Transformational Transactions? Your HR Outsource Resource
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By Micah Fairchild
How to Know If and When to Outsource Your Organization's "Core" HR
Every company, no matter the industry or size, has a few universal responsibilities: hiring employees; providing benefits, making sure employees are accurately paid; ensuring legal compliance to the host of laws on the books; and if needed—firing those employees that don't work out. Though it might go without saying, mess one of these areas up and your organization could be in hot legal water. As such, these tasks have long been considered to be the "core" areas of HR—the tasks that need to be handled first and handled best. However, as the Human Resources profession matures and companies begin to see the greater strategic value of what HR can do, increased attention is being given to outsourcing tasks to organizations that focus solely on one or more "core" areas. Before you run out to enlist a company to handle all the dirty work though, it's important to know precisely which HR functions are outsourced; what types of outsourcing companies offer; what the possible drawbacks are; and what you need to get started.
Know the Areas of HR Outsourcing
Talent Acquisition Outsourcing – Also called Recruiting Process Outsourcing, RPO can involve anything and everything related to bringing a new employee on-board—including managing requisitions, postings, advertising, applicant tracking, all the way to background and drug screening. Speed, quality, and cost are the main driving factors to choose Recruiting Process Outsourcing, but as the war for talent escalates, more companies will likely be looking towards continuous recruitment and talent pool management as an RPO offering.
Benefits Administration Outsourcing – Outsourcing that involves the core issues of healthcare and retirement. Benefits Administration Outsourcing handles:
- plan eligibility/enrollment/termination;
- earning/processing/vesting for retirement;
- leave tracking and administration; and
- benefits-related compliance issues
Easily the most mature area of HR outsourcing, outsourcing of the Benefits function is slated for increased growth over the coming years according to a 2010 report by global research firm Everest. Says Everest's Rajesh Ranjan, "Buyers are…increasingly looking to benefits administration outsourcing to…provide improved employee engagement and communications platforms that help employees make better health care and retirement decisions". However, the most pressing reasons for adoption of this type of outsourcing are the health care reforms and increased regulatory uncertainty (especially for U.S. companies).
Payroll Outsourcing – Few outsourcing functions are quite as straightforward and well-established as payroll. Involving data receipt/analysis/reporting and payment issuance, payroll outsourcing is seen by many as "a first stop in short-term cost-cutting strategies", says Gartner's Robert Brown. As such, it's no surprise that many organizations looking to increase the bottom-line impact of HR are turning to this. Though multi-national corporations can find payroll outsourcing to be beneficial, the majority of the current market is dedicated to single-country operations, where well-established practices, price-points, and vendor processes have the capability of delivering a cost-effective business solution. Be warned though that, according to Gartner's 2010 Hype Cycle for Human Capital Management Software, due consideration needs to be given to whether "radical shifts" in your current software will be needed in order to outsource this function.
Know the Types of HR Outsourcing
Professional Employer Organizations (PEOs) are outsourcing firms that take over the total HR administrative function and assume responsibility for all aspects of the employment relationship. In many ways, PEOs are like a partner in the business, taking on all HR responsibility so that the other aspects of the business can be attended to. If this sounds like it might be your bag, take note that what you're after is a legal partnership, and that not all "PEO"-labeled firms offer that agreement. Indeed, though some outsourcing firms use the term "PEO" to describe their services, they may only handle payroll and benefits.
Business Process Outsourcing (BPO) simply refers to any outsourcing that an organization might do (to improve a process)—this includes HR but isn't limited to it. So, other back-office functions like accounting, finance, etc. and front-office functions like customer service are all part of BPO. In fact, this is an incredibly broad outsourcing section that deserves its own articles, which we will have soon.
Know the Drawbacks of HR Outsourcing
The drawbacks to outsourcing are about what you would expect. Loss of daily interaction with a dedicated HR person in house can cause engagement issues for your staff. Outsourcing can also lead to the possible loss of incentive program negotiation. Still, perhaps the most important fine print to look at happens when you enlist the help of a PEO. Specifically, many PEOs reserve the right to have the final say over any beginning, ending, or disciplinary action taken in the employment relationship. That's right, PEOs may get to decide who gets hired, fired, and disciplined. Organizations looking at this option should carefully weigh whether the freedom from this burden is worth the price.
Know What Your Organization's Needs Are
A thorough "needs analysis" is about the one thing you can count on for any new process, software, or solution implementation. Outsourcing is no exception. In addition, a thorough understanding of your organization's long-term goals and culture are needed if you want any outsourcing initiative to go smoothly. Organizations do not need to outsource in order to move their HR function away from being solely transaction-based, but as Gartner's Robert Brown says, "it is likely that any transformational effort will require the review of various internal and external options to deliver services, including outsourcing, "offshoring" and shared services".
Organizations do not need to outsource in order to move their HR function away from being solely transaction-based, but as Gartner's Robert Brown says, "it is likely that any transformational effort will require the review of various internal and external options to deliver services, including outsourcing, "offshoring" and shared services".