Professional in Human Resources (PHR) Practice Exam

Which situation best exemplifies the use of outsourcing?

1. Hiring a consultant for a specific project

2. Employing staff directly for a permanent position

3. Using a third party for payroll processing

4. Implementing intern programs

The correct answer is: Using a third party for payroll processing

Outsourcing refers to the practice of delegating specific business processes or functions to external service providers rather than handling them internally. The choice that best exemplifies outsourcing is the use of a third party for payroll processing. In this scenario, a company contracts an external organization to manage its payroll functions, which allows the company to focus on its core operations while benefiting from the expertise and technology of the specialized payroll service provider. This approach typically leads to cost savings, efficiency improvements, and access to advanced tools that may not be feasible for the company to implement in-house. By outsourcing payroll processing, an organization can reduce administrative burdens and ensure compliance with labor laws and tax regulations, leveraging the knowledge and resources of a third party dedicated solely to payroll services.