Outsopurcing Reaches Human Resources Office

Do-it-yourself easy answer to benefits management


When biotech company Qiagen decided to outsource much of its benefits management about two years ago, the burdensome employee paperwork went with it.

In its place came an automated system that allowed workers to make decisions about their medical, dental, vision and life insurance benefits at their leisure.

Paula Green, director of human resources for Qiagen's U.S. headquarters in Germantown, estimates about 90 percent of the company's benefit plans are online, and she says it is moving toward total automation.

The reduction in paperwork allowed the human resources department to streamline work and focus on strategic tasks such as recruiting, holding quarterly 401(k) seminars and creating a formal orientation process to welcome new employees, she said.

"About one-quarter of our employees work out in the field. So it was always cumbersome to have to get the paperwork back," Green said. "Now, we only initiate the transaction. Then [the employees] go from there." The lack of paper pushing also meant a more streamlined staff. What used to require nine people to do now is done by six human resources employees.

As more companies make the decision to outsource all or some of their human resources operations, many of these functions are being replaced with self-serve technology that allows employers to offer more services for what they hope is a reduced cost.

Many employees seem to embrace the trend toward addressing their health care, 401(k) plans and payroll information either online or by telephone, handling by themselves several tasks that used to be addressed by on-site human resources professionals.

But some experts worry that automating so many benefit decisions can put companies at risk of losing the personal touch with workers. They also express concern about privacy issues and workers receiving boilerplate answers about health or other benefits when special needs arise.

Because of a slowing economy, layoffs and the growing acceptance by consumers of using computers to address benefits, outsourcing of human resources functions has been steadily rising during the past few years. The global human resources outsourcing market went from $20.8 billion in 2004 to $22.4 billion last year.

It is expected to climb to $26.3 billion in 2007, according to Gartner Dataquest, a California research and advisory firm.

The most commonly outsourced functions include background checks, employee assistance programs, flexible spending account management, payroll, and administration of health and pension benefits, according to a 2004 survey by the Society for Human Resource Management. The main reasons for outsourcing - according to the survey of 289 human resources professionals - are saving money, controlling legal risks, gaining access to vendor expertise and streamlining human resources functions.

A 2003 survey of executives at 122 large U.S. and European companies with revenue of at least $1 billion found that outsourcing is firmly embedded in today's workplace. About 76 percent of survey respondents said they currently outsource one or more major human resources functions, and 80 percent of those said they would do so again, according to the Conference Board, a nonprofit research organization that conducted the unscientific survey.

Often, companies facing layoffs turn to human resources operations when forced to make cutbacks. Those workers remaining in the human resources office are asked to focus on training, retention and recruiting.

The biggest drawback to outsourcing concerns problem resolution, says Steven Isberg, an associate professor of finance at the University of Baltimore and research fellow at the Credit Research Foundation in Columbia. He says that if an employee has a problem that is not "scripted," the outsource provider often does not know how to handle it. That is especially true with Internet use, he says. He also cautions that although companies promote the online services as a plus for employees, they also expect employees to take care of human resources issues on their own time.

Company executives who have resisted outsourcing said they wanted to maintain face-to-face contact with employees and didn't want to lose control of their human resources functions. They also preferred to develop expertise in-house and believed it would damage customer service to employees, according to the SHRM survey.

But a separate survey of 375 members from the business groups WorldatWork and Financial Executives International found that 73 percent of all respondents said the decision to outsource resulted in improved service to workers. Also, 70 percent suggested they were better able to focus on high-value activities, according to the 2005 unscientific survey. Two-thirds report the decision to outsource resulted in reduced capital investment and cost savings.

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