Although HR activities have traditionally been performed in‐house, organizations are increasingly relying on outside contractors to perform these activities. Using a Transaction Cost Economics perspective, this study examined whether organizational‐level factors moderated the relationship between the degree of reliance on HR outsourcing and the perceived benefits produced by outsourcing. Moderated regression was performed using data provided by over 300 HR executives on outsourcing levels, organizational characteristics, and the perceived impact of outsourcing. Support was found for a number of the transaction cost hypotheses regarding the impact of organizational characteristics. Specifically, the relationship between the degree of outsourcing and the perceived benefits generated was moderated by reliance on idiosyncratic HR practices, uncertainty, firm size, and cost pressures. No support was found for hypotheses regarding the moderating effect associated with pay level, overall outsourcing emphasis, or strategic involvement by HR.

This study investigates the relationship between a number of organizational characteristics and the decision to outsource HR. Determinants of the outsourcing of four categories of HR are examined: HR generalists activities (e.g., performance appraisal), transactional activities (e.g., payroll), human capital activities (e.g., training), and recruiting and selection. HR executives in 432 organizations provided data on outsourcing levels and organizational characteristics. Reliance on HR outsourcing was associated with idiosyncratic HR practices, strategic HR involvement, positive HR outcomes, promotional opportunities, demand uncertainty, and pay level. As predicted, however, the impact of organizational characteristics varied among the different types of HR activities outsourced.

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