This document provides an overview of human resource outsourcing. It defines human resources, outsourcing, and human resource outsourcing. It discusses the history of outsourcing and categories of human resource outsourcing such as professional employer organizations, business process outsourcing, and application service providers. Trends in human resource outsourcing are also examined, such as a growing focus on cost savings and expertise rather than just cost savings alone. Hybrid models that use a mix of in-house and outsourced human resource functions are becoming more common.

1. Running head: AN OVERIEW OF HUMAN RESOURCE OUTSOURCING 1
An Overview of Human Resource Outsourcing
Term Paper
Keith Huma 635985
United States International University
Author Note
This paper was prepared for the course Strategic Human Resource MOD 6040, Section B of
Spring Semester 2013, taught by Dr. Stephen. M. Nyambegera.

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Abstract
The phrase Human Resource outsourcing appears quite often as a progressively greater number
of going concerns consider its potential in lieu of some of their process, practices or functions.
As a strategy in optimizing tangible and intangible costs, Human Resource outsourcing is used
by management to aid organizations gravitate their resources around their core competencies. It
revolves around an external party, contractually engaged with agreed upon metrics of
performance, whose obligations are the administration, ownership, and management of selected
functions. The objective of this paper was to study the theories of Human Resource outsourcing
specifically focusing on the definitions, history and categories that academia has expounded on
this topic, and conclude with the current trends and future envisioned from this background. The
study used purely secondary data through the review of literature from published books, theses,
dissertations, articles, papers and websites.

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An Overview of Human Resource Outsourcing
Definitions and Theories
Human Resource
Human Resource as a process is the function, in an organization, responsible for personnel
sourcing and hiring, applicant tracking, skills development and tracking, compensation
administration and compliance with associated government regulations.
Outsourcing
Outsourcing is the process of establishing and managing a contractual relationship with an
external supplier for the provision of capacity that has previously been provided in-house
(Momme, 2001).
Outsourcing occurs when an organization’s ownership of a business process is transferred to a
supplier. Transfer of control is the key aspect to this definition. This definition is different from
contractual obligations where the control of the process is retained by the buyer, in other words,
the buyer does not tells the supplier how to do the work. This transfer of ownership as defined in
outsourcing and often makes it a challenging and painful process. In outsourcing, the buyer
focuses on communicating what results it wants to buy, and leaves the how in accomplishing
those results to the supplier.
Human Resource Outsourcing
Human resources outsourcing is engaging an outside party to take ownership of some or all of
the Human Resource functions in an organization. Outsourcing can be used for a number of
different HR related activities. The the most commonly outsourced HR functions are background

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checks, employee assistance programs, and flexible spending accounts that allow employees to
use pre-tax dollars to cover medical expenses the Society of Human Resources Management
(2008). HR outsourcing is on the rise. In the same SHRM study, 33 percent of HR professionals
who participated believe their company will increase their use of outsourcing within the next five
years.
The History of Human Resource Outsourcing
Outsourcing was not formally identified as a business strategy until 1989 (Mullin, 1996).
However, most organizations were not totally self-sufficient; they outsourced those functions for
which they had no competency internally. Publishers, for example, have often purchased
composition, printing, and fulfillment services. The use of external suppliers for these essential
but ancillary services might be termed the baseline stage in the evolution of outsourcing.
Outsourcing support services is the next stage. In the 1990s, as organizations began to focus
more on cost-saving measures, they started to outsource those functions necessary to run a
company but not related specifically to the core business. Managers contracted with emerging
service companies to deliver accounting, human resources, data processing, internal mail
distribution, security, plant maintenance, and the like as a matter of “good housekeeping”.
Outsourcing components to affect cost savings in key functions is yet another stage as managers
seek to improve their finances.
Categories of Human Resource Outsourcing
Professional Employer Organization (PEO)
A Professional Employer Organization PEO recruits, hires, and employs on an
organization’s behalf. The PEO’s employees, whom they essentially lease back an organization,

5. AN OVERIEW OF HUMAN RESOURCE OUTSOURCING 5
refer to the PEO as the employer of record. Employee’s staffing and relations to compensation
administration and payroll, essentially all HR functions are managed by the PEO. This model on
HR outsourcing fits with the organization that has no HR function or prefers to solely dwell on
their core business
Business Process Outsourcing (BPO)
Business Process Outsourcing (BPO) refers to all fields, but specifically for HR, a BPO would
ensure that a company has access to latest technologies. A BPO differentiates itself by either
putting in new technology or applying existing technology in a new way to improve a process.
Specifically in HR, a BPO would make sure a company's HR system is supported by the latest
technologies, such as self-access and HR data warehousing.
Application Service Provider (ASP)
Application Server Provider models the use of software as-a-service, leased out on a per-seat or
per month basis. ASPs host HR software where users rent it on the internet. The range of support
by ASPs includes:
• Disaster recovery and business continuity; where the ASP provides the ability to relocate to a
hosted environment to resume business processes in the event of a contingency event. This is
typically a one-off solution.
• Remote systems management: Here the customer retains ownership of IT assets in-house, but
the ASP remotely monitors and manages the SDI. This is typically a short-term solution, while
the customer is retiring its IT assets and determining how to reallocate personnel.

6. AN OVERIEW OF HUMAN RESOURCE OUTSOURCING 6
• Hosting: The customer retains the application maintenance, operations and support, while the
ASP provides, maintains, operates and supports facilities, technology and database SDI. This
usually happens when a business solution desired by the IT staff runs on a different platform than
currently in place.
• Remote applications management: The customer retains ownership of the SDI technology. ASP
remotely monitors and manages it all, including application layer. It is a steppingstone toward
complete handover of customer's IT infrastructure.
• Managed applications services: Customer may own the software license or subscribe to
monthly usage rights, but relies on ASP to provide entire SDI stack and continuous life cycle
management to every element.
E-services
E-services are those HR services that are web-based akin to Application Service Provider.
Hybrid Outsourcing
In Hybrid Outsourcing not all HR responsibilities are apportioned like to a PEO. Here there is
no need a full suite of services, outsourcing is for a few time-consuming or labor-intensive HR
tasks. For example, using recruiters to find suitable candidates, but retaining of control of
staffing activities such as hiring and firing employees.
Human Resource Outsourcing Trends
The prospect of cutting costs and saving money is one of the primary motivators that
organizations begin with when considering outsourcing. Employers often begin to focus on
business metrics like productivity, profitability and employee satisfaction. In the end though

7. AN OVERIEW OF HUMAN RESOURCE OUTSOURCING 7
savings seems to drive about half of organizations into HR outsourcing, while the other half
don’t rate savings as the main motivator (Hewitt Associates, 2005).
Organizations that didn't rate cost savings as a top goal for their human resources outsourcing
gave the following top three reasons as goals in Human Resource outsourcing; To gain outside
expertise, improving service quality, and to focus on their core business. The "comprehensive"
types of outsourcing deals, such as offered by a Professional Employer Organization, are not
necessarily appropriate for all employers. Some use a mix of in-house resources and outsourcing.
In doing so they often have lower budgets and fewer HR staff members per full-time employee
than firms that either primarily handles human resources internally or primarily outsource HR
functions. With globalization, down turns in world economies and the drive to maximize returns
by cutting costs more organizations are opting to outsource more control of the Human
Resources to suppliers. Most are going for Hybrid Outsource, which are customized by the needs
of the organization in terms what they want to achieve.

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