How does HR Outsourcing Work?

As businesses continue to progress and find new and efficient ways of working, outsourcing is fast becoming one of the most cost-effective and productive ways to perform vital business functions. And HR is a highly popular department to outsource.

But what does it mean to outsource HR? And more importantly, how can it benefit your business?

Let’s take a look.

What is HR Outsourcing?

HR outsourcing is a business strategy that involves the transfer of HR functions to an external service provider or freelance HR expert. 

If employing the services of an outsourcing firm, you will find ones that specialize in HR functions only, or you can choose one that offers HR as part of a broader range of services. 

HR outsourcing typically includes a wide spectrum of functions, such as payroll processing, benefits administration, recruitment and staffing, training and development, and compliance management.

However, you do not have to have or pay for all these services. When you take on an outsourced HR expert, you can discuss your requirements and only pay for the time and functions you actually need. This makes HR outsourcing a hugely economical choice.

Types of HR Outsourcing

There are two main types of HR outsourcing:

  • Business Process Outsourcing (BPO): This is where a company outsources specific HR processes, such as payroll processing or benefits administration, to a third-party provider. The provider is then responsible for managing the entire process of said function from start to finish.
  • Human Resource Consulting (HRC): For this, a company hires an HR consultant to provide advice and support on HR-related matters. The consultant does not take over the entire HR function but instead works with the company’s HR team to improve their processes and procedures.

Since HR outsourcing is flexible, it is usually possible to have a combination of the two types. Many choose to have regular BPO services from an outsourced expert and then request HRC services on an “as-needed” basis.

The Benefits of HR Outsourcing

HR outsourcing is highly beneficial for several reasons:

  • Cost-saving: You can save a lot of money on salaries, benefits, and overhead costs associated with hiring and managing an in-house HR team. When you outsource, all you are responsible for is the regular monthly or annual payment as stated in the contract
  • Expertise and experience: You’re getting access to a qualified expert with extensive knowledge and experience in managing HR processes. They can provide you with best practices, industry knowledge, and the latest updates to employment law and compliance
  • Time-saving: By passing the entire HR function to an expert, you’re no longer tied down having to deal with it. You can concentrate on growing your business rather than spending time and resources on HR-related tasks
  • Scalability: HR outsourcing services can be scaled up or down depending on your business needs, making it an ideal solution for growing businesses or businesses that bet hit by a recession

How HR Outsourcing Works

The process of HR outsourcing involves the following steps:

  1. Identify which services you need: Before finding an outsourced HR expert, you need to determine precisely what you need from them and how much time per week they will need to work for you.
  2. Find a provider: When selecting an HR outsourcing provider, you should choose one with a proven track record of trustworthiness and reliability – like our brilliant team at Finvisor
  3. Determine the level of service: There are two ways to do this. Many outsourcing providers have set payment plans with varying prices and levels of service and usually have add-on services at an extra cost. Or you may find a bespoke contract is drawn up for your business. Either way, this is where you determine what you will get from your HR expert and how much and when you will pay for it
  4. Implementation:  Once the contract has been signed, you and your HR expert will go through an onboarding process where they familiarize themselves with your business and its processes. Typically, outsourced HR experts use cloud-based HR software so they will help you with setting up systems and processes, training staff, and transferring data and files.
  5. Monitoring and evaluation: You should regularly monitor the progress of the HR outsourcing project and evaluate the performance of your expert on an ongoing basis. This helps to ensure that everything is on track and that you are getting the right level of service. If required, you can make tweaks and adjustments to keep things running smoothly.

Pros and Cons of HR Outsourcing


  • You only pay for the level of service you actually need
  • You are not responsible for PTO, benefits, or any other additional costs associated with in-house staff
  • If your dedicated expert takes time off work, the outsourcing provider typically gives you a stand-in for the duration
  • Outsourcing HR frees up your time and resources to concentrate on other elements of your business
  • Having an expert on board reduces errors and ensures you remain compliant


  • You may lose some control over the decision-making process and how tasks are carried out
  • Communication issues can sometimes impact the success of the relationship
  • You are entrusting sensitive employee data to a third-party provider This raises security and confidentiality concerns that should be addressed through appropriate contractual and technical measures before you commit

Factors to Consider Before Outsourcing HR

If outsourcing sounds like an excellent solution for your business, you should first stop and consider the following:

  • Smaller companies may find it more cost-effective to outsource HR functions, while large companies tend to have more requirements for an in-house team
  • The provider you choose should align with your business’s culture, and values 
  • HR outsourcing should always align with your business’s strategy and goals and what outsourcing will do to help you achieve them
  • Always consider your budget when deciding which functions to outsource and to which provider

Be absolutely sure that the provider you choose is compliant with relevant regulations and laws and meets all compliance requirements. At Finvisor we always ensure we’re compliant.

Final Thoughts

Outsourcing is a fantastic solution for many businesses as it provides a simple way to get access to expertise that was previously out of reach.

At Finvisor we have highly qualified and experienced virtual HR experts on hand to help you achieve your goals. Get in touch so you can find out how we can help.

To learn more about what we do, or to request a quote, contact us at or 415-416-6682. We’re here to help you navigate deferred revenue journal entries so you can make the most of your assets!

*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*



Finvisor HQ
48 2nd St, 4th Floor
San Francisco, CA 94105

"*" indicates required fields

Can Finvisor reach out to you via SMS?
This field is for validation purposes and should be left unchanged.

Supercharge your business’ finance journey

Join our newsletter to recieve exclusive updates from the Finvisor team and valuable tips for your business finance journey.

    Skip to content