Sharing the load

Over the past decade, HR has evolved to become a strategic partner in many organisations. The ability to outsource basic HR functions to third party businesses has been a key enabler in this process.

Some of the functions that are commonly outsourced include recruitment, payroll processing, benefits administration, and employee database management. According to research by IDC, the HR outsourcing market has grown by close to 70% over the past six years, with employers spending some US$103.3 billion on services in 2007 alone.

The recent recession saw an increase in demand for HR outsourcing services as companies sought to improve efficiencies, reduce employment costs and eliminate risks.

Even as the economy recovers, companies are still seeking to maintain cost efficiencies.
An outsourcing service provider manages sometimes thousands of transactions across many clients and normally enjoys greater economies of scale. This can lead to increased value and lower costs, Caleb Baker, General Manager, HR Outsourcing, Talent 2, says.

He says the typical HR outsourcing contract can lead to savings of up to 25%. However, there is more than just cost savings in its favour – quality is also an important factor to consider. Sometimes HR just does not have the expertise or headcount to execute certain functions, Baker says.

Dollars and sense
Payroll processing is a time-consuming and administratively routine task that was once the sole concern of HR - this makes it a good starting point for organisations looking to outsource. Farming this out to a service provider can help in-house HR to focus on more value-added services or strategic decisions.
Outsourcing payroll functions is often cheaper than hiring your own specialist staff, particularly for companies with smaller overall headcounts. According to Andrew McArthur, Managing Director, Pay Asia, a full-time in-house solution requires the procurement of software and hardware as well as maintenance. “This will result in a significant cost which makes less it financially viable for a small and medium enterprise,” he says.
Service providers can often provide greater accuracy from their “outsider” position. For example, they will ensure that employees are paid on time and that your tax payments are in. Many leading providers have avenues for compensation in the event of a mistake – something that is impossible under an internal administration regime. Outsourcing also lowers the risk of corporate fraud.
MacArthur says that companies with a payroll service provider are also freed of the need to be constantly abreast of changes to professional and statutory requirements. Instead, the service provider will check on the regulations and implement them as needed, he says.

Talent search
For many organisations, recruiting new employees is a labour intensive process that is subject to market fluctuations and company performance. A hiring blitz would call for more staff specialising in recruitment. The same employees might become redundant during a hiring freeze. Outsourcing this function to a third party can alleviate these problems.

In recruitment process outsourcing (RPO), an employer moves all or a part of the organisation’s recruitment efforts to a third-party. Service providers in this area cover the whole gamut of recruitment functions from hiring and onboarding, to performance assessment and succession planning. These are handled by hiring specialists who typically have access to a large database of potential candidates.

According to Simon Bell, Regional Director, Managed Solutions and Talent Management- Asia, Hudson, an RPO service provider can offer better control and visibility over the recruitment process. This can lead to improvements in candidate quality with better-defined job descriptions and selection methodologies.

“The power of your resourcing function is only as strong as the people manning it and the tools that enable them. In a rapidly recovering economy, they can be the difference between success and failure,” he says.

Getting started
Organisations need to establish their most pressing HR needs and prioritise them accordingly. Many outsourcing service providers offer diagnostic tools that can guide HR through the various strengths and weaknesses before settling on an appropriate solution. The outsourcing process brings along a period of changes and HR must effectively sell these to management and employees in order to get their involvement and buy-in.

An outsourcing arrangement also requires HR to work alongside service providers. Both parties need to plan and communicate their needs and expectations, to ensure that service level agreements are adequately fulfilled. A structure of governance that includes transparent reporting on key metrics is essential to cut down on unnecessary time spent on outsourcing issues.

Organisations must also understand that outsourcing HR does not lead to immediate profit. It often takes time for the outsourcing service provider to fully understand and deliver a client’s requirements.

Source: http://www.hrmasia.com/resources/outsourcing/sharing-the-load/49850/