Human Resource Outsourcing

In reference to my previous blog pertaining to how Human Relations department can contribute towards Cost Containment, I further believe that the other aspect to control costs for companies is ‘Human Resource Outsourcing’.

As per the current HR trends – more and more companies (big or small, start-ups or established brands) feel the need to hire external firms at some point in time for HR support services. It can be a need to establish a stable, cost-effective operating platform or delivering cost savings – whether direct or indirect, transferring focus from internal processes to achievement of business goals to ensuring compliance with legal, regulatory, and best practice re­quirements, or transferring risk and liability for people issues. Slowly and steadily companies are getting into the practice of Human Resource Outsourcing either partially or wholly. Even bigger companies having their own internal Human Resources department, also at times enter a contract with HR outsourcing companies to manage their human resources efficiently and intelligently

 Recruitment and selection, payroll and compensation management, staff training, employee benefits and services, job evaluation are few of the initial functions that companies look at offloading to an external HR agency. However, the other key areas in the HR domain like defining goals of employees, productivity mapping, learning and development support, employee engagement, reward system, handling attrition etc are also outsourced for a professional and transparent approach. Most companies today feel the need for an expert to fill up the vacuum in the domain. In my opinion, human resource outsourcing is a significant strategic HR initiative. HR outsourcing helps organization to focus on internal resources towards doing what they do best and simultaneously helps to control the bottom lines.

 As per my knowledge and experience, the two main reasons that organizations choose HR outsourcing services functions to HR consulting firms are – cost-effective solutions and saving of time. HR outsourcing helps an organization to gain cost and time efficiencies and provides cutting edge over their human resource strategies and improves services to their employees. Afterall, HR is an essential partner in developing and executing organizational strategy.

The desire to outsource is often brought on by the need to trim costs or upgrade to a new system. The organization gets benefitted in the form of excellent quality, reliable supply, and rock bottom price. It can also focus exclusively on doing what it is good at – thereby enhancing its own competitive advantage.

The advantages of HR outsourcing services for small business and growing companies are that HR Outsourcing companies use their vast knowledge and experience to devise attractive employee retention and benefit packages that are designed keeping in mind the company’s long-term and short-term business goals. HR consulting firms handle all relevant paperwork pertaining to government rules and regulations, not only for its client but also of the employees of the client company. Since, the HR outsourcing companies work using the latest technology in the HR domain, the client can benefit from the automated fast system without having to make any substantial investment in infrastructure, manpower training and even maintenance related issues.

Let me share the interesting numbers that I came across – a study from the National Association of Professional Employer Organizations (NAPEO) found that the annual ROI from partnering with a HR Outsourcing firms/PEO comes out to 27.2% in cost savings alone. That study broke down those cost savings into four key areas (calculated on a per-employee basis):

  • Cost savings of 54% from internal HR salaries/benefits
  • Savings of 37% from health benefit costs
  • Savings of 5% from other external HR expenditures
  • Savings of 4% from workers’ compensation costs

These statistics demonstrate that companies can accrue significant savings by investing in a PEO partnership, not only in terms of payroll, but also regarding benefits, personnel costs, workers comp costs, and other key HR areas.

If you ask me, HR outsourcing will continue to grow as HR programmes and services become more complex. It is rapidly emerging as one of the world’s most exciting business trends. It reflects the need, recognized by increasing numbers of organizations, to focus on their core areas of business – and to outsource processes that add little or no value in terms of achieving their business objectives.

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