What is HR outsourcing and what are its benefits and costs?
HR outsourcing is the process of paying third-party specialists to take over the management of an organisation’s human resources.
It may not involve transferring responsibility for all of that organisation’s HR functions, but if it involves just one of the HR functions, it would usually be referred to by the name of that function, for example, recruitment process outsourcing.
Why do companies outsource?
Some companies choose to outsource HR for external reasons, such as the increasing complexity of HR and pay. Others may outsource because their company is growing, expanding into new markets or involved in mergers and acquisitions. The pandemic has also put a spotlight on HR as companies look for more strategic involvement in shaping the workplace of the future.
What does HR outsourcing include?
HR outsourcing services could include any or all of these HR functions:
- Payroll and tax administration
- HR admin
- Employee training and development
- Recruitment and onboarding
- Compliance and risk management
Benefits of outsourcing HR services
The benefits of outsourcing HR include reduced costs, increased efficiency, improved payroll accuracy, access to specialist HR expertise and help in future-proofing your human resources offering. Outsourcing also allows your HR team to focus on higher-value strategic tasks and your employees’ needs.
Reduced staff costs
HR admin can tie up your HR team with repetitive tasks that could be outsourced and automated for greater accuracy. But it’s not just low-level, everyday HR tasks that companies need help with. Increasing complexity has put pressure on HR teams in recent years. Hiring people with the necessary expertise to deal with the flood of new pay and tax legislation, labour laws and data protection regulations can be expensive and leaves you at risk should they be ill or leave. Outsourcing ensures that you have this expertise at all times, and you don’t need to worry about hiring and training new personnel.
More usable data when you outsource pay and HR together
A truly unified HR and payroll solution will allow you to make the most of the wealth of workforce data across your organisation. Bringing payroll data, which is checked more often and likely to be more accurate, together with HR data makes that more accurate too. And with one source of information and one log-in your information is more accessible, more secure (you control access) and easier to manage.
Greater payroll accuracy
Payroll accuracy was a problem for many companies even before the pandemic, with 60 per cent of 32,471 employees surveyed saying they’d been underpaid (20 per cent saying that it always or often happens) and 54 per cent believing they’d been overpaid.1 Outsourcing to an HR services provider reduces manual processes, improves checking procedures and provides the expertise you need for greater accuracy.
Visibility and agility for resilience and growth
The vast amount of data in your HR and payroll systems will not only be much easier to manage but it will be easier to share. So you can supply the information needed for key strategic decision-making. Decisions can be made faster, based on facts, so your organisation can react and respond quickly to challenges and opportunities.
Reduced outlay on new technology – and improved systems and processes
Outsourcing means that you no longer have the responsibility of investing in and maintaining expensive HR or human capital management (HCM) solutions. You don’t have to worry about setting up and maintaining integrations between disparate systems or coping with outdated technology. Outsourcing with the right partner will give you systems and processes that work efficiently and integrate seamlessly. You’ll always have access to whatever new technology your workforce needs, as and when you need it.
Cutting the costs of compliance
From GDPR in Europe to the Fair Work Act in Australia, HR teams around the world are having to deal with more legislation than ever. In just 30 days during March and April 2020 there was an almost fourfold increase in global pay-related legislation as governments took action to mitigate the economic effects of COVID-19.2 These changes increase the risk of fines and penalties for non-compliance. A 2020 study on behalf of ADP put the three‑year, risk‑adjusted value of compliance cost avoidance at more than $1.8M.3 Outsourcing pay and HR gives you the technology and expertise necessary to reduce that risk and cut the cost of staying compliant.
Tackling the skills crisis
Outsourcing HR can help you in the so-called war for talent. A shortage of people with the right skills means that you need to attract, train and retain the right people. Outsourcing your HR talent management function can provide the information you, your managers and your employees need. You can identify skills gaps and allow employees to see their career paths within your organisation, as well as ensuring that they have the right training and development — including annual reviews or continuous feedback — to get where they want to be. Recruitment process outsourcing (RPO), either by itself or as part of a broader outsourced solution, will make it easier (and less costly) to attract and hire the right talent, by using a winning combination of the latest tools, usable insights and industry sector expertise.
How much does outsourcing cost?
Obviously, this will vary depending on which HR services you choose to outsource, the size of your organisation and the complexity of your solution. It may be tempting to look for so-called best-of-breed solutions for individual processes but outsourcing a number of HR functions and payroll together is likely to be more cost-effective, will ensure that everything works well together and will provide better data, as it connects information from different sources. You should look for a solution that is scalable and will allow you to add new technology as it becomes available or your needs change.
What to look for in an HR services provider – global payroll with HR
A provider offering integrated payroll and HR allows you to manage your entire employee lifecycle — from hire to retire — in one place, with streamlined processes, fewer errors and greater flexibility. And it will be far easier to use your workforce data for analysis and reporting.
A cloud-based solution means that you can access information from anywhere, at any time. In the early stages of the pandemic this gave many companies an advantage as offices were closed. The potential of payroll report found that only two percent of companies using a cloud solution had payroll difficulties during COVID-19, compared with 19 percent using in-house solutions.4 It also makes more sense now that so many companies are embracing flexible or hybrid working.
Choosing ADP as your HR services provider
The right outsourced HR services provider can help ensure that you’re ready for whatever the future may bring. Outsourcing is an opportunity to build in resilience and prepare for growth. It can help you succeed in the new world of work in which recruiting the right talent and developing necessary skills will be vital.
ADP has been at the forefront of change for many years. Formed over 70 years ago, ADP pioneered the first global cloud human capital management (HCM) solution, the first HCM mobile solution and the first online HR marketplace for new, easily integrated HR solutions. We now provide the latest solutions to clients in over 140 countries and our HR outsourcing services support over two million employees.
If you’d like to talk to an ADP expert about the benefits of outsourcing HR services to ADP, please get in touch.
At a glance – benefits of outsourcing HR services:
- Run your business smarter, with more time for strategic HR
- Enables HR to focus on employee needs
- Improves payroll and data accuracy
- Ensures that you have necessary expertise at all times
- Cuts costs
- Reduces compliance risks
2. ADP’s own records
3. A commissioned study conducted by Forrester Consulting on behalf of ADP in October 2020