Outsourcing can be defined as a phenomenon in which a company delegates a part of its in-house operations to a third party. It includes a contractual relationship for HR services with an external provider. Wahrenburg, Hackethal, Friedrich, and Gellrich (2006) find that outsourcing is a major international trend for companies from all types of industries and for most organizational business units and level. Different activities can be externalized: payroll and benefits, training, HRIS, compensation, recruiting, and/or relocation.
HR Outsourcing Typology
Practitioners subsidize RH externalization in different categories: application service provides (ASP), application outsourcing, business process outsourcing (BPO), and professional employer organization (PEO) (Guilloux & Kalika, 2008).
Different terms exist for application service provider: On-demand software or software as a service can be also found. It offers online human resources management tool and it is often used by SME.
External hosting of HR application: the firm’s application is “taken” and is hosted by the service provider
Third-party maintenance applicative concerns operational and functional maintenance of a software application. A service level agreement is determined: overall service description, service delivery financing aspect, including penalties, contract terms and conditions, and specific performance metrics governing compliant service delivery (system availability, incident resolution time…).
Application outsourcing is a computing resources management (materials and networks) which can be localized in the provider.
For a firm HR processing services consists in entrusting a whole HR process to the provider (legal monitoring, social reporting, functional aid, computation…). The vendor’s resources are mutualized on several clients. The vendor commits himself to reaching results.
Business process outsourcing (BPO) consists in entrusting whole business process to provider (Gyeung-Min & Hyun, 2007). The firm keeps its managerial and strategic decisions.
BPO can be offshore outsourcing (contracted outside a company’s own country), nearshore outsourcing (contracted to a company’s neighboring country), or onshore outsourcing.
Move on rationalization of key business leads some US firms to go further in externalizing working contract, recruitment, remuneration with “professional employer organization.” A professional employer organization assumes full responsibility for the company’s HR administration. It becomes a co-employer of the company’s workers by taking full legal responsibility of the employees (hiring, firing, pay…). This is only set for small firms and is only running in the USA (Klaas, Gainey, McClendon, & Yang 2005)