Manage-Wise

Human resource BPO

The human resources (HR) department is critical for employee well-being in any business, no matter how small. Just as companies have realised the importance of customers and are taking proactive steps to ensure their satisfaction, they have also recognised the key role played by its employees in winning the battle of the marketplace. A motivated and innovative employee can work wonders for a company. Hence getting and retaining a motivated workforce has found its way on to the CEO’s agenda. Also, the slowing economy has forced the workforce to be productive; once employees become productive, companies want to retain them at any cost.

This has meant a shift in the focus of HR departments from routine activities to playing a more proactive role of constantly motivating and retaining employees. Usually, HR departments are inundated with work related to employees; some of these activities are routine, repairing little imagination and creativity. That is, most of the time the HR department does activities ‘of’ the employees and not ‘for’ the employees. Some such mundane HR responsibilities include payroll, benefits, hiring, firing, and keeping up-to-date with state and central tax laws. Companies the world over are spending resources and time on such critical activities (motivating and retaining the existing workforce) and hence prefer to outsource routine activities.

Historically, reducing operating costs has been the main reason for outsourcing. However, access to best practices, latest technology, and faster turnaround are some of the other benefits that outsourcing provides. Outsour-cing has now become an important element of business performance transformation, as this allows resources to be concentrated on core competencies. Outsourcing allows HR to make a stronger and formidable contribution to the growth and well-being of the company.

HR outsourcing is defined as “a process of outsourcing involving particular tasks like recruitment, making payroll, employee benefits administration, fixed assets administration, employee logistics management, training and development to a third party having expertise in these respective fields”.

The various HR functions in any organisation include:

• Payroll administration (producing cheques, handling taxes, dealing with sick time and vacations)
• Employee benefits (health, medical, life insurance, cafeteria, etc)
  
• Human resource management (workers’ compensation, dispute resolution, safety inspection, office policies and handbooks) and others.

Many of these functions are of an outsourceable nature. According to Hewitt Associates, over the past 20 years, the HR outsourcing marketplace has evolved beyond benefits administration. Companies are outsourcing more HR activities to achieve a fundamental shift from an administrative, tactical and compliance-driven function to a focus on the strategic acquisition, motivation and retention of talent. The transactional functions must be done right and can be handled with greater quality and efficiency by a provider who has the process and technology expertise.

The market is growing at an amazing pace. Estimates of industry growth vary from a compound annual rate (CAGR) of 8.6 percent (Gartner Dataquest) to 12 percent (Yankee Group) from 2001 through 2007. Which means that the worldwide HR outsourcing market is set to grow from $21.7 billion in 2000 to about $58.5 billion in 2005.

If forecasts are anything to go by, this is the fastest growing outsourcing segment.

Reasons for outsourcing HR

According to analysts, cost reduction is usually the most crucial reason for HR outsourcing as it can lead to savings of 30-40 percent for companies.

The other reasons are:

• Cost-effectiveness
• Reduced administrative costs
• Capitalising on technological advances/expertise
• Improved customer service
• Redirecting HR focus toward strategy/planning
• Focus on core business
• Reduced corporate overheads
• Provision of ‘seamless’ delivery of services
• Insufficient staff.

Process of outsourcing HR

The process of outsourcing begins with identifying core and non-core activities, i.e. activities the companies need to do in-house, as against outsourceable activities.

The next step is finding a suitable vendor who can carry out such activities on behalf of the company. HR outsourcing service providers can fall into one of four categories:

• Professional employer organisation (PEO)
• Business process outsourcing (BPO)
• Application service providers (ASP)
• e-services

A professional employer organisation (PEO) takes legal responsibility for the employees. The PEO and business owner are partners, with the PEO handling HR aspects and the business owner handling all other aspects. BPO is a generic term and could refer to all fields and activities, but as far as HR is concerned, a BPO ensures that a company has access to the latest technology. Application service providers (ASPs) host HR software on the Web and rent it to users, while e-services are those HR activities that are Web-based.

HR outsourcing, though a slow starter, is now one of the fastest growing BPO domains worldwide; in fact such HR activities such as payroll outsourcing were among the first to be outsourced. One of the reasons for the slow start could be the nature of responsibilities the HR department has. The HR department is critical for employee well-being in any business, no matter how small, and any mix-up here can cause major legal problems for the business, as well as major employee dissatisfaction.

HR BPO companies

HR BPO vendors add value to the company by either putting in new technology or applying existing technology in a new way to improve a process.

This is to make sure that a company’s HR system is supported by the latest technologies, such as self-access and HR data warehousing. Some HR BPOs offer all related services in the HR domain, i.e. they offer an end-to-end system to meet all the company’s HR needs.

Other HR BPO firms allow companies to choose from various offerings (a la carte); companies can pick and choose from the various services on offer.

Typical services include:

• Payroll administration: Producing cheques, handling taxes, and dealing with sick time.
• Employee benefits: Health, medical, life, 401(k) plans, cafeteria plans, etc.
• HR management: Workers’ compensation, dispute resolution, safety inspection, office policies and handbooks.

As mentioned above, HR outsourcing is the fastest growing outsourcing domain. Several major joint ventures have been inked between large corporations and service providers for end-to-end HR outsourcing.

Excerpt from ‘Business Process Outsourcing’ by Sarika Kulkarni. Published by Jaico Books.
Price: Rs 295.