HR Outsourcing for Mid-Size Companies and Enterprises

Updated: October 30, 2008

Issue


Small businesses have long been singing the praises of HR outsourcing — and for good reason. By allowing companies to rely on external experts to manage HR functions such as payroll and benefits, HR outsourcing can cut in-house staffing costs, improve services and grant growing companies access to enterprise-class benefits packages.

But small startups aren't the only ones benefiting from HR outsourcing arrangements. Large enterprises also have something to gain from turning to providers such as ExcellerateHRO, Accenture, Hewitt Associates and Ceridian. "HR outsourcing makes complete sense for a large organization," said Jennifer Perrier-Knox, a senior research analyst at Info-Tech Research Group. Here are some reasons why.

Analysis

Keeping tabs on a large enterprise's HR functions, from recruiting fresh talent to overseeing payroll, is a burdensome and time-consuming activity. However, by handing over these activities to a third-party provider, a company's in-house HR team can shift its focus from mundane administrative tasks to "competitive differentiators," according to Perrier-Knox. Policy enforcement, strategic planning, human capital management, increased productivity and organizational restructuring are business-critical undertakings far more likely to improve a company's bottom line and increase employee satisfaction.

While small companies often lack the in-house expertise needed to manage HR functions effectively, that's simply not the case for large enterprises. Rather, HRoutsourcing's main attraction for large corporations is its ability to cut costs. Said Perrier-Knox, "Where large companies can really benefit from HR outsourcing is in the area of cost reduction."

According to a recent Watson Wyatt Worldwide report, the average operating expense for HR functions for each full-time HR employee is $284,982. Granted, an HR outsourcing arrangement can cost anywhere from $200,000 to millions of dollars. But when you factor in costs associated with the ongoing training and recruitment of in-house HR personnel, many corporations are better off financially going with an HR outsourcing provider.

These days, one of the most heavily outsourced areas of HR is regulatory compliance. In fact, a study released by Everest Research Institute reveals that more than half of all HR outsourcing transactions involve regulatory and compliance services. That's no surprise given the enormous pressure on HR professionals to stay abreast of the latest legislative changes pertaining to benefits regulations, corporate governance and claims management. What's worse, failure to meet these regulatory requirements can result in devalued stock prices, angry shareholders, disgruntled employees and a tarnished reputation. As a result, Perrier-Knox said, large corporations would be wise to turn to an HRO (HR outsourcer) for "deeper knowledge and expertise [of the most recent regulatory compliance issues]."

As a company grows and changes, so too must its in-house HR systems. However, making modifications and adding new modules to an enterprise-wide HR management system can be a costly and complex endeavor. Fortunately, "from a cost-reduction perspective," said Perrier-Knox, "HR outsourcing can reduce operating costs and eliminate the need to buy new in-house IT systems."

For small businesses, an HR outsourcing arrangement grants immediate access to enterprise-class benefits packages. That's not to suggest, however, that HR outsourcing fails to provide large corporations with any benefits-related perks. Rather, sizable companies have the luxury of being able to negotiate factors such as volume-type discounts on group benefits packages.

Recommendations

While it's obvious you don't have to be a mom-and-pop shop to benefit from an HR outsourcing arrangement, there are limitations to consider. Warned Perrier-Knox, "One thing you cannot outsource at all is your basic HR leadership. Big companies should always retain somebody in-house, from a strategic perspective, in order to oversee corporate policy, decision-making and to manage the relationship with an HR outsourcer." In a small company, that point person may be the CEO. However, Perrier-Knox said that large corporations need to appoint a dedicated HR professional to ensure that benefits such as reduced costs and regulatory compliance are managed.

For more information on HR outsourcing, read our comprehensive Buyer's Guide: HR Outsourcing. Be sure to visit the HR Resource Center for more research guides, community-contributed content and expert advice on your HR needs.

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