One of the most significant forces affecting human resource management has been the outsourcing of human resource functions. Human resource outsourcing is commonly understood as the permanent contracting out of activities that were previously performed in-house.
Outsourcing has been pursued for several operational reasons as well, such as for greater efficiency or better service in the performance of functions. Outsourcing also has been seen as a vehicle for cutting costs.
In addition, outsourcing has been used to obtain specialised expertise that is not available in-house. During the past 5 years or so, downsizing has often reduced the number of human resource specialists in human resource departments.
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This reduction in staff has required organisations to go to outside vendors to obtain specialised services, such as for test validation or in-depth assessments for leadership development.
Major consultancy firms are predicting a big boom for HR outsourcing as a whole. With the growing market, there are a number of vendors available who cater to the diverse needs of various markets and provide HR services, including staffing, payroll benefits, administration, training, employee relations and compensation.
Reasons for HR Outsourcing:
1. HR outsourcing is a viable option, if a company lacks internal expertise and confidentiality and requires unbiased opinion on human resources.
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2. Outsourcing is also gaining importance as most companies do not have the time or the expertise to deal with situations.
3. Outsourcing helps employees to get rid of routine transactional HR work.
4. External vendors – through technology and economies of scale – provide more efficient and cost-effective HR services than in-house departments.