Companies and businesses that either lack time, expertise, or both, often outsource human resource tasks to an outside company. In the past, small businesses did not have the opportunity to outsource functions such as HR, as the market was lacking in options to do so. However, a comprehensive range of HR services are available these days to cater to companies of all sizes, including those with up to 75 employees. Human resources management is one of the most widely outsourced businesses in the market.

Until recently, companies used to outsource only payroll and benefits administration to other companies. However, it is a relatively new phenomenon to outsource practically all HR activities like business processes and employee management. HR business process outsourcing has grown immensely over the years. Recruitment outsourcing can perform all the recruitment functions like the assessment of departmental needs and placement of employees in appropriate departments.

Human resource outsourcing has become increasingly popular, especially for employee data organization and payroll calculation. However, many organizations prefer to handle recruitments and termination of employees locally. An external organization handling it may not understand the internal requirements of the company.

Outsourcing saves a lot of money as many service providers are able and willing to perform the tasks at low costs. Outsourcing enables companies to concentrate on their focal functional areas. However, the main disadvantage with outsourcing human resource functions is that there is no personal contact between the employees and the human resource department. This means that the personnel problems of employees cannot be easily addressed or communicated. Occasionally, outsourcing may also pose a security threat in terms of breach of sensitive employee information.

Cost is the deciding factor while selecting an outsourcing service provider for most companies. On the other hand, some companies place more importance on the compatibility of work ethics. It is advisable to hire outsourcing service providers that have adequate experience in human resource functions and the necessary infrastructure and staff to carry out the job.