What is business processing outsourcing (BPO)?

BPO is hiring external experts to manage non-core business functions like payroll or human resources for cost savings, efficiency, and improved focus on core operations.

How business process outsourcing works

Organizations that opt for BPO identify operations and business processes that are not a core competency of their product or service, but essential nonetheless, and sub-contract them out to a third-party. Depending on the provider, employers may be able to outsource tasks piecemeal or as part of a comprehensive package.

Once an organization has considered its BPO providers, it can reach out to vendors to learn more. BPO companies may suggest a tailored set of solutions based on the unique needs of the organization. The BPO provider then draws up a service-level agreement (SLA_) that outlines the terms of agreement. Once the BPO provider is hired, further discussions determine specific projects that require a statement of work (SOW). The relationship between the BPO and organization continue based on the SLA and/or the SOW.

Examples of BPO

A health care company wants to improve human resources but can’t afford to hire more personnel for that department. It may choose to work with a BPO provider that specializes in HR so it can focus on what it does best – taking care of patients – without having to worry about payroll, recruitment, or benefits administration.

What functions are most frequently outsourced?

Employers commonly outsource operations that they don’t have the time or the resources to manage effectively on their own. These fall into one of two categories:

Back-office functions

  • Human resources
  • Accounting
  • Research
  • Information technology

Front-office functions

  • Customer service
  • Marketing
  • Sales
  • Tech support

What does business process outsourcing do for HR?

BPO providers use HR technology and best practice guidance from a team of specialists to help employers address operational deficiencies. HR processes that can be outsourced include, but are not limited to:

  • Payroll and tax administration
  • Benefits administration
  • Recruitment
  • Time and attendance
  • Regulatory compliance
  • Employee learning

Benefits of BPO

Whether due to a lack of budget, employees or time, every HR department has limits on how much it can achieve independently. With BPO, however, it’s possible to reach new heights. Employers may be able to:

  • Reduce costs

    Considering the expense of hiring more HR personnel and the time it takes to administer payroll and benefits, outsourcing can be a more cost-effective way to extend business capacity.

  • Improve efficiencies and productivity

    BPO providers are experts in the services they provide, which means they’re often able to complete tasks faster and with greater accuracy than the client business.

  • Become more flexible

    When freed from time-consuming administrative burdens, employers can quickly reallocate resources in response to market changes or unexpected disruptions.

  • Expand geographically

    Outsourcing providers that have national and international compliance capabilities can help employers branch out into new geographic regions.

  • Stay competitive

    Employers who outsource HR generally can pursue activities that further their business’s primary objective and increase revenue or growth.

Risks associated with outsourcing HR

Outsourcing HR can be beneficial for your company, but it does come with a few risks:

  1. Employee resistance: With an in-house HR department, all HR issues are kept in-house. When you outsource HR, employees are forced to go to the external third-party to resolve issues. This can be a problem for employees because HR issues can be very personal. Employees may be uncomfortable discussing these issues outside the company. 
  2. Potential confidentiality issues: HR teams manage sensitive information that is kept confidential. When outsourcing HR, the third-party has access to this information. BPO providers are trustworthy and offer security, sharing information outside your organization always carries a risk of data breach.
  3. Inability to monitor your HR activities: With an in-house team you can keep track of how productive and how focused the team is. When outsourcing, it is difficult to know if the team is productive and focused during working hours.

How to choose a BPO provider for HR

Finding the right BPO provider requires extensive research into vendor capabilities, a careful review of business objectives and collaboration with key stakeholders. Here are some of the basic steps:

  1. Conduct a needs assessment

    Identify which existing HR functions would benefit from outsourcing and which can be successfully managed in house.

  2. Create a request for proposal (RFP)

    List the various capabilities – regulatory compliance, industry knowledge, data analysis, etc. – expected of a potential provider.

  3. Evaluate RFP responses

    Weigh the pros and cons of each proposal and make sure that the provider clearly identifies which services fall under its domain and which remain with the client’s business.

  4. Agree to terms

    Secure stakeholder approval and negotiate a contract that documents the specific responsibilities, the duration of the partnership and the total cost, among other details.

  5. Begin the transition process

    Shift the agreed upon functions from internal HR teams to the BPO provider while ensuring open lines of communication between all parties.

    6. BPO providers may refer to their services in one of the following ways:

    • Administrative services offering (ASO)

      Commonly used by small and mid-sized businesses, ASO varies greatly. It can be a technology platform with a help desk or a partial or full administrative service.

    • HR outsourcing

      The vendor handles all or some administrative duties on behalf of an employer. This business model is sometimes confused with offshoring, which typically involves outsourcing certain functions to workers overseas.

    • Managed services

      A provider takes care of most, if not all HR responsibilities. Managed services is most often used by companies with several hundred employees or more.

Frequently Asked Questions

What is HR business process outsourcing?

HR BPO is when companies outsource HR activities to a BPO provider giving them more time to focus on core business activities.

What are HR BPO vendors?

Human resources business process outsourcing vendors provide their clients with HR solutions. They take on the HR activities of their clients as needed.

What is the difference between BPO and a Call Center?

Call centers are a type of BPO as a company may outsource their customer service to a call center.

What is the difference between BPO and HRO?

Human Resources Outsourcing (HRO) companies can provide some or all of a company’s HR needs. They are a type of BPO. Traditionally, HROs were only available to large organizations but are now moving towards the mid-market as well.

How much does a BPO HR provider cost?

Fees vary, but providers typically charge based on the number of employees that a business has and which services it needs. Employers may want to get quotes for comparable offerings.

Why do businesses outsource?

Employers outsource because it affords them more time to focus on the core functions of their business while leaving certain administrative or professional services to a specialist. Other benefits of BPO include reduced costs, improved productivity, greater flexibility, and enhanced market presence.

Learn More

Ready to focus on strategy and less on mundane payroll and HR tasks? You need the expertise and support of an experienced HR partner. Now matter your challenge, ADP has the experience and solutions to help you reduce your burdens and risks.

Learn more about the benefits when you outsource HR and payroll: Call 866-622-8153 or start a quote to get started.