The concept involves delegating specific human resources tasks or functions to an external third-party provider. This strategic move allows organizations to transfer responsibilities like payroll processing, benefits administration, recruitment, or training to specialized firms. As an example, a small business might choose to contract with an external agency to handle its employee benefits, freeing up internal resources to focus on core business activities.
Adopting this approach offers several advantages, including potential cost savings through economies of scale and access to specialized expertise not readily available internally. Furthermore, it enables businesses to streamline operations, improve efficiency, and ensure compliance with evolving labor laws. Historically, its adoption has grown as businesses seek to optimize resources and adapt to increasingly complex regulatory landscapes.
