Thinking about handing off the technical side of your HR operations? You’re not alone. The world of HR is getting more complex, and for many businesses, managing a Human Resource Information System (HRIS) in house is a heavy lift. This is where HRIS outsourcing comes in. It’s a strategy where you partner with an external provider to manage the maintenance, support, and ongoing administration of your HR software.

This isn’t just a trend for massive corporations. Over 57% of companies now outsource at least one HR function. The idea is simple: let experts handle the technical weeds of your HR system so your team can focus on what really matters, your people and your business strategy. In this guide, we’ll walk through everything you need to know about HRIS outsourcing, from the different models and benefits to the potential challenges and key decisions you’ll need to make.

Understanding HRIS Outsourcing Fundamentals

Before diving deep, let’s get clear on the basic concepts. If you’re newer to HR platforms, this complete guide to HRIS systems explains core features and management models—and what it actually means to outsource your HRIS support.

What is Outsourcing HRIS Support?

Outsourcing HRIS support means you delegate the day to day management of your HR information system to a third party provider. Instead of your internal team handling system updates, user support, troubleshooting, and issue resolution, an external partner takes over. This move is part of a massive trend, with the HR outsourcing market projected to hit $423 billion by 2032 as companies look for more flexible and tech forward ways to manage their workforce.

Application Managed Services (AMS) for HRIS

A common way to approach HRIS outsourcing is through an Application Managed Service, or AMS. An AMS provider offers third-party services that manage and support your HR software throughout its entire lifecycle. This includes system monitoring, performance tuning, resolving incidents, applying software updates, and providing helpdesk support for your users. If you’re comparing platforms, our HRIS vendor comparison guide covers what to evaluate and key trade-offs.

An AMS team essentially becomes your expert technical bench, ensuring your HRIS runs smoothly and efficiently. Many AMS providers cover the entire HR tech stack, including payroll applications, workforce management tools, and talent systems. The big appeal is offloading the technical heavy lifting, which can cut costs by reducing the need for a large in house IT or HRIS team and improve system reliability.

The Benefits and Challenges of HRIS Outsourcing

Like any strategic decision, outsourcing your HRIS comes with a set of powerful advantages and potential hurdles. Understanding both sides is key to making the right choice for your company.

Key Benefits of Outsourcing Your HRIS

Why do so many companies choose this path? The advantages are compelling and often directly impact the bottom line.

• Cost Savings: Partnering with an external provider can be far more cost effective than hiring and training a full time in house team. On average, companies report cost reductions of 20-30% by outsourcing HR functions.
• Time Savings and Efficiency: Offloading HRIS administration frees up your internal staff. With more than one in three business leaders spending over 10 hours a week on HR admin tasks, this reclaimed time can be a game changer for strategic initiatives.
• Access to Expertise: An HRIS outsourcing partner gives you on demand access to HR technology experts who are always up to date on the latest software features, compliance rules, and best practices.
• Improved Compliance and Risk Management: HR and payroll regulations are a minefield of complexity. A quality outsourcing firm helps you navigate these changes and ensure compliance, reducing the risk of costly errors.
• Scalability and Support: An external provider can scale services as your business grows. They can also offer 24/7 support and disaster recovery capabilities that are difficult for a small internal team to replicate.

Potential Challenges to Consider

While the benefits are clear, it’s important to go in with your eyes open to potential challenges.

• Loss of Direct Control: Handing over the reins means you have less direct oversight of day to day system management, which can sometimes feel like a loss of visibility.
• Dependency on the Provider: Your organization becomes reliant on the vendor’s performance and expertise. This can also lead to an erosion of your own in house HRIS knowledge over time.
• Inconsistent Service: With a third party, you might not always work with the same people, which can lead to inefficiencies if you constantly have to re explain your company’s context.
• Data Security Concerns: Turning over sensitive employee data to an external partner naturally raises security and privacy considerations. It’s a major concern, as about 35% of cyber incidents are linked to third party data breaches.

Mitigating these challenges comes down to smart planning, strong vendor agreements, and clear communication.

Preparing for a Successful Outsourcing Partnership

A successful HRIS outsourcing journey begins long before you sign a contract. It starts with a thorough internal assessment and a clear strategy.

The HRIS Outsourcing Readiness Assessment

A readiness assessment is a systematic review to determine if your organization is truly prepared to outsource its HRIS support. It helps you identify gaps and ensure a smooth transition by evaluating key areas:

• Strategy Alignment: Does the decision to outsource fit your long term business goals?
• Governance and Process: Do you have clear frameworks for managing an external partner?
• Security and Compliance: Are your data security standards defined and ready for a vendor?
• Vendor Partnership Plan: How will you select, manage, and collaborate with the provider?
• People Capability: Do you have the right internal skills to oversee the vendor relationship?
• Service Delivery and SLAs: Have you defined your service expectations and performance metrics?

Aligning Strategy and Vision

Your HRIS outsourcing plan shouldn’t just be about cutting costs. It should be a natural extension of your business strategy. Ensure your provider understands your long-term vision, whether it’s global expansion, improving employee experience, or leveraging data analytics. The right partner will act as a catalyst for your business success, not just a service provider keeping the lights on.

Building a Strong and Effective Partnership

Once you decide to move forward, the focus shifts to building and managing a collaborative relationship with your chosen vendor.

Vendor Partnership and Management

Effective vendor management involves actively maintaining a collaborative partnership. This isn’t a “set it and forget it” relationship. It requires a strong framework that outlines communication protocols, governance structures (like regular check in meetings), and issue resolution paths. A true partnership aligns the HRIS support roadmap with your organizational goals.

Process and Governance

Process and governance are the operating manual for your outsourced relationship. This framework defines roles and responsibilities, decision rights, and workflows for issues and requests. Strong governance ensures that even with an external provider, your organization retains ownership of the HRIS platform and that key decisions align with business needs.

Security and Data Compliance

When you outsource, you don’t outsource your risk. Protecting sensitive HR data is a shared responsibility. Your provider must have robust security controls, including data encryption, secure access management, and regular audits. Remember, the average cost of a data breach is a staggering $3.3 million. You need a partner you can trust to adhere to all relevant privacy laws and regulations, from GDPR to HIPAA.

Retaining In House People Capability

Even in a fully outsourced model, you need to retain some in house HRIS expertise. These internal team members provide critical company context, manage the vendor relationship, and drive user adoption. They act as the essential bridge between your business strategy and the external support team. Outsourcing your HRIS shouldn’t mean outsourcing your brain.

Service Delivery and Service Level Agreements (SLAs)

Service delivery refers to how support is structured, often in a tiered model (Tier 1 for basic issues, Tier 2 for technical problems, etc.). Service Level Agreements, or SLAs, are the formal, measurable commitments your vendor makes. Common SLAs in HRIS outsourcing include system uptime percentages, incident response times, and issue resolution times. These agreements set clear expectations and hold your provider accountable.

The Hybrid Support Model (AMS Plus In House)

Many companies find success with a hybrid support model. This approach combines an external AMS provider with a small internal team. The in house staff might handle strategy and urgent issues, while the AMS provider manages routine maintenance and technical troubleshooting. This model offers a fantastic balance of control, efficiency, and expert support.

Making the Right Choice: Models, Costs, and Control

The HR outsourcing market offers several different models and pricing structures. Understanding them is key to finding the right fit for your budget, culture, and operational needs.

HR Outsourcing Cost Models

Two common pricing models you’ll encounter are:

• Per Employee Per Month (PEPM): A flat monthly fee for each employee. HRIS pricing often ranges from $5 to $25 PEPM depending on the features. This model is predictable and scales directly with your headcount.
• Percentage of Payroll: Often used by PEOs, this model calculates the fee as a percentage of your total payroll, typically between 2% and 12%. This aligns the cost with your payroll size.

Decision Framework: PEO vs. ASO vs. HRO vs. HRIS

Navigating the alphabet soup of HR services can be confusing. Here’s a quick breakdown:

• PEO (Professional Employer Organization): A co-employment model where the PEO becomes the legal employer of record, handling payroll, benefits, and compliance under its own tax ID. Great for a turnkey HR solution—see this ADP TotalSource guide for a deeper look at how leading PEOs operate.
• ASO (Administrative Services Organization): Provides HR admin services like payroll and benefits administration without the co employment relationship. You retain all employer liability.
• HRO (Human Resources Outsourcing): A broad term for outsourcing specific HR functions, often on an à la carte basis. It’s a flexible model where you pick and choose what to offload.
• HRIS (Human Resource Information System): This is the software itself, not a service. An HRIS is a tool you can use in house or have managed by an outsourced provider.

For startups and growing tech companies, a modern, all in one platform can be a powerful alternative. Solutions like Bolto integrate recruiting, global EOR, payroll, and HRIS, eliminating the need to stitch together multiple vendors.

The Impact on Employer Control and Flexibility

The choice between managing an HRIS in house versus using a PEO comes down to a classic trade off: control versus convenience.

• HRIS (In house): You maintain maximum control and flexibility over all your HR policies and processes. However, you also bear the full responsibility for execution and compliance.
• PEO: You give up some control and must adhere to the PEO’s standardized processes. In return, you gain professional HR support, risk sharing, and access to potentially better benefits.

Key Functions in an Outsourced HRIS Solution

Modern HRIS outsourcing often goes beyond basic system maintenance to include a suite of integrated services that streamline your entire HR operation.

Outsourcing Payroll with HRIS

Payroll is one of the most commonly outsourced functions, with 53% of HR departments using an external service. Given that payroll errors cost U.S. companies nearly $7 billion in IRS penalties in one year, it’s a high stakes task best left to experts. An integrated HRIS and payroll solution ensures that employee data flows seamlessly, reducing errors and saving significant administrative time; if you’re evaluating options, this best software for payroll guide outlines key features and vendors.

Workforce Management Integration

Integrating workforce management (time, attendance, and scheduling) with your outsourced HRIS eliminates manual data entry and provides real time visibility into labor costs. This connection ensures that hours worked are accurately reflected in payroll and helps maintain compliance with wage and hour laws.

HR Consulting and Compliance

A great outsourcing partner does more than just manage software; they provide expert advice. This can include guidance on tricky employee relations issues, help with policy development, and proactive updates on changing labor laws. A reported 65% of HR outsourcing clients experience improved compliance and risk management.

Employee Self Service (ESS) Portals

An ESS portal is a web or mobile hub that empowers employees to manage their own HR information—see this HRIS systems list for growing teams to compare platforms with robust ESS features. They can update personal details, view pay stubs, request time off, and enroll in benefits. This self service approach drastically reduces the administrative burden on HR, improves data accuracy, and gives employees the convenient, modern experience they expect.

Final Thoughts

Navigating the world of HRIS outsourcing can feel complex, but it offers a powerful path to greater efficiency, compliance, and strategic focus. By understanding the different models, preparing your organization, and choosing the right partner, you can transform your HR function from a cost center into a strategic driver of business growth.

If you’re looking to streamline your operations with a single, unified platform, explore how an all in one solution can help. Modern platforms built for today’s startups and global teams can simplify everything from recruiting and onboarding to payroll and compliance. See how Bolto’s integrated platform works or explore pricing to scope costs and rollout.

Frequently Asked Questions (FAQ)

1. What is the main difference between HRIS outsourcing and using a PEO?
HRIS outsourcing typically focuses on managing the HR software (the technology), while a PEO involves a co employment relationship where the provider becomes the legal employer of record for your staff, handling payroll, benefits, and compliance.

2. Is HRIS outsourcing only for large companies?
No, companies of all sizes can benefit. For startups and small businesses, it provides access to enterprise grade technology and expertise they couldn’t afford in house. For larger companies, it helps streamline operations and control costs.

3. How much can I expect to save with HRIS outsourcing?
Cost savings vary, but many organizations report reductions of 20% to 30% on HR operational costs. Savings come from reduced internal staffing needs, better efficiency, and avoiding costly compliance errors.

4. Will I lose all control over my HR processes if I outsource?
Not necessarily. With models like AMS or a hybrid approach, you retain strategic control and decision making authority. You define the processes and policies, and the provider executes on them. The key is to establish clear governance and maintain an active partnership.

5. What is the first step to take if I’m considering HRIS outsourcing?
The first step is to conduct an internal readiness assessment. Evaluate your current HR processes, technology, and internal capabilities to determine what you hope to achieve through outsourcing and what a successful partnership would look like for your business.

6. Can I outsource payroll but keep other HR functions in house?
Absolutely. Payroll is one of the most popular functions to outsource on its own. Many companies use a specialized payroll provider that integrates with their internal HRIS, giving them the best of both worlds.

7. How do I ensure my employee data is secure with an external provider?
Thoroughly vet any potential provider’s security credentials. Look for certifications like SOC 2 or ISO 27001, ask about their data encryption and access control policies, and ensure your contract includes strong data protection clauses and breach notification procedures.