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June 02, 2005
Companies Selective When Outsourcing HR Functions
Many companies expect to increase the use of outsourcing for human resource functions, but most are taking a selective approach, seeking the best mix of internal and external resources, according to a survey of 135 companies by Watson Wyatt.

The survey found that 65 percent of the respondents characterized their HR function as mostly or completely insourced. Twenty-nine percent say they have an approach that is equally mixed between insourcing and outsourcing, and only 7 percent say they are mostly outsourced.

Of those companies that outsource multiple HR functions, only 8 percent consolidate the administration of retirement plans, health and welfare benefits, and other HR activities with a single vendor, and only an additional 5 percent plan to do so in the future. Overall, 54 percent of companies have no consolidation approach in place and have no plans to adopt one.

"Most companies have decided to take a selective approach to HR outsourcing as they look for an optimal mix of internal and external processes and technologies," says Michael Cornetto, senior HR delivery consultant at Watson Wyatt. "Despite much speculation otherwise, there is no headlong rush toward the total outsourcing of all HR services. Many companies that investigate full HR outsourcing alternatives choose to refine their existing delivery model rather than outsource everything."

Looking at specific HR activities, the survey found that a large majority of companies outsource transactional HR activities such as 401(k) administration (84 percent) and at least some aspects of their pension administration (71 percent). Health and welfare administration is the next most likely area to be outsourced, but only 44 percent of respondents reported doing so.

One-third (36 percent) of companies expect to outsource more in the next two years, while 51 percent expect their sourcing approach to remain about the same. Six percent of respondents said they will cutback on their outsourcing activities.

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