Ten or 15 years ago, payroll and superannuation were the main HR functions that Australian companies outsourced, but businesses are now handing over a wider range of tasks to external providers, including recruitment, training and performance management.

And the amount of HR outsourcing looks set to increase in coming years. Some 15 per cent of companies surveyed in this year’s Australian BPO Report by the Sauce said they currently outsourced some of their HR function, while 23 per cent of companies say they plan to do so in the future.

Mary Sue Rogers, global managing director of HR Managed Services for Talent 2, says HR outsourcing has gone beyond the merely repetitive administrative and transactional tasks into some more high-end and complex tasks. But importantly, these tasks can still be governed by a set of rules that set out how to complete them.

Other HR functions that can typically be outsourced are contractor management, training and learning administration, building content for e-learning, compliance and control, salary modelling and benchmarking, and analytical development. “Technological developments, in particular the information-processing power unleased by cloud computing, have enabled the increased uptake of HR outsourcing over the past decade.

Cost not the sole driver

Companies initially saw HR outsourcing mainly as a way to cut costs. But as with other types of business process outsourcing, cost is no longer the sole driver and companies are now seeking better outcomes as well.

HR outsourcing can also help fill the skills gap at the lower end of the human relations sector in the current tight labour market.

Outsource providers argue they can take over the more mundane and routine tasks and allow the HR department to focus on higher value strategic work. But Andrew Woolf, talent and organisation lead at Accenture Australia, says they can do more, such as HR consulting and analytical support.

“This includes compensation strategy, executive compensation strategy, plan/policy design, sales commission administration, and overall decision-making,” says Woolf. “Outsourced responsibilities include salary survey management, market trends analysis, updating salary structures, job evaluations, annual pay reviews (base, bonus, equity), and mid-year pay adjustments.”

Cost might no longer be the number one factor in a company’s decision to outsource, but a company is still unlikely to outsource if it is more expensive. Cynthia Gee, associate partner, HR and learning solutions Asia Pacific at IBM says companies are putting more focus on the full life cycle of their employees, from engagement to progression and development to retirement. This, in turn, means that many firms are outsourcing more of their talent- management functions to a single provider, who can help fulfil the organisation’s longer-term workforce objectives.

Setting a people agenda

While the scope and capabilities of HR outsourcing have expanded rapidly, Andrew Hill, a partner in Deloitte’s Human Capital practice, always advises clients to keep the more strategic elements of HR in house.

An organisation should set its own people agenda and decide how the HR function best provides those services to the organisation. “And then you’ve got the transactional and administrative aspects of HR like payroll that have always been candidates for outsourcing,” says Hill. “They can be done typically cheaper, and with the same quality that can be executed within an organisation.”

Some of the keys to successful HR outsourcing are the same as outsourcing of any business process.

The HR department should be working closely with the organisation’s sourcing and procurement department when the contract is drawn up. They need to make sure the service is well defined and everybody is clear about what’s being provided and what service levels are required, taking in time frames and quality standards. While organisations might outsource a particular HR function, it’s important that they don’t do away with all internal capability and expertise in that function, because someone within the organisation will still have to oversee the contract and ensure the service aligns with the strategy.

IBM’s Cynthia Gee says the legacy HR department in the organisation needs to recognise that its role has changed, from a department that carried out the actual work to one that is now a partner of the outsource provider. “The HR retained organisation is often an area that can be a challenge to ensure success in an HR business process outsource,” she says. “Change management is a key thing that needs to be done well.”