Why is outsourcing HR functions for remote employees needed more than ever?
One key aspect of why businesses outsource human resources (HR) functions is due to the experience of a good return on investment. By outsourcing HR functions, companies can save time and resources, which allows them to focus entirely on their core business activities.
This blog explains several benefits of human resource outsourcing (HRO) for your remote teams. It’s obvious that HR services are needed more than ever due to the emerging challenges and developments in business environments after the COVID-19 pandemic.
Handling remote resources in post-pandemic business environments is challenging for businesses, especially for small enterprises. With the increasing acceptance of remote working as the “new normal”, businesses need to find different types of approaches to handle their remote teams effectively.
One major challenge of remote working is the time zone difference between the employer and employees. As the internal employees are scattered across different parts of the globe, setting a common time for meeting and discussion for a business becomes difficult.
It is also more challenging for an in-house HR department to manage the administration of a remote team as well as those employees working from the office in case of the hybrid working mode. It would be an ambitious task for an in-house HR team to handle talent management and employee engagement if companies need to recruit more remote employees.
The blog suggests that it is crucial for companies to segregate the HR services for overseas employees and manage them separately. This approach can be more suitable for those businesses with a large pool of remote employees across different countries.
What is human resource outsourcing and why do businesses outsource HR functions?
Human resource outsourcing (HRO) refers to hiring an external agency or third-party organization to administer human resources on behalf of an overseas company. It also means the transfer of the HR responsibilities of the in-house team to a third-party agency or expert. By outsourcing HR functions, a business can improve its strategic planning in addition to efficient day-to-day administrative support.
HRO includes a range of services from employee recruitment to payroll to risk management. An overseas company can easily access a large pool of talent by outsourcing HR services and extracting the maximum benefits of these resources. With the right HR outsourcing partner, a company can manage the remote team effectively, which can help employee increase their work efficiency.
There are multiple reasons why businesses consider HR outsourcing services. Although the cost-saving factor remains a major goal, many businesses outsource human resources for other motives.
- Availability of talented resources and the benefits of adding new experiences to the existing team
- Access to new technologies and making the best use of technology to enhance time efficiency, expertise, and resource management
- Ensuring risk management from economic uncertainty as locating some operations in another country may reduce greater risk exposure
- Consultative service to leverage market intelligence and business strategy
- Compliance with local laws and regulations
What are the different types of HR outsourcing providers?
A handful of service providers offer human resources outsourcing to overseas companies. Some of the major service providers offering HR outsourcing are Professional Employer Organizations (PEO), Administrative Services Organizations (ASO), Software-as-a-Service (SaaS), Business Process Outsourcing (BPO), and Employer of Record (EOR).
Although there are differences in the way that these organizations offer services to their clients, their services normally come under three categories – a single/individual HR service, group/selective HR services, and all-in-one HR services. The requirement of HR functions in an organization may vary depending on the size of the existing remote workers and its business nature.
Some HR outsourcing companies provide customized services as per the client’s requirements, especially those dealing with selective HR services. Some may specialize only in one HR service. Let’s briefly understand the difference in their service offerings.
For instance, ASO provides services such as tax and insurance fillings but doesn’t offer co-employment like PEO. SaaS companies offer only software and technologies that can help effectively manage HR activities. BPO offers selective services and some HR outsourcing companies offer a single service such as payroll service providers. EOR, on the other hand, offers services such as payroll, taxation, and legal compliance in addition to HR functions.
Origin and evolution of HRO: a brief history
Studying the origin of HRO service is complex as the events around the HR industry have changed remarkably due to new business environments and government regulations. However, many studies delineated the origin of the service back to the 1970s when the concept of “employee leasing” came into practice in the US.
Over the following years, the terminology and concepts associated with employee leasing or staffing changed due to various policy reforms related to the industry. These series of developments helped in the massive growth of human resource outsourcing globally.
- Globalization & economic liberalization: The beginning of the 20th century was a vital opportunity for many HR outsourced firms due to the new economic structure and business environments worldwide. The forces of globalization and economic liberalization ultimately led to open doors for cross-border trade and increasing economic cooperation among countries across the globe.
- Payroll service automation: The rising popularity of payroll service and the wide acceptance of payroll automation in the late 1990s was a significant development for HR outsourcing. With technological advancements, payroll automation enables human error in payroll processing, employee benefits, and taxes withholdings.
- Third-party payroll services: With the increasing demand for inclusive HR services and external resource management systems, third-party payroll services gained wide popularity. Gradually, businesses started shifting from domestic or local to offshore outsourcing companies for payroll processing and management. Payroll outsourcing became a popular aspect for businesses across industries.
- Rise of PEO and ASO: The rapid expansion of PEOs and ASOs in the late 1990s led to the development of various add-on services to transactional HR activities. The era has witnessed the emergence of many outsourced firms offering skill development, training, motivation, etc. as services to improve the capabilities and talents of employees.
- Business process outsourcing: Offshore outsourcing gained wider popularity due to the successful running of BPO establishments, leading to the rapid expansion of HR outsourcing services globally.
- Technology development: The rising technological advancements in the 2000s and later decades have expanded the information technology (IT)-based outsourcing for HR functions. For instance, recruitment process outsourcing (RPO) was the result of the massive growth of big tech companies. Also, many outsourcing HR companies emerged as technology and software service providers.
What are the key challenges and developments in HR functions in the post-pandemic?
Many hadn’t anticipated that the COVID-19 pandemic would wreak havoc on such a large scale, affecting almost all businesses across industries. Several businesses, especially SMEs were forced to shut down their entire operation and some had to opt for furlough as a last resort for their survival.
For those that survived, there was only one concern – how to continue business operations at a minimal cost. This led to the resetting of their existing policies and strategies to cope with the new challenges in their business environment. They had to consider every possible option to keep their business buoyant.
The post-pandemic business witnesses remote working as the “new normal” and the surge in technology footprint across industries. For many companies, managing a team remotely became a daunting task as they needed different approaches for handling the teams. Let’s explore the major challenges and developments in the post-pandemic business environments that cause significant impacts on the HR functions landscape.
- Remote working: Working remotely becomes a new norm and a key aspect of the company’s work culture in the post-pandemic. Companies across industries have started accepting the fact that employees prefer working remotely, especially from the comforts of their homes. The increasing acceptance of remote working creates additional burdens for the HR department as they need solutions to ensure effective communication and engagement for their remote employees.
- Gig workers: Financial shortage of companies and massive layoffs of employees across industries during the pandemic led to the increasing demand for gig workers. As a result, the hiring of independent contractors, freelancers, part-time hires, and project-based workers gained prominent attention from overseas companies. Although having a remote team can be economically beneficial, many companies are facing challenges in managing their remote workers.
- Technology and digitalization: Technology innovation assisted businesses in handling new challenges in the post-pandemic. As companies rapidly shift their business operations online, they are expanding their digital footprint. This leads to the rising growth of cloud services and SaaS HR models. With the help of these IT service providers, companies can organize HR services virtually and manage their daily administrative tasks effectively. Technological advancements facilitate HR outsourcing companies to conduct e-recruitment and e-training of resources located in different places.
- Employee engagement and motivation: Restructuring HR practices to ensure better employee engagement and motivation of the remote workforce was a significant challenge for many businesses in the post-pandemic. Businesses handling remote teams are required to ensure the mental wellness of their employees besides providing their physical health benefits.
How is HRO beneficial for managing remote teams?
HRO services can be highly beneficial in managing remote teams in several ways. Some major ways in which human resource outsourcing services can help in remote team management are
- Recruitment and hiring: HRO services can help in identifying and hiring remote employees who are a good fit for the company culture and have the necessary skills and experience to work remotely.
- Payroll and benefits: HRO services can handle payroll and benefits administration for remote employees, ensuring compliance with local laws and regulations.
- Performance management: HRO services can help set up performance metrics and goals for remote employees and track their progress toward achieving those goals.
- Training and development: HRO services can provide online training and development programs to help remote employees improve their skills and knowledge.
- Communication and coordination: HRO services can help in establishing clear communication channels and protocols for remote teams, ensuring that everyone is on the same page and working towards the same goals.
- Compliance: HRO services can ensure compliance with local laws and regulations regarding remote work, such as tax laws and data protection regulations.
Overall, HRO services can help companies to effectively manage remote teams by providing the necessary support and infrastructure to ensure that remote employees are productive, engaged, and aligned with the company’s goals and values.
EOR way of outsourcing HR services for remote teams
You may also like to explore the way EORs offer HR services to overseas companies. In some ways, both HRO and EOR services can be highly beneficial for managing remote teams. While there are some similarities between HRO and EOR services, EOR services provide a more comprehensive HR solution for remote employees.
One key aspect of EOR services is that they also provide legal and regulatory compliance services in addition to the HR functions covered by HRO services.
Here, EOR is the legal employer of record for remote employees working for foreign companies. It means that EORs take on responsibility for compliance with local laws and regulations, such as tax and labor laws apart from offering services to help improve core HR practices for foreign companies.
The EOR model can be useful for companies looking to expand their operations into new markets and unfamiliar with local laws and regulations of such new territories. With an EOR partner, you don’t need to worry about hampering the regular tasks of your remote employees due to time zone differences and the legal obligations of your employees.
If you have a remote team in another country and need a third-party agency to handle the HR functions of your resources, EOR can be one of the most lucrative options. With EOR services, companies can ensure that their remote employees are effectively managed and supported, regardless of where they are located in different parts of the world.