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HR Outsourcing in the US: Reducing Employment Transaction Costs in Small Firms
HR outsourcing in the US is booming. In fact, the HR outsourcing trend has steadily increased over the past decade (HR Outsourcing Trends Report, 2018). Although academic literature has taken an interest in this phenomenon, there is still much to learn about how and why HR outsourcing impacts its most vulnerable clients: small firms. In this paper, we advance the current state of HR outsourcing research by filling gaps related to theory and empirical research. We present a new perspective rooted in the underpinnings of TCE theory by describing how HR outsourcing is related to employment relationships within the small firm context. We supplement our proposed model with an examination of small firms in the US. As explained in our model, we suggest that small firms can benefit from HR outsourcing through employee-related outcomes such as turnover and productivity. Results presented in this paper support the idea that HR outsourcing has a meaningful relationship with both turnover and productivity. The evidence also suggests that small firms’ age, number of employees, and outsourcing configurations play a significant role in these relationships. In all, this paper provides a theoretical framework for future HR outsourcing research complemented with empirical evidence. Implications for research and practice are discussed.