Human resources outsourcing reduces the fixed cost of managing employees. The recession has only increased the rate of this type of outsourcing.
Companies outsource human resources by hiring companies that pool thousands of businesses together. This economy of scale lowers the price of health benefit plans, retirement plans, workers’ compensation insurance, and legal expertise. These human resources firms are more efficient as the talent and infrastructure is already in place. When a small business hires the outsourcing firm, it receives access to programs at reduced rates and a minimal time investment.
This is a great advantage to small businesses. It offers them a wider range of benefits, including:
- Health insurance options, such as HMOs, PPOs and HSAs (Health Savings Accounts).
- Dental, vision, and health insurance plans.
- 401(k), retirement plans and credit unions.
- Voluntary benefits, such as cancer, travel, and long-term disability plans.
In addition to benefits, companies outsource human resource functions such as payroll administration and recruitment. Companies can choose which functions to outsource. Most keep some human resource staff to focus on communication with employees in areas more related to their core business.
Studies show that 85% of companies that outsourced human resources saved as much as they spent on outsourcing, while 25% saved double the cost. The savings went toward operational performance and innovation. (Source: CPEhr "HR Outsourcing – Research Brief")
As companies expand overseas, they become more interested in human resource outsourcing companies that have global expertise. Many of these companies are U.S. based, such as Accenture, IBM Global Business Services and Hewitt. Human resources have also been outsourced to companies like Tata Consultancy in India.
Overall, human resource outsourcing has a positive effect on the U.S. economy by lowering business costs, allowing access to sophisticated benefits for small businesses, and providing expertise in international markets for global corporations