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The Push for Domestic HR Outsourcing

By Ms. Elizabeth Rice, SPHR

 

Human resource outsourcing (HRO) is fast becoming the most outsourced business process. Among the most outsourced functions are back-office services such as payroll, benefits, education and training. Cost savings, quick implementation, increased flexibility and the ability to streamline and focus staff on the core business are some of the factors driving this trend. Gartner Inc. estimates that by 2005 85% of US enterprises will outsource at least one component of their HR function. Gartner’s forecast further projects the HR business process outsourcing market will grow from $25 billion in 2002 to $38 billion in 2007 an 8.6 percent compound annual growth rate.1

Companies both large and small are finding advantages in outsourcing their HR administration. Larger companies are outsourcing to simplify and reduce costs of managing the function in-house. Small to medium-sized companies, that are more resource constrained, are leapfrogging directly to outsourced services to achieve cost and time efficiencies. By outsourcing, companies are finding that their employees can better focus on contributing to their company’s business goals and profitability.

FST Technical Services, a consulting group for the microelectronics and bio-pharmaceutical industries, is one of many companies that chose to outsource their HR administration. Jim Klein, Managing Partner of FST, sought to outsource the HR function because the company lacked the expertise and resources to manage the company’s human resource and payroll administration in- house. Rather than focusing on HR administration, Klein prefers to focus on servicing his clients and securing new contracts. According to Klein, “it would require a huge investment to establish our own HR and payroll departments. By outsourcing our payroll, HR, and benefits administration, we are able to keep our expenses to a minimum when it comes to staffing, training, software, and hardware investments. “

Additionally, HR administration can be more involved for companies who employ a dispersed workforce since each state has its own legal requirements and compensation laws. For businesses like FST that provide contract workers for clients in eight states, the cost involved in staying current on each state’s rules and regulations and managing the administration of payroll can be cumbersome. By outsourcing they have peace of mind knowing that their HR processes are being expertly administered and are in compliance with state law.

Before companies make the decision to outsource, they should consider how to maximize their outsourcing initiatives. Some steps companies can take to determine if outsourcing is right for them are:

1. Identify a specific business goal that would benefit from outsourcing.
2. Identify the criteria that will determine if the business goal has been achieved.
3. Determine the cost savings from outsourcing versus using internal resources.
4. Develop metrics mutually agreed upon with the outsourcing provider to measure and benchmark progress and success.

About IES
Ms. Elizabeth Rice, SPHR is the President of Innovative Employee Solutions® – a San Diego-based company specializing in payroll and HR administrative services for the contingent, non-core workforce. Ms. Rice has more than 20 years of experience in HR and executive management and is noted both regionally and nationally for her particular expertise in employee relations, women’s workforce issues, and temporary employment. Ms. Rice can be contacted at erice@innovative-es.com

About FST Technical Services
FST Technical Services provides technical employees for third party quality assurance and quality control consulting, project management, inspection, and testing for clients in the semiconductor and biopharmaceutical industries.

1 “HR Outsourcing: Where it needs to go”, John Harney, www.outsourcing-offshore.com, April 2004.