Human resources outsourcing continues to boom

Human resources outsourcing is on track to continue record growth in the United States, according to a new survey by Hewitt Associates, a human resources services firm.

The survey of 129 large companies representing nearly 2 million employees found that businesses are satisfied with their

Currently, 94 percent of survey participants outsource at least one personnel function or activity. The most commonly outsourced functions include outplacement services (91 percent), employee assistance programs (89 percent), defined contribution or 401(k) (83 percent); COBRA administration (77 percent) and defined benefit (pension) (68 percent).

By 2008, companies plan to expand outsourcing into the following areas (listed in order): leave management, learning and development, payroll, recruiting, health and welfare, and global mobility.

"The growth of HR outsourcing will continue to gain momentum as organizations reap the benefits, including significant cost savings, new capabilities and services for employees, and enabling HR to focus on more strategic work that is integral to the business," said Bryan Do* president of Hewitt's HR outsourcing group.

According to the survey, companies' top reasons for outsourcing include access to outside HR expertise, service quality, ability to focus on core business, cost savings, opportunity for better data and relief from administrative burdens.

Even when organizations decide to pursue HR ouisourcing, some face challenges. Survey participants ranked their top concerns about FIR outsourcing as (1) losing control of key processes, (2) employee reactions to an external service provider and (3) difficulty in building a business case.

In selecting an outsourcing provider, companies say the following requirements are most important: demonstrated HR process expertise (95 percent); prior experience or track record (93 percent), service-level agreements in contracts (83 percent); cost savings guarantees in contracts (65 percent); and leading-edge technology (65 percent).

"It's important to understand that HR is unique from other areas that companies typically outsource, so it's critical that they conduct a thorough evaluation to ensure they select a provider with the FIR expertise, experience and capabilities' needed to manage people issues and deliver the quality service and results they are looking for," said Doyle.

Overall, the majority of survey participants (89 percent) are satisfied with their outsourcing arrangement. Eighty-five percent achieved hoped-for benefits and an additional 20 percent realized some unexpected benefits. When asked about achieving cost-saving objectives, nearly half (45 percent) responded yes, while 45 percent said cost saving was not an objective in their decision to outsource.

During the outsourcing transition, 81 percent of companies said it went smoothly, without any significant problems. To help prepare their HR function for outsourcing, the majority of employers typically defined new HR roles and responsibilities (70 percent), restructured HR (62 percent), developed and communicated a new HR strategy (55 percent), and provided training for employees in new roles (43 percent).

Companies also prepared A of their employees for outsourcing by creating communication campaigns (88 percent), and providing training for managers and employees (56 percent).

Only 23 percent of companies have brought an outsourced function back in-house.