between an employer and an external provider can be a great thing for a growing business or an unnecessary expense.

You are transferring the management of, and responsibility for, certain HR functions to a professional outside of your company. That can be a nerve-wracking thought.

But if you don't have someone on your team who is qualified to handle pertinent HR issues, it may be better to trust an expert so you don't risk running into compliance issues and legal situations.

As an employer, you have several HRO options. You can outsource one HR function, such as applicant tracking or affirmative action purpose, or you can outsource the entire department to a provider.

The decision to outsource HR, hire a manager, or train an existing member of your team is in your hands. There are pros and cons to all options, so you have to figure out which decision aligns with your team, your values, and what you need as a business right now.

There are many types of HR outsourcing options available to companies. To get an idea of what different packages and pricing look like, read how we price HRO at Whirks.