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HR outsourcing is a contractual agreement between an employer and an external third-party provider whereby the employer transfers the management of, and responsibility for, certain HR functions to the external provider. Many types of HR outsourcing options are available to employers. The options can be as specific as outsourcing one particular aspect of one HR function—such as applicant tracking for affirmative action purposes—or as broad as outsourcing the entire human resource department.

For several reasons, including cost savings and the freeing of human resource professionals to focus on more strategic efforts, HR functions are among the services organizations are most likely to choose to outsource. As a result, HR professionals are being asked to identify outsourcing solutions for businesses and guide organizations through vendor selection and management of the outsourcing relationship.

Besides giving in-house HR professionals more opportunity to focus on strategy, outsourcing can:

• Provide companies access to specialized HR expertise.
• Help with regulatory compliance.
• Speed up response times on transactional HR functions such as benefits enrollment and payroll.

In addition, there can be technology benefits. For example, through the use of a SAAS provider that provides and maintains software, employers gain the benefits of advanced software systems and avoid possible technical hassles of managing programs onsite.

When deciding whether to outsource, an organization should be able to answer questions designed to analyze its HR needs, its current HR processes, its business plan and its outsourcing options such as the following:

• Can HR handle outsourcing without disrupting the current operation?
• Do HR staff members have the time and experience to deal with outsourcing?
• Is the HR department sufficiently staffed to manage the outsourcing relationship?
• Is HR providing excellent service with existing staff and processes? Is HR meeting all the organization’s needs?
• Most importantly, will the CEO and top management team support and pay for an outside vendor?
• Does the company have a clear mission and vision? Have company values been established?
• Does the situation merit outsourcing?
• If so, what type of outsourcing solutions would best fit the situation?

Managing the Relationship

The key is to manage the relationship well. This involves establishing a collaborative way of working with vendors that builds trust and open communication. It can be accomplished by setting forth all expected benefits in a written business case that includes quantitative and qualitative targets, and by using practices that have been shown to produce successful outcomes.

Vendor governance encompasses much more than just “resolving issues” and approving fees. Organizations that understand how a third-party vendor undertakes the activities it has been hired to perform greatly increase their ability to provide consistent direction, thereby ensuring that vendors meet the contractual and regulatory obligations outlined in the initial contract. If problems emerge, as they inevitably will over time, this understanding can help the organization resolve those issues quickly.

The traditional vendor manager is a technical or subject-matter expert and not necessarily adept at managing contracts, performance or overall relations with a third-party supplier. Under those circumstances, relations between the vendor and the client organization can quickly become adversarial or strained.

A structured approach to vendor governance helps organizations build trust and enhance communication so that all parties feel they are being treated fairly.