1. HUMAN RESOURCES OUTSOURCING
The Cost Of (And Reason To) Outsource
Human Resource Functions, & The
Companies That Benefit.

2. Table of Contents
COST SAVINGS
REASONS
COMPANIES THAT OUTSOURCE
CONSIDERATIONS
RESOURCES

3. Cost Savings

4. The Cost & Savings to Outsourcing Human Resources
Research findings on Outsourcing Human
Resource functions indicate that organizations:
24%27%
Spend 27%less
on HR services per
employee than
typical companies
29%
Reduce HR labor
costs by 29%.
Operate with 24%
fewer HR staff per
1,000 employees
27% 29% 24%
25%50%
Spend 50%less on
‘outsourcing‘.
Dedicate 25%
greater spending
to technology
50% 25%

5. Cost & Savings, continued
 The estimated savings from Outsourcing
HR, as opposed to retaining an in-house
HR Department, is 15-25%
 The estimated savings, for full-
functioning vendors (including legal
consulting support) increases to 45-55%
 Companies with less than 100
employees see a 55% savings
(about $64,000)
$72,000
$132,000
The cost for these
companies to outsource is
about $72,000, compared
to the $132,000 cost of
having in-house HR

6. Cost & Savings, continued
 This percentage drops for every 100 employees the company retains
 The most cost effective savings are for small companies with less than 100
employees
50%
47%
45% 45%
100-200 200-300 300-400 400-500

7. Cost & Savings, continued
 Prices do depend on the services provided
 Industry experts estimate that the cost ranges from about 2-11% of wages
 Another way to look at the expense is per employee
 Example: It would cost between $500-1,500 per employee per year, for a very
small company with only 2-5 employees.
 The price might justify a flat fee of around $150 per month
 Most companies think in terms of wages, so it is important to estimate the total cost
based on provided HR functions

8. Companies that Outsource HR
 Over the past decade, HR focus has shifted towards legal compliance and data
collection. Companies without the means to hire specialists can instead
outsource, allowing them to gain vast resources for a relatively small amount of
money.
 The size of a company can be a determining factor. The rule-of-thumb is that when
administrative processes begin to slow down the productivity of the
company, there might be a need for outsourcing.
 The ideal business size is between 16 and 80 people. Once a company has a larger
amount of employees, it becomes easier to retain an in-house HR department.

9. Reasons to Outsource

10. Reasons to Outsource HR
Outsourcing firms
may have expertise
in specific areas (like
the new healthcare
reform) which may
otherwise overwhelm
employers with the
brevity of its
complexities
PAYROLL
BENEFITS
RECRUITING
Tasks taken by outsourcing firms
include:

11. Reasons to Outsource HR, continued
PARTIALLY OR COMPLETELY OUTSOURCED HR FUNCTIONS:
 Background/criminal background checks
 Employee assistance/counseling
 Flexible spending account administration
 Consolidated Omnibus Budget Reconciliation Act (COBRA)
 Healthcare benefits administration
 Temporary staffing
 Pension benefits administration
 Retirement benefits administration
 Employee relocation
 Payroll administration

12. Reasons to Outsource HR, continued
 Retirement planning
 Work/life balance benefits
administration
 Compensation and/or incentive
plans administration
 Executive development and
coaching
 Human Resource Information
Systems (HRIS) development
 Recruitment/staffing of employees
(nonexecutive)
 Recruitment/staffing of executives
only
 Risk management
 Expatriate administration
 Employee communication
plans/strategies
 Performance management
 Training and development
programs
 Policy development and/or
implementation
 Strategic business plans

13. Reasons to Outsource HR, continued
 Save money/reduce operating
costs
 Control legal risk/improve
compliance
 Gain access to vendor
talent/expertise
 Streamline HR functions
 Offer services the organization
could not otherwise provide
 Allow the company to focus on its
core business
 Reduce the number of HR staff and
related staff expenses
 Provide consistent/improved
service delivery
 Allow HR staff to focus more on
strategy
 Make up for the lack of in-house
talent/expertise
 Gain access to vendor technology
 Avoid the cost of major investments
in technology
 Make up for a reduction in HR staff
 Improve metrics/measurements

14. Considerations

15. Considerations in Outsourcing HR
 The outsourcing of HR has accelerated over the last decade, and appears to
continue on that path
 It’s a common practice for companies to parcel out HR functions to a range of
outside providers
 Outsourcing allows companies to offload work that is not directly a part of their
core business
 Outsourcing saves companies money
 Experts believe that too much outsourcing, however, leaves employees to suffer in
areas such as training and career development, which can potentially leave
employers to lose important business opportunities

16. Considerations, continued
 Problems can arise when vendors are concerned with maximizing their income
and lowering their costs, resulting in low flexibility and poor service.
 On the reverse, when HR professionals work for the same company as the
employees they serve, their interests are more closely aligned
 Companies that provide insurance to only a few executives would not benefit from
outsourcing HR

17. Considerations, continued
 An outsourced HR company acts a sort-of business partner to the client company.
It is important to evaluate how much control either side wants over the needed HR
functions. Businesses do lose of bit of flexibility in the coverage they can offer when
they use an outsourced HR company.
 An issue with this is employee perception.
 Example: Employees are used to seeing their employer’s name on their
checks. In using an outsourced HR company, that company’s name will
instead appear if it becomes the check signer.

18. Considerations, continued
 The services needed should be a priority in a company deciding the need to
outsource or not
 The company should be certified by the Employer Services Assurance Corporation
 The company should also have experience in the client’s industry and cover that
company’s territory
 Keep in mind whether the HR company specializes in a Web-based high-tech
approach or is focused on face-to-face support

19. Considerations, continued
OBSTACLES FACED:
Fear that
customer service
to employees
might be affected
Fear about loss of
control
Fear that
outsourcing might
impact company
culture
Fear about loss of
HR jobs/staff
Resistance from
employees in
general
Resistance within
HR
Lack of prior
outsourcing
experience in
general
Lack of
knowledge in
what to look for in
vendors
Resistance within
senior
management
Lack of
knowledge on
how to locate
vendors
Lack of qualified
vendors
Lack of
knowledge on
how to write RFP
for vendors

20. Considerations, continued
BENEFITS HR is able to focus on core business functions
Allows HR to spend more time on strategy development
and execution
Allows HR to be perceived as strategic business partners
Improves HR metrics/measurements
HR has a better reputation among service management
HR has a better reputation among employees

21. Considerations, continued
REASONS NOT TO OUTSOURCE HR:
Organization
wants to
maintain
face-to-face
contact with
all
employees
Does not
want to lose
control of HR
functions
Prefers to
develop
expertise in-
house
Feels it
would
negatively
impact
customer
service to
employees
Feels it
would
negatively
impact
company
culture
Feels it
would be
too
expensive
Feels they
would be
unable to
achieve a
cost savings

22. Considerations, continued
REASONS NOT TO OUTSOURCE HR:
Prefers to
invest in
technology
in-house
Does not
have the
resources to
manage the
outsourcing
process
Encounters
resistance
within HR
Encounters
resistance
within senior
management
Encounters
resistance
from
employees in
general
There is no
need due to
size of the
organization
Has had a
negative or
poor
experience
with
outsourcing in
the past

23. Sources
 http://www.innovativeemployeesolutions.com/knowledge/articles/ready-to-
outsource-hr/
 http://www.forbes.com/sites/kylesmith/2013/04/04/its-time-for-companies-to-
fire-their-human-resource-departments/
 http://hroutsourcinginsights.wordpress.com/2013/02/
 https://www.shrm.org/Publications/hrmagazine/EditorialContent/Documents/H
uman%20Resources%20Outsourcing%20Survey%20Report.pdf
 http://www.entrepreneur.com/article/217866
 http://www.nytimes.com/2012/12/02/jobs/more-companies-are-outsourcing-
their-human-resources-work.html?_r=0

24. Ready to Consider HR Outsourcing?
Contact Jumpstart:HR to schedule a free
consultation:
Web: http://www.jumpstart-hr.com
Email: info@jumpstart-hr.com
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