Business process outsourcing (BPO)

Last updated: February 27, 2026

Business process outsourcing (BPO) is when a company hires a third-party provider to handle its non-core operations, such as payroll and HR, so it can focus on its primary business functions. HR outsourcing or managed HR and payroll services are common examples of BPO.

BPO key takeaways:

• BPO services typically combine technology, expert guidance and administrative support.
• Businesses may be able to outsource functions a la carte or via a bundled model.
• HR BPO can help businesses reduce costs, improve efficiency, support compliance and adapt more easily to unexpected disruptions.
• Generative artificial intelligence (AI) has revealed new ways for BPO providers to alleviate administrative burdens.

What is business process outsourcing?

BPO is a business relationship between two organizations, in which one performs certain functions, like human resources, on behalf of the other. It began in the manufacturing industry as a way to improve supply chain management, but has since expanded to other sectors because of the efficiency and potential cost savings that it affords. The services provided are commonly a combination of technology, expert guidance and administrative relief.

How does BPO work?

Organizations that opt for BPO identify operations and business processes that are not a core competency of their product or service, but essential nonetheless, and sub-contract them out to a third-party. Depending on the provider, employers may be able to outsource tasks a la carte or as part of a bundled package.

Examples of BPO

Take, for instance, a health care company that wants to improve human resources, but can’t afford to hire more personnel for that department. It may choose to work with a BPO provider that specializes in HR so it can focus on what it does best, taking care of patients, without having to worry about payroll, HR compliance or benefits administration.

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What functions are most frequently outsourced?

Employers commonly outsource operations that they don’t have the time or the resources to manage effectively on their own. These fall into one of two categories:

Back-office BPO functions

• Human resources
• Accounting and payroll
• Research
• Information technology

Front-office BPO functions

• Customer service
• Marketing
• Sales
• Tech support

Business process outsourcing services

BPO providers use technology and best practice guidance from a team of specialists to help employers address operational deficiencies. HR processes that can be outsourced include, but are not limited to:

• Payroll and tax administration
• Benefits administration
• Recruitment
• Time and attendance
• HR compliance
• Employee learning

What are the benefits of BPO for HR?

Whether due to a lack of budget, employees or time, every HR department has limits on how much it can achieve independently. With BPO, however, it’s possible to reach new heights. Employers may be able to:

• Reduce costs
  Considering the expense of hiring more HR personnel and the time it takes to administer payroll and benefits, outsourcing can be a more cost-effective way to extend business capacity.
• Improve efficiencies and productivity
  BPO providers are experts in the services they provide, which means they’re often able to complete tasks faster and with greater accuracy than the client business.
• Become more flexible
  When freed from time-consuming administrative burdens, employers can quickly reallocate resources in response to market changes or unexpected disruptions.
• Expand geographically
  Outsourcing providers that have national and international compliance capabilities can help employers branch out into new geographic regions.
• Stay competitive
  Employers who outsource HR generally can pursue activities that further their business’s primary objective and increase revenue or growth.
• Support compliance
  Partnering with a team of committed HR professionals can help businesses keep pace with changing state and federal regulations and minimize potential risks.

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Are there any risks or drawbacks to BPO?

Business ventures sometimes have risks and BPO is no different. Before outsourcing HR, employers should verify that any potential provider has the security measures necessary to prevent data breaches and is upfront about the scope of work and total cost of service.

What to look for in a BPO company

Finding the right BPO provider requires extensive research into vendor capabilities, a careful review of business objectives and collaboration with key stakeholders. Here are some of the basic steps:

1. Conduct a needs assessment
   Identify which existing HR functions would benefit from outsourcing and which can be successfully managed in house.
2. Create a request for proposal (RFP)
   List the various capabilities – regulatory compliance, industry knowledge, data analysis, etc. – expected of a potential provider.
3. Evaluate RFP responses
   Weigh the pros and cons of each proposal and make sure that the provider clearly identifies which services fall under its domain and which remain with the client’s business.
4. Agree to terms
   Secure stakeholder approval and negotiate a contract that documents the specific responsibilities, the duration of the partnership and the total cost, among other details.
5. Begin the transition process
   Shift the agreed upon functions from internal HR teams to the BPO provider while ensuring open lines of communication between all parties.

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BPO and AI

Generative AI is transforming BPO from simple task execution to strategic insight generation. HR BPO providers are taking advantage of this technological evolution to enhance their recruitment, benefits, compliance and analytics services. Ultimately, they’re able to deliver the following AI-assisted capabilities:

• Job-description creation
• Payroll processing assistance
• Payroll accuracy alerts
• HR compliance information support
• Data-driven workforce insights
• Advanced chat-based problem solving
• Help-desk call summaries
• Rapid issue detection and resolution

Frequently asked questions

What are the different types of BPO?

The terms BPO, HRO and managed services often refer to similar HR and payroll outsourcing processes. Here is a breakdown of the models:

• Administrative services offering (ASO)
  Commonly used by small and mid-sized businesses, ASO varies greatly. It can be a technology platform with a help desk or a partial or full administrative service.
• HR outsourcing (HRO)
  The vendor handles all or some administrative duties and processes on behalf of an employer.
• Managed services
  A provider takes care of most, if not all HR responsibilities. Managed services is most often used by companies with several hundred employees or more.
• Professional employer organization (PEO)
  A PEO helps small and midsized businesses manage HR functions, like payroll, benefits, tax filing and compliance. In this co-employment arrangement, the PEO becomes the employer of record for administrative purposes, while the business retains control of day-to-day operations.

How is BPO different from a call center?

Call centers are a type of outsourcing that’s limited to customer support, whereas BPO encompasses many professional services, such as human resources, payroll, benefits administration and more.

How much does a BPO HR provider cost?

Fees vary, but providers typically charge based on the number of employees that a business has and which services it needs. Employers may want to get quotes for comparable offerings.

Why do businesses outsource?

Employers outsource because it affords them more time to focus on the core functions of their business while leaving certain administrative or professional services to a specialist. Other benefits of BPO include:

• Reduced costs
• Improved productivity
• Greater flexibility
• Enhanced market presence

What is a BPO company?

BPO companies are third-party vendors that specialize in certain processes that may be outside the realm of expertise for other organizations. Said organizations can outsource the functions in which they lack knowledge or resources to the BPO partner, allowing them to prioritize core business operations. A common example of this model is HR outsourcing.

How does a BPO help during market uncertainty?

BPO services alleviate administrative burdens and free up resources so organizations can continue to grow during periods of change. Such growth is possible because employers gain a committed team of HR and payroll professionals who help them maintain critical people processes no matter the circumstances. BPO also supports compliance with changing regulations and legislation.

How does automation improve BPO?

Automation helps BPO providers eliminate manual or repetitive tasks, reduce errors and give employers more time back in their day. Yet, the benefits of BPO are not limited to technology. Businesses typically gain access to a team of committed professionals who deliver expertise and guidance as needs evolve.

Can a company outsource its core business processes?

Organizations are more likely to outsource transactional activities, like payroll and benefits administration. Core business functions and sensitive areas – such as strategic policymaking, leadership development and change management – tend to be kept in-house.

This article offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.