Human Resource (HR) Outsourcing

The main idea behind outsourcing has always been, If you’re not good at it, outsource it. Find a vendor who specializes in it. If you’d rather not be bothered by trivial—read: noncore—processes such as benefits and payroll; recruitment, training, and performance evaluation; then maybe you should consider human resource (HR) outsourcing.

Human resource outsourcing is a rising trend of recent years. The $2.5 billion-a-year industry is expected to grow to $15 billion by 2005. Like information technology, human resources has undergone a fundamental shift from being a tactical, administrative function to a strategic and consultative business planning group.

The human resource department, contrary to what most people think, is not merely a central database of information and statistics. Neither is its main function merely to convert this database into reports of employee performance. Human resource involves attracting, retaining, and developing a company’s main asset: its employees and their knowledge.

Companies are often unable to dedicate resources toward core business needs because they are preoccupied with operational, transactional activities. Outsourcing noncore activities such as human resources frees HR professionals from routine administration chores and gives them a more strategic role, allowing them to focus on higher value-added activities as the outsourcing vendor takes care of the day-to-day administration.

Most commonly outsourced—and actually one of the first services outsourced since the beginning of outsourcing history—are benefits and payroll. Now, companies are shifting towards outsourcing other HR activities such as recruitment, training, and performance evaluation.

Why Outsource?
Outsourcing reduces the need for large capital expenditures on noncore functions, among which is HR. This has gained popularity as companies aim to gain speed and flexibility needed to compete in today’s business environment. Companies need not invest capital to maintain and upgrade HR systems and infrastructure as this is left to the outsourcer.

Outsource to have the work done by experts. Companies that choose to outsource their HR functions prefer partners whose main business is in human resource management. Outsourcing allows for faster response time and convenient access to benefits and other HR data.

Outsource transfers risks. There are more risks involved in compliance, financial, technology, legislative, and corporate restructuring issues. The cost of providing high-quality HR delivery is prohibitive. When you outsource, there are less risks as these are passed on to the vendor.

Outsource to access and maintain leading-edge technology. Highly developed programs or software are needed to manage employee data. Outsourcing allows one to access the latest in HR technology.

Outsource to access and maintain critical expertise. High-quality HR delivery means specialized HR knowledge. HR tasks are becoming more complicated with the improvement of technology. Companies that have undergone corporate restructuring, mergers and acquisitions, or repeated downsizing may have dismantled HR functions and lost pertinent expertise.

What Are Outsourced?
HR and benefits outsourced include medical/dental plans, prescription drug plans, life insurance/accidental death and disability, short- and long-term disability, business and travel accident insurance, defined benefits plans, and defined contribution plans.

Payroll outsourcing.

Compensation outsourcing. HR outsourcers assist in daily tasks such as documentation and evaluation, recordkeeping, salary planning, and compliance issues.

On-site HR outsourcing. Some HR outsourcers offer on-site assistance with policy and program development, compliance with relevant statutes, recruitment, training and development, performance management, and compensation and benefit administration.

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