What is HRO

A HRO (human resource outsourcing) is an independent third-party company that provides businesses with HR services like payroll, policy creation, and employee benefits administration. A HRO firm can support a business with one-off projects or ongoing work.

You might come across the term selective outsourcing—or business process outsourcing (BPO)—when researching HRO firms. Selective outsourcing is when you outsource one or more specific HR functions to an HRO firm instead of outsourcing your entire HR function.

HRO is typically the better choice for medium and small businesses and startups that want to hand over time-consuming HR functions. Larger companies are better suited to a PEO (professional employer organization) or EOR (employer of record) to outsource their entire HR department.

HR outsourcing may be the right move for your company if you:

• Have an HR team but want them to focus on your people development and business strategy, not transactional functions

• Have a limited budget and need support for daily tasks

• Want to be more confident in your compliance status and legal responsibilities

• Want to avoid common payroll mistakes

• Need help building core documents and processes (policies, procedures, employee handbooks)

What services do HROs provide?

HRO firms offer various HR services to lighten your team’s workload, improve employee experience, and help with compliance risk management.

Payroll administration and taxes: Payroll outsourcing, also known as HRO payroll, takes recurring payroll processing tasks off your HR manager’s plate. A HRO firm can set up payroll for new employees, manage deductions, and ensure payroll taxes comply with federal laws. 

Your HRO company will process your payments depending on your pay period and ensure you meet filing deadlines. Some HRO firms will even track employees’ PTO and absences.

Employee training and development: HRO firms can develop or improve employee training programs, monitor performance management data, and coordinate rewards.

Healthcare and benefits administration: Through HRO firms, companies get access to more comprehensive and cost-effective benefits packages that they otherwise wouldn’t have access to.

In addition, a HRO firm can manage the annual benefits enrolment process, answer administrative and coverage questions, and determine eligibility for:

• Health insurance and life insurance claims

• Short and long-term disability

• Employee assistance programs

• Unemployment claims

• Workers’ compensation

Compliance and workplace safety: Compliance obligations and managing the unexpected require specialized knowledge beyond the traditional HR scope of work. When you outsource these tasks to a HRO firm, they’ll take care of:

• Filing W2s and IRS form 1099-NEC

• Ensuring compliant employee onboarding

• Staying on top of labor and employment laws 

• Educating employees on regulations and legal requirements

• Investigating work-related accidents, incidents, and inspections

• Conducting background checks on candidates

Policy creation and workforce administration: A HRO firm can ensure all everyday HR responsibilities and one-off projects are taken care of, such as:

• Creating and updating policies (like paid time off (PTO) or parental leave)

• Maintaining and operating your HRIS (human resource information system)

• Supporting employee questions and concerns

• Managing sensitive employee data and records

Data-driven decision-making: HRO companies can monitor HR data, perform applicant tracking, evaluate recruiting channels, reduce bias in the hiring process, and predict candidate retention. Using this data, HROs can automatically generate reports on your HR trends and advise business owners on improving work processes and solving core issues and deviations.

For example, say your HRO specialist reviews your HR reports and notices an uptick in overtime or after-hours work. A pattern like this can signify workload overwhelm, which leads to employee burnout. The HRO specialist can find the root cause, flag the issue, and help you implement the necessary changes.

Why should you use HRO?

Companies that outsource HR solutions realize more cost reductions. But cost savings isn’t the only motivator for using an HRO firm. HR outsourcing can provide companies with a competitive advantage due to the following factors: 

Reduced bias when solving HR complaints and issues: Conscious or unconscious bias can influence a HR team’s actions since they’re familiar (and sometimes friendly) with the people involved. Letting an HRO company take over conflict resolution helps reduce bias since they have no personal connection to the employees.

Faster hiring and onboarding: SomeHROs can oversee the entire employee lifecycle, from job descriptions, screening and interviewing, hiring and onboarding, and eventually termination and offboarding. Your new hires will receive undivided attention and support, leading to a more efficient and enjoyable work experience.

Up-to-date contracts and documentation: Most HRO firms can help you create compliant documents for all types of employee contracts. They can also educate your team on regulatory compliance and employment laws, reducing your risk of making common compliance mistakes and facing penalties. Plus, you can avoid hiring a lawyer and paying high hourly fees for them to review your contracts.

Time to focus on team development and business initiatives: With a HRO, in-house HR teams can spend less time completing recurring tasks and fielding HR questions from employees. This frees more time for personal development and HR initiatives that drive organizational change and continuous improvement.