By: Audrey B.
According to recent research, the global human resources outsourcing market will reach $162 Billion by the year 2015 with payroll outsourcing playing a major role in the industry.
Global Industry Analysts released a research report on the 9th of February, concerning the continuous growth in the HR outsourcing industry. The report speculates that, with the global economic downturn, cost reduction has become paramount for businesses, with focus on smaller investments in outsourcing single processes as well as enhancing the significance of HR outsourcing. Payroll is just one of the areas that are more commonly outsourced due to the inherent complexity of the function and the required accuracy as it is carried out.
Meanwhile, a study by PriceWaterhouseCoopers in conjunction with ADP (NASDAQ:ADP) was released on the 1st of February. The study specifically focused on the true, hidden costs that can be associated with payroll and HR administration when done in-house, as compared to when outsourced with ADP, or comparably, to other outsourcing companies. According to the study, organizations that retain payroll, workforce administration, time & attendance and benefits administration in-house, spend on average 18% more than those that are outsourcing. Larger organizations spend 27% more than smaller sized organizations and organizations using software vendors spend 32% more. The report further states that despite speculation stemming from significant technological advances in payroll administration software, costs for payroll administration has increased since 2003, contrary to belief.
Increase in acquisitions and partnerships among software and services providers have also been observed in the past few days. Workforce management solutions provider, Valiant, announced on the 25th of January that it has acquired a payroll & consulting services provider to the restaurant and catering industries, Payroll Computing Services. The acquisition is an effort to expand Valiant's presence in the hospitality industry. The company is seeking to reinforce its, “strategic commitment to expand market share on the Valiant platform of web-based Workforce Management Products (WFMP)”.
Meanwhile, Xcel HR announced on the 8th of February that it has acquired Astra HR, achieving “rock solid support” for its payroll platform. On the heels of this news is payroll, HR and benefits outsourcing solutions provider, Paychex Inc.’s (NASDAQ:PAYX) completion of its acquisition of SurePayroll, a Software-as-a-Service payroll processing provider.
One country that may soon see marked increase in payroll outsourcing is outsourcing destination India. The country’s insurance regulator, the Insurance Regulatory and Development Authority (IRDA), issued guidelines early this month regarding the outsourcing of activities among insurance companies. The organization stipulated that insurers must take the necessary steps to ensure that a company’s outsourcing activities should not result in the compromising of internal controls, business conduct or reputation. The IRDA identified payroll management among others as a non-core activity. As such, this will likely lead to more business from insurance companies that are complying with the IRDA and restricting outsourcing activities of core functions.
Aside from seeing increased market growth, payroll administration services will also likely see major advancements in processing as competition also increases. Likewise with more companies choosing to adopt outsourcing over software solutions, more partnerships and acquisitions among software and solutions providers will also likely be evident. Clearly, the outsourcing of non-core activities are gaining popularity. But the expected growth in the payroll outsourcing market may barely scratch the surface on the depth of adoption of outsourcing of these kinds of services and the class of service that outsourcers will be able to provide in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.