HR Outsourcing Utilized by Most Large Employers

February 5, 2003 (PLANSPONSOR.com) - Larger companies have turned to HR/Benefits outsourcing as a way to take advantage of a provider's technology, expertise and to ease administrative headaches.

Of 264 large companies surveyed, 72% report outsourcing at least one HR/Benefits function.   Among this group, most companies have fully or partially outsourced the administration of their defined contribution plans and health and welfare plans for an average of nine years, according to Fidelity’s HR and Benefits:   The Next Outsourcing Wave.

Additionally, the study noted a trend toward outsourcing temporary staffing and payroll administration.   Looking forward, Fidelity points toward trends developing in the outsourcing of areas of personnel administration, payroll, and alternative compensation programs, such as stock plans, which large companies have outsourced for an average of four to five years.

When asked for the reasons companies are looking outside their own brick-and-mortar, slightly more than one-third (37%) of respondents said “cost reduction” was the most important initial motivator for outsourcing.   Large majorities also indicated it would be too burdensome (88%) and/or too costly (86%) for their organizations to provide similar HR/Benefits capabilities internally.

Pressure Cooker

The survey found 84% of respondents report lowering cost and/or improving efficiency as the major pressures facing their HR/Benefits operations in general.   Additionally, companies report pressures from:

  • 78% Easing regulatory compliance
  • 67% Attracting and retaining employees
  • 66% Satisfying internal demands for accurate and timely reports
  • 66% Maintaining currency with new technology and systems integration issues
  • 51% Meeting service requests from employees

A vast majority of respondents (92%) agreed that a vendor’s specialized capabilities and expertise deliver significant benefits for their organizations, particularly in terms of improved services and better access to information for employers and their employees.

“Value” Menu

While 37% of executives and managers in the study cited cost containment/efficiency as their biggest pressure, it is not the primary reason most companies seek or continue to outsource.   In fact, a significant majority (83%) said they believed that the value of outsourcing could not be measured in dollars alone.

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 via technology to their own HR/Benefits information.   They agreed that employees appreciate that improved access via technology.   

Control The Situation

A majority of executives and managers in the Fidelity study said that outsourcing provided enhanced control, improving access to data, obtaining more accurate and timely reports, and controlling costs, dispelling one of the myths in the industry is that outsourcing reduces an HR manager’s level of control.   Nearly all (93%) reported that they are satisfied with their outsourcing experiences.

Three-quarters of respondents said that outsourcing improved their control over regulatory and reporting requirements.   More than half (55%) said they had more control over costs as a direct result of outsourcing.  

Additionally, satisfaction with outsourcing is extremely high and nearly nine out of 10 (87%) decision makers said that outsourcing met or exceeded their expectations.   A large majority of executives (70% to 96%, depending on the plan outsourced) said they consider outsourcing to have been a good investment for their organizations.

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