Most organisations highly value their HR function, and rightly so. Their knowledge of employees and internal procedures are second-to-none. The EY Global payroll survey (2013) finds that 28% of companies still rely solely on a complete in-house payroll delivery model,. When asked what they considered to be the main driver for their existing HR & payroll operating model however, the largest number stated that it was simply the way things had always been done. They had not had the time to re-assess whether BPO would provide a suitable alternative. As organisations compete in ever-changing marketplaces however, having the flexibility offered by BPO services could be of benefit.

The cost of running payroll, and HR administration processes is drastically underestimated. In fact, a 2012 PwC total cost of ownership study found that only 37% of the payroll and HR administration cost is visible with the remaining 63% being hidden away. As a result, the true cost of running payroll and other HR services is not known. One reason why some costs are hidden is that HR processes are often “owned” partly by HR and partly by finance, IT, or other functions.  

The pressures of the current marketplace can be such that the short-term of BPO become the sole focus. The ability to reduce internal costs while contracting an increased resource of external expertise, is of course a key driver. However, the BPO relationship should be one for years to come. So once the short-term have been realised, what else is there?  

The idea that Payroll and HR outsourcing can generate a degree of uncertainty internally. One key concern is who will control the HR process and manage the security of internal data once it has been transferred. That is not just a concern for the Finance and HR Departments. The wider leadership team also fears any loss of control of sensitive company information. However, what is often overlooked is that BPO can actually create a safer system for data security, while the control rests firmly in the customer’s hands.  

The concept that Human Resources needs to operate more like a business and help contribute to the bottom line was popularised by David Ulrich a leading HR academic and consultant. To achieve this, HR leaders need to have key performance indicators (KPI’s) and consistent and data points to assess the operations. Without standardised Payroll and HR processes, you cannot determine how efficient you are. A single system and data repository that enables and analytics requires the integration of Payroll and HR data, common policies, processes, and tasks into one platform. With 37% of mid-sized companies’ data left sitting in Excel (ADP Global HCM Study, January 2014) or similar types of databases, the value of standardisation and putting all data into one system, accessible to not just HR, but also Executives, Managers and Employees, cannot be underestimated.  

HR Departments are under constant pressure to contribute to overall company savings and to find ways to reduce costs. Outsourcing can therefore seem an effective and attractive means of doing so. However, focussing purely on cost is to only see a small part of the picture. A board's decision is more likely to be influenced by the wider of HR outsourcing.  

The belief that HR outsourcing and outsourcing in general means job losses can limit an organisation’s willingness to consider it. However, BPO in the HR arena need not mean downsizing and outsourcing is not a synonym of cutting resources. Instead, it is the opportunity to help develop your people into HR experts by moving away from laborious functional tasks and freeing up time to focus on the more added value, strategic input that businesses really crave. The business partner HR model requires the function to integrate more thoroughly into business processes and to align their day-to-day work with business outcomes. With business leaders increasingly seeing the importance of HR and talent on business success, HR needs to become strategic and remove the administrative burden.