Hr Outsourcing

HR OUTSOURCING: OPPORTUNITIES AND CHALLENGES FOR INDIA

HR OUTSOURCING: INTRODUCTION

If an organization lacks the skills and the expertise to tackle human resources, outsourcing HR services is the solution.

HR outsourcing can be mainly classified into two categories. Transaction and administration outsourcing services and consultancy outsourcing services. HR transaction outsourcing services include monthly requirements such as, payroll processing. HR consultancy services are some of the other services that can be outsourced.

WHY OUTSOURCING

Rapidly changing market dynamics and global competitive pressures have caused organizations to spend more time focusing on their core business. Organizations are fast realizing that they can't be all things to all people. So companies now, be it a software company, a service provider or a manufacturing firm, decide what they are good at and outsource everything else, i.e., focus on their core competency, and let someone else do the rest in a more efficient and cost-effective manner.

The organization can focus on higher value-added activities while the outsourcing provider takes care of the day-to-day administration. Critical internal resources, such as technology and talent, can be devoted to company's core business. Outsourcing reduces the need for large capital expenditures in noncore functions. Thus, outsourcing becomes a strategy for reducing the capital intensity of the business. This strategy has gained popularity as companies aim to become more nimble and gain the speed and flexibility necessary to compete in today's business environment. A growing number of executives understand the benefits it can bring in terms of not only cost savings, but also heightened strategic focus. Many recognize outsourcing relationships as long-term partnerships created to further the strategic goals of the organization.

As a result, human resources outsourcing is becoming increasingly prevalent. Outsourcing noncore activities allows HR professionals to move away from routine administration to a more strategic role. The number of companies outsourcing HR activities continues to rise, and the scope of outsourced HR activities continues to expand. HR outsourcing can happen in HR functions, like

Ð'* Payroll administration (producing checks, handling taxes, dealing with sick-time and vacations),

Ð'* Employee benefits (Health, Medical, Life insurance, Cafeteria, etc),

Ð'* Human resource management (hiring and firing, background interviews, exit interviews and wage reviews) etc.

Ð'* Risk management: Workers' compensation, dispute resolution, safety inspection, office policies and handbooks.

Outsourcing has become a common response to manage people and technology resources strategically, enhance services, and manage costs more effectively.

HR OUTSOURCING: OPPORTUNITIES FOR INDIA

HR outsourcing is a fast growing field and is now worth a good $20 billion globally and still growing. And the good news for India is that nearly 50% of HRO business has an offshore component. This is despite the fact that most of HRO market is concentrated in US and Europe. In fact, two-thirds of the market is still US-based, while Asia has only 4-5% of the buyers. The rest are in Europe.

In year 2006, eight big deals were signed. Even though most of deals are being signed mostly in US or Europe, 50% of these deals have some offshore component. A major chunk of this is coming to India. And 26% of HRO transactions have over 50% of contracted services being provided from an offshore location. Even if 10 per cent of HR outsourcing is offshored in the next 5 years, offshore opportunity can be anywhere around $1.4 billion.

The revenues in the HR outsourcing space are projected to increase to $3.5 billion by 2008 according to a Nasscom-McKinsey survey.

In India, suppliers have seen increased activity in the last two-three years. Banglaore and Gurgaon have emerged leaders with the highest concentration of HRO suppliers.

India presently concentrating only on the 'mid-market' segment which includes companies having 2,000 to 25,000 employees. Mid-market segment is with potential of $20 billion. Some of clients are Fortune 500 and Fortune 1000 companies.

Of the $20 billion, there is a market potential of $14 billion for 'payroll' and 'benefits administration' which is a significant opportunity for Indian vendors.

As per the past industry results and trends out of many HR functions that can be outsourced, payroll administration is one of the function which is reporting promising growth in India.

Broadly, payroll administration function can be categorized into three dimensions: -

Ð'* Routine Payments i.e., basic salary, allowances, incentives, perks.

Ð'* Retiral Funds i.e., pension funds, provident funds, and gratuity. A lot of tedious and non-productive work would be involved.

Ð'* Tax Management i.e., the tax-deductible amount from each employee and the savings portfolio comes under this.

In traditional payroll practices various levels of the administrative system relating to payroll issues and the arbitrary processes associated with it - can turn out to be a time-consuming and expensive task. Outsourcing such activities can give employees good amount of time to involve in strategic issues of management. Thus payroll has been the crux of HR BPO industry, ever since it has been started.

Table given below shows major HR BPO players offering Payroll Processing in India.

Table 1: Major HR BPO players in India offering Payroll Processing

Company Process Location Remark

Accenture Payroll, Compensation and Benefits administration Bangalore MNC third party

Exult Employee data and HR records management, payroll, compensation and benefits processes, staffing services, global mobility & relocation services Mumbai Only pure play BPO MNC in India

India Life Hewitt Payroll service and integrated benefits administration services Bangalore Major domestic market business but actively looking at offshore business

Cross Domain Payroll processing, claims administration, retrials benefits