HR managers are shifting their focus from the routine tasks like payroll. It benefits the more critical tasks like employee motivation and retention, and helps in concentrating on HR strategies so that they are in tune with the growing organizational demands. This has resulted in outsourcing the HR activities to countries like India that have low cost skilled labor and the necessary expertise to perform effectively.

HR functions have to take a more strategic and influential role within their organizations and they can do this by outsourcing HR services to a third party. Gartner's forecast projects that the HR business process outsourcing market will grow from $25 bn in 2002 to $38 bn in 2007 at about 8.6% compound annual growth rate. HR outsourcing is defined as "a process of outsourcing involving particular tasks like recruitment, making payroll, employee benefits administration, fixed assets administration, employee logistics management, training and development to a third party having expertise in these respective fields". HR outsourcing has been there in many countries for a long time, particularly in the US. Internationally, HR outsourcing is gaining strength with the US growing the fastest at 32% per annum. By 2005, analyst Gartner estimates that 85% of US enterprises will outsource at least one component of their HR functions. The most popular areas for outsourcing are non-core, back-office services such as payroll, benefits, and education and training.

The `HR Outsourcing: Benefits, Challenges and Trends' is The Conference Board's second study to track the benefits of human resources outsourcing and changes in the HR marketplace. The Conference Board report (which is based on a survey of over 120 companies on North America and Europe with over US $1 bn revenue) claims that over two-thirds of the respondents have outsourced at least one of their major HR functions and do not plan to take it back in-house. Previously, only large corporations had outsourced HR but now even mid-sized companies are looking at outsourcing HR. The market for HR outsourcing in the Asia Pacific region has grown from $1.14 bn in 1999 to $2.56 bn in 2004. HR is now emerging as one of the most outsourced business processes in the developed world.