Outsourcing select processes in HR has continued to be a tool employed by many shared services organizations. Experiencing a CAGR of 6%–7% during 2014 to 2016,^[1] the HR outsourcing market has maintained an upward growth trajectory, allowing HR shared services organizations (SSOs) to continue to optimize their delivery models with this strategy.

Typical Processes Outsourced

According to ScottMadden’s latest HR shared services benchmarking study, the most common process that SSOs outsource is payroll processing. HR SSOs also appear quite willing to hand off counseling and services, including relocation services, the handling of employee and manager policy questions, and leave administration.

ScottMadden’s top-performer analysis identifies companies that consistently achieve top-quartile performance across a set of key performance indicators. With respect to outsourcing, top performers show higher use of outsourcing than other companies. For instance, payroll processing has been outsourced by 64% of top-performing SSOs compared with 25% of SSOs in the comparison group.

Staffing and Cost Impacts of Outsourcing

As one might expect, payroll being delivered in-house drives up service center staff levels. Even those who outsource payroll processing, but consider it in scope, are staffed significantly higher than those who report payroll is out of scope. Shifting HR activities that are primarily transactional or administrative to outsourcing providers allows SSOs to operate with more efficient service center staffing, especially for Tier 1 generalists.

Despite the staffing efficiencies, outsourcing is associated with higher total service center cost. However, the cost increase with outsourcing is much smaller among top performers who outsource than among the comparison group.

As SSOs mature, further staffing efficiency can be gained through moving transactional work to outsource providers; however, we predict intelligent automation will provide an attractive alternative. With its ability to save significant costs, improve operational efficiencies, and facilitate the shift to more strategic work, intelligent automation could reduce SSOs’ needs to outsource selected processes. The rise of intelligent automation may also impact the decision of which outsourcing provider to choose, since many providers are working to incorporate the new technologies in their solution offerings.

^[1] Everest Group research

Additional Contributing Author: Min Qin

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