HR Outsourcing

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Human Resources Outsourcing Trends

Current and projected trends in Human Resources Outsourcing include transitioning to the cloud and online payroll, promoting workplace wellness programs, opting for selective outsourcing, and social media recruiting.


Globally, the HR outsourcing market is forecast to "reach $53.9 billion by 2020." The US accounts for the largest Human Resources Outsourcing market in the world. The growth in the market is attributed to the increased "need among enterprises to increase operational efficiency, reduce costs, streamline operations and set up compliance management." Benefits administration and payroll services are the most outsourced HR processes. In the US, the demand for benefits administration is projected to increase due to the continuing healthcare reform in the country.

According to the PrismHR 2017 US trends report, "HR service providers reported 27% growth for 2016." PrismHR reported that 63% of HR outsourcing companies had "50 employees or less" and only 25% had "100 employees or more" in 2015. By 2016, 40% had at least 100 employees which resulted in a 60% gain in a single year.

The majority of "HR service providers who responded (41%) serve between 1,001–5,000 worksite employees." Mid-sized Human Resources Outsourcing organizations with 5,001–10,000 worksite employees experienced the most growth at 31% in 2016. During this time period, organizations with under 1,000 worksite employees saw the least amount of growth at 15%. In 2017, 23% of HR service providers expected to grow by at least 25% and 31% expected to grow by 11-25%. Growth has steadily continued for all consumer types and 73% of organizations reported that they "retained 86% or more of their" clients.

The report notes that 59% of Human Resources providers consider their ideal target market to be in the "16-100 worksite employee range." However, 18% reported that they did not have a target market size. This is likely due to the fact that "scalable HR technology" has allowed organizations to service any size client. These clients were mostly acquired through referrals at 40% followed by networking at 27%.


More businesses are switching over from "locally hosted servers into the cloud." HR Outsourcing companies are using the cloud for it's "efficient data security process," it's workforce support capabilities, and it's advanced customizable reporting and analytics. The cloud also allows providers and clients to access information from multiple locations. This allows individuals to work together that are miles apart and gives people in different locales access to data while "the cloud security will protect the information that is stored."

Outside of information storage, the abundance of big data and analytics is also being used in the hiring process. Algorithms and insights are being used to develop recruitment strategies and to improve retention rates. This is essential now that the definition of "talent" in terms of the HR job pool is changing in the US. To meet this need, employers are seeking out a "diverse range of job candidates" with an emphasis on potential rather than experience. Workforce support like the processing of employee benefits and other functions can also be automated and streamlined with the use of the cloud.


It's projected that payroll trends from 2016 like apps, cloud-based options, data security, and analysis were expected to continue in 2017. Apps have allowed both HR employees and managers to access their payroll information regardless of whether they are near a computer. This flexibility is a growing demand that also connects to the increasing popularity of cloud-based payroll options. In 2014, Deloitte reported that 14% of "organizations had a cloud-based payroll service, while 26 percent more were considering it." It was reported by Bloomberg BNA that in 2016, 55% of HR respondents planned to redesign "their end-to-end HR processes" to a cloud-based system.

By moving payroll data to a third-party server, information becomes available through any internet connection. Cloud-based software "gets routinely updated, data is backed up, data entry is simplified, and access from anywhere becomes possible, including through smart device apps." Relying on the cloud also saves money since paper checks will no longer be needed. As cloud-based options become more prevalent issues of data security are increasing. Ensuring that information is protected is a major focus for these organizations. While safeguarding this information will continue to be a priority, analyzing the data is another growing trend. According to The Wall Street Journal, some companies are using payroll data to predict when employees are "most at risk of leaving their jobs." Other predictive data points are being analyzed to "spot anomalies that could suggest payroll fraud, trends in hours worked, or overtime pay, all of which can help them make better decisions about human capital management."


Wellness programs are a growing trend that aims to promote the health of employees that then translates into increased productivity. According to the CDC Foundation, on average, each employee loses $1,685 in productivity due to absenteeism. To combat this, in 2016, the Society for Human Resource Management reported that 24% of "organizations increased wellness benefits" which was more than any other kind of benefit. 88% of these organizations reported that their wellness initiatives were either very or at least somewhat effective "in improving employee health." The study showed that 77% of organizations reported that their programs reduced the cost of healthcare and 53% aimed to promote a positive health and wellness culture in the workplace.


This trend allows Human Resource providers to "assess the skills available in-house and then outsource in the fields" where there is a deficiency. In this scenario, skills that are already available will not be duplicated and the outsourced employee can focus solely on the functions that are missing in-house. Some fields for selective outsourcing include "compliance, candidate recruitment, non-harassment training and development of an employee manual."


The prevalence of social media has provided employers with another source of potential employees. Platforms like LinkedIn can streamline the recruitment process because user profiles showcase resumes, skills, and other relevant past work experiences. Social networks also make it easier for employers to organize "group chats, and specialized social networks for work organizations." This allows faster and more efficient "communication between the employer and the employees."


In conclusion, the current and future trends for Human Resources Outsourcing include switching to the cloud, transitioning to online payroll, social media recruitment, promoting workplace wellness programs, and selective outsourcing. Globally, the market is expected to grow to $53.9 billion by 2020 which will likely translate to a growth in the US market since it is the largest HR Outsourcing market worldwide. Benefits administration is one of the most outsourced HR processes and is projected to grow due to the continued healthcare reform in the US.
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HR outsourcing buyer sentiment

Outsourcing for HR services is a growing trend among businesses in the United States, as advantages, such as saving time, money, and aligning with complicated legalities, allow companies to focus their efforts on maintaining and growing their business. Payroll and medical and health benefits are the most popular HR services that outsourcing buyers look to have completed by outside vendors. However, some companies also look to outsource recruitment, the hiring process along with associated paperwork, and employee training. There is no evidence that conclusive data exists in the public domain regarding HR services companies wish they could outsource. The following is an overview of the advantages of the aforementioned HR services (payroll, benefits, recruitment and training), as well as concerns with the disadvantages that come with outsourcing HR services.


As payroll is associated with numerous regulations, tax code compliance, and cost concerns, outsourcing for small to mid-sized businesses in the United States is growing. Companies are beginning to outsource the completion of complicated documents, including W-2 forms, state unemployment taxes, garnishments and levies, and overtime payments. In 2013, the Internal Revenue Service (IRS) issued 6.8 million penalties in the United States resulting in approximately $4.5 billion in employment tax related penalties. David McKelvey, a tax consultant partner with Friedman LLP, and Karen McMullen, from The Staffing Edge, noted that outsourcing for payroll not only saves time, but reduces cost, improves your data security (i.e. identify theft stolen from employee records), and guarantees government compliance. Additionally, employers may receive access to other services through their payroll outsourcing vendor, such as, contract generation, labor law compliance services, and bookkeeping services.
Employees also benefit from their employer outsourcing payroll, as it leads to a peace of mind that an expert is handling their hard-earned money, insuring all necessary government forms and taxes are taken care of to avoid any audit headaches in the future.


Companies are beginning to outsource their employee health benefits more, partially due to the complexity of rules and provisions within medical legislation. In the CFO Research study conducted with Prudential Financial Inc. in 2016, 46% of employers were outsourcing for requirements in the Affordable Care Act, 40% for Americans with Disabilities Act, and 39% for Family Medical Leave mandates. The biggest challenge HR departments face in healthcare are administrative issues (57%), followed by cost issues (21%).
Jake Biscoglio, vice president of absence management and disability at Prudential Group Insurance, said “The escalating regulatory burden placed on benefits programs makes them increasingly complex to administer”. Additionally, he said “employers are finding it easier and cheaper to outsource, rather than build and maintain the expertise in-house”. The reasons a company outsources vary as well. Larger companies tend to outsource due to complexity of benefits, as well as having to juggle numerous locations. Whereas, mid to smaller companies look to outsource since they lack the resources and expertise to administer benefits themselves. Almost 80% of participating companies in the study (180 companies total), reported revenues over $1 billion, noting that controlling benefits costs, in particular medical and health coverage, was a top priority among financial executives.
Outsourcing HR benefits is not only beneficial to the employer, but also the employee. Using external programs, employees may have access to tools that allow them to view and interact with their plans that may not have been previously available through their employer alone.


In addition to payroll and benefits outsourcing, more companies are looking to outsource other avenues of HR. Recruiting, hiring, and training employees is one of the most expensive aspects of a business. By outsourcing with a recruiting firm, companies free up time to look for talent and the opportunity to hire from numerous markets. Further, some outsourcing companies conduct background checks and drug testing during the recruitment process.

hr outsourcing benefits

Adam Cavalier, president of insurance broker Cavalier Associates, stated “…the real value [of HR outsourcing] is only realized when employees internally are brought into the service and able to use these resources as they are meant to be used”. In other words, utilizing HR outsourcing companies is most beneficial when it allows employees access to tools that allow them a better understanding and grasp of their HR benefits, whether it be payroll, medical benefits, or career training opportunities.


While numerous advantages exist with HR outsourcing as previously mentioned, save time, money, allow employees access to tools, and remain compliant with government regulations, there are a few disadvantages that exist. As more HR functions are outsourced, a company can lose control over who is responsible for what, and details can fall through the cracks. If there is a communication breakdown between the vendor and the company, mistakes can arise. Further, the more tasks that are outsourced, the more dependent the company becomes on the vendor, which can be a risk if the vendor performs poorly, or goes out of business.

If a company uses numerous outsourcing companies, for example one for payroll and one for medical benefits, the two vendors may not be compatible in terms of process, communication techniques, and software used. This can lead to complications among staff in trying to keep each vendor’s process correctly aligned, as well as creating confusion should there be strategic or operational changes within the company that must be relayed to across numerous vendors. However, given these potential disadvantages, the sentiment across numerous sources show that the advantages of outsourcing HR far outweigh the disadvantages.


Overall, more companies are looking to outsource HR in the United States, primarily concerning payroll, medical and health benefits. This is due to the complex nature in compliance and government regulations, as well as the time needed to complete these tasks. Additionally, some companies are beginning to utilize HR outsourcing to handle recruitment and the hiring process. While some disadvantages exist, such as the risk of dependency on too many vendors, advantages such as saving time and money, as well as aligning with strict government regulations, provide us a with a positive sentiment among HR outsourcing buyers.