5 Reasons to Consider HR Outsourcing

Updated: May 05, 2009

Issue

The concept of HR outsourcing is simple: By moving most or all HR processes to a single outside vendor, a company can cut costs, improve services and help HR personnel shift their attention from pensions and payroll to business-critical strategies.

These days, the most commonly outsourced HR functions include payroll, benefits, employee-data management, information systems and contact centers. And while HR outsourcing growth has remained relatively stagnant since 2005, it is expected to increase in 2009, according to the Everest Research Institute's annual Human Resources Outsourcing market study.

Considerations

Here are the top five reasons why HR outsourcing could be right for you.

1. An important cost-cutting measure: According to Lisa Rowan, IDC's program director for HR and talent-management services research, one of the most common reasons companies turn to HR outsourcing is to cut costs. "When there are staff cutbacks," explained Rowan, "organizations tend not to want to cut back their customer-facing frontline people so they outsource some of the staff functions — frequently, HR is part of that."

Handing over HR functions to a third-party provider, however, doesn't necessarily mean you have to give in-house HR veterans the boot. Rather, Rowan said that many companies opt to "rebadge" important HR personnel — essentially, transferring an employee from the client company to the service provider to reduce headcount without sacrificing talent altogether.

Another factor to consider when using outsourcing to cut costs is maintaining realistic expectations. "In the past, when IDC has done primary research on the topic of outsourcing, companies' expectations have been a little unrealistic," warned Rowan. "The smaller the organization, the more unrealistic they've been." For this reason, Rowan recommended that companies anticipate cost savings in the range of 20 to 30 percent.

2. Making your core business a primary focus: Activities such as sifting through emails and pushing paper may be a key part of an HR professional's job description, but they can also take away from core competencies. No wonder many companies opt to outsource in order to help HR staff shift focus from mundane tasks to mission-critical strategies. "If you can remove a layer of the administrative work that you have to do, the feeling is that HR people will be able to focus more on higher value activities," said Rowan.

But before you offload an HR department's paperwork onto an outsourcer, Rowan said it's important to ensure that you have the right mix of in-house personnel to tackle important functions such as recruitment and retention. "Oftentimes the folks that are left behind don't necessarily possess the skills needed to truly be talent experts," she said.

3. Hassle-free compliance: These days, HR departments have their hands full developing programs and policies to ensure compliance with everything from the FLSA (Fair Labor Standards Act) to sexual harassment laws. It's all the more reason to seek the compliance expertise of an outsourcer. The more obvious advantage, according to Rowan, is that "if you look at some of the bigger outsourcers, they have all of the compliance elements in place because it's incumbent upon them to do so." But there's a less obvious benefit as well, especially if your company mistakenly violates one of today's myriad HR regulations. "What you gain with a third party," chuckled Rowan, "is somebody's throat to choke."

4. Access to cutting-edge best practices: For many HR departments, it's easy to get into a rut, issuing the same forms and abiding by the same policies year after year. The problem with this is times change, which could render your HR staff's best practices and processes out of date. Outsourcers, on the other hand, "have this wealth and breadth of experience and so looking to them for suggestions on how to improve processes is a very smart thing to do," said Rowan.

5. Employee satisfaction: Whether it's the anonymity they grant employees or the access to survey tools they offer clients, outsourcers often boost employee satisfaction levels by helping companies improve management practices, lift morale and raise retention rates.

Recommendations

Determining that your company needs HR outsourcing is only the first step. After you've evaluated whether your business can benefit from handing off HR responsibilities to a third-party provider, you need to figure out which vendor can best address your needs. Focus' Buyers Guide: HR Outsourcing is a great resource to help you get started. Also, check out Focus' HR Resource Center for more comprehensive research, topical research briefs and advice from Focus Experts.

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