Fidelity: Companies Outsourcing More HR Functions

May 6, 2003 ( - As outsourcing gained popularity in recent years, large corporations have begun to outsource more of their human resources administration, including payroll and alternative compensation programs such as employee stock plans.

Four out of 10 executives and managers said they outsource either all or part of their payroll administration, recruitment, and full-time staffing needs. Further, 66% have now turned to the outsourcing of their alternative compensation programs , according to the latest release of data from “HR and Benefits: The Next Outsourcing Wave” by Fidelity Investments.

The trend toward HR/benefits administration outsourcing is a fairly new one. Companies have been outsourcing these programs for four to five years on average, compared with 401(k) and pension plans, which have been outsourced for an average of nine years.

In fact, outsourcing for defined benefit plans has become rather compartmentalized with only 18 of the Fortune 100 companies using the same provider for both pension fund administration and actuarial services. A nother 22 outsource their DB plan administration along with unbundled actuary services while 44 only have partial DB plan outsourcing. Sixteen of the firms only have a defined contribution plan, a ccording to a study of the Fortune 100 companies by Watson Wyatt Worldwide (See Large Plans Opt for Separate Actuarial Services Provider ).

Watson Wyatt said that some companies claim that convenience and cost efficiency can motivate plan sponsors to bundle these services, as indicated in a number of recent surveys (See PLANSPONSOR/MassMutual TRO Research, Outsourcing Trend Gains Momentum ).

Expertise Sought

This is similar to what Peter Smail, president, Fidelity Employer Services Company said: “By outsourcing these and other benefits programs, employers can focus their efforts on activities that directly support their business objectives while leveraging the transactional expertise and employee self-service programs that Fidelity offers.”

The vast majority of respondents (92%) agreed that a vendor’s capabilities and expertise delivered significant benefits for their organization, particularly in terms of improved services and better access to information. Further, a very similar nine out of 10 executives and managers agreed that outsourcing facilitates data transfers via better Web-based technology and reduces administrative burden by giving employees direct, self-service access to HR/Benefits information via technology, according to an earlier release of survey data by Fidelity (See Benefits Execs Say Outsourcing Pays Dividends ).

Of those employers who outsource HR/payroll plans, satisfaction levels also are high. Nearly three-quarters said they were satisfied with the implementation and employee communication. The vast majority (89%) of employers who outsource their alternative compensation programs reported being similarly satisfied.

Overall, the bulk of executives and managers indicated that it would be too burdensome (88%) and/or too costly (86%) for their organizations to provide comparable HR/benefits capabilities internally. However, more than three-quarters (83%) said they believed that the value of outsourcing could not be measured in dollars alone.

Richard Day Research, Inc conducted the Fidelity study during the fall of 2002 among finance executives and HR/Benefits decision-makers at companies with 5,000 or more employees. Of the responding companies, 48% had 10,000 or more employees and 54% had revenues of more than $1 billion. A full copy of the report can be found at .