The quote – often attributed to Deng Xiaoping – runs that when you open a window you let in fresh air, but you also let in flies. The same sentiment is currently being applied to the rapidly expanding HR outsourcing sector which is founded based on individual and corporate desires for more flexibility while having a third-party take care of administration and compliance. While digitalisation and artificial intelligence (AI) are bringing huge benefits to companies, organisations and individuals around the globe – and labour markets are evolving as a result – critics harbour concerns around the growing sector.
The rise of HR outsourcing
The future of work is reshaping the HR outsourcing industry, driving significant growth and evolving its trajectory to meet the needs of an increasingly dynamic workforce. As businesses face challenges such as managing remote teams, navigating complex compliance across multiple jurisdictions, and addressing rapid technological change – including the increased use of AI – HR outsourcing has become a vital strategy for companies of all sizes. Providers now offer advanced solutions that integrate AI-driven analytics, cloud-based platforms, and tailored services. The global EOR (Employer of Record) market size was $4.9 billion in 2023 and this market is projected to touch $8.59 billion by 2032, highlighting growth of 6.8 percent during this period.
The need for rules of the road
The full extent of its benefits need to be realised since the majority of companies in the sector are offering crucial services to small and medium-sized enterprises (SMEs) and large organisations alike. At the same time, the U.S.-based HR and payroll outsourcing company Deel is facing litigation in a U.S. federal court over claims that they expedited money laundering transactions, processed payments without proper licensing and facilitated payments to Russia in violation of sanctions. These allegations are further detailed in a Frontiers of Freedom investigation. While Deel refutes these claims – and has filed a motion to dismiss the lawsuit – the exponential growth of the HR outsourcing sector reinforces that it is vital for industry and policymakers to take steps to support HR outsourcing.
A sectoral Code of Conduct
In our new Future of Work Study 2025: Digitalisation, HR outsourcing and the Future of Work, we highlight that adopting a Code of Conduct for the EOR sector will help to ensure ethical practices by addressing risks like money laundering, labour law non-compliance and sanctions violations. Such a Code will establish clear standards for due diligence, transparency, and accountability while safeguarding worker rights and protecting against exploitation. This framework will enhance industry credibility, foster stakeholder trust, and support global economic stability as well as ensuring a level playing field.
Furthermore, companies and organisations need to take responsibility for the EORs that they use for outsourced HR Services. This entails conducting thorough due diligence to ensure ethical and legal compliance. Taking proactive measures not only mitigates potential risks but also demonstrates a commitment to ethical governance, reinforcing confidence among investors, employees, and customers alike. As such, choosing the right EOR partner and implementing a thorough screening process should be a core component of corporate Environmental, Social, and Governance (ESG) policies. Failure to scrutinise EOR partners can result in reputational risks, regulatory violations, and a failure to meet stakeholder expectations for responsible business conduct. The ability to swat potential flies will allow the air to be even more fresh for corporations, organisations and workers alike when it comes to the future of work.
