HR-Glossar
Outsourcing (transferring tasks to an external provider)
What outsourcing means, which tasks suit it, which models exist and what the decision actually turns on.
1. What is Outsourcing (transferring tasks to an external provider)?
Outsourcing is the transfer of tasks previously done in house to an external service provider.
The core thought is a division of labour by specialisation: tasks that can be standardised and confer no competitive advantage can be delivered by specialists more reliably and often more cheaply – because they deliver them for many clients.
From that follows the decisive selection question, and it is not a cost question: does this task distinguish us from anyone else? What makes the business particular stays in house. What is necessary but interchangeable can go out.
Two forms matter for HR, each with an entry of its own here: HR outsourcing for HR administration as a whole and payroll outsourcing for the payroll run in particular.
What never goes with it is responsibility. The client remains the addressee of statutory duties and the controller within the meaning of Article 4(7) GDPR; the provider is a processor, which under Article 28 GDPR requires a contract of its own.
2. Origin and development
Outsourcing established itself in the 1980s and 1990s, first in IT and manufacturing. The theoretical basis came from the question of why firms exist at all: a service is produced internally as long as that is cheaper than buying it in the market – including the costs of searching, contracting and controlling.
Practice has corrected that calculation several times. Early waves were strongly cost-driven and led to work being brought back where quality, the effort of steering, or dependence had been underestimated. What remains is a soberer picture: outsourcing works well where processes are described and the interface holds.
3. Core principles and how it works
Core competence stays in house
What distinguishes the business is not outsourced. Drawing that line is the real decision – not choosing the provider.
Described processes as a precondition
What nobody can describe cannot be handed over. The preparation forces a business to settle its own procedures – often the single largest benefit.
The interface decides
Who delivers what by when, who decides, who escalates. Most problems in outsourcing relationships are interface problems, not technical ones.
Responsibility remains
Statutory duties and data protection responsibility do not travel. A contract settles who works, not who is liable.
Think the exit through from the start
Release of data, formats, deadlines and handover support belong in the contract – not in the termination.
4. Who is Outsourcing (transferring tasks to an external provider) relevant for?
- Small and medium-sized businesses – where specialist knowledge does not justify a post.
- Growing businesses – when tasks done on the side become real tasks.
- Businesses with key person risk – when knowledge hangs on one person.
- Management – the decision about the boundary between inside and outside is a strategic one.
5. How it differs from related terms
- Outsourcing and HR outsourcing – the latter is the application to HR administration; it has an entry of its own. - Outsourcing and payroll outsourcing – the payroll run as a defined section; likewise with its own entry. - Outsourcing and hiring-out of employees – on a hiring-out, external staff work under the client's instructions; on outsourcing the provider owes a result on its own responsibility. The line matters in law. - Outsourcing and a works contract – a works contract is one possible contractual form of outsourcing, not its synonym. - Outsourcing and using cloud software – renting software outsources no task; it procures a tool.
6. Variants and adaptations
- Business process outsourcing – whole business processes, payroll or accounting for instance. - Partial outsourcing – individual steps stay in house. - Onshore, nearshore, offshore – by the provider's location; with personal data this has data protection consequences. - Shared service centre – concentration within one's own group; not true outsourcing, but the same logic – and no change to responsibility. - Backsourcing – bringing the work back in house; laborious, and therefore to be thought through in the exit clause.
7. Advantages and challenges
Advantages
- Access to specialist knowledge with no specialist post of your own
- Cover and resilience are part of the service
- Fixed costs become partly variable
- Processes get described properly for the first time on handover
- Internal capacity is freed for what only works internally
Challenges
- Dependence on the provider; bringing the work back is laborious
- Your own expertise erodes over time
- The effort of steering and coordination is regularly underestimated
- Responsibility and liability stay with the client
- With personal data, data protection duties are added
- Outsourcing drawn too widely gives away steering rather than routine
8. Best practices for implementation
Set the line before choosing the provider
Decide first what stays in house. Starting with the search for a provider means outsourcing whatever is currently irritating.
Describe the processes beforehand
Who does what, with which data, to what deadline. That is the basis of the handover and the test of your own organisation.
Hand over step by step
One process at a time. That limits the risk and lets both sides learn each other.
Keep a residual competence
Someone in house should be able to read the results and sanity-check them. Otherwise even a good provider can no longer be steered.
Negotiate the exit while your position is strong
On signing, not on termination.
9. Tips for employers and employees
For employers
- **Decide on distinctiveness, not on cost** – what makes you particular stays
- **Give the interface a rhythm** – fixed delivery dates prevent most friction
- **Settle processing before data flow** – with personnel data that is mandatory
- **Keep the way back open** – data formats and handover duties belong in the contract
For employees
- **Your employer remains your employer** – outsourcing a process is not a transfer of undertaking
- **Know the new route for your requests** – responsibilities can change
- **Ask about your data** – you are entitled to know who processes them on whose instructions
10. Conclusion
Outsourcing is not a cost decision but a decision about the boundary of the business: what distinguishes us stays; what is necessary and interchangeable can go out. After that, success hangs on three sober things – described processes, an interface with a rhythm, and a residual competence in house that can judge the result. What never travels is responsibility.
Two distinctions are worth keeping sharp in a German context. Outsourcing a process is not a transfer of undertaking, which has entirely different consequences. And the line to the hiring-out of employees matters in law: on outsourcing the provider owes a result on its own responsibility, and where the client directs the provider's staff day by day, that is something else. For HR the two relevant forms are described in their own entries: HR outsourcing and payroll outsourcing.
Sources
- Regulation (EU) 2016/679 (GDPR), Article 28 (English language version) (opens in a new tab)
- Section 28e SGB IV – The employer's duty to pay (German original; no official English version) (opens in a new tab)
- Section 26 BDSG – Data processing for the purposes of the employment relationship (official English version, as at 23 June 2021; the German text governs) (opens in a new tab)
Related terms
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