Exactly how prevalent is HR outsourcing in Canada? Very. In fact, Hewitt Associates’ July 2010 HR Outsourcing: Canadian Trends and Insights survey indicates just how much HR outsourcing trends have changed since 2005. Following are some of the key findings.

• In 2005, only one-third of Canadian employers outsourced any HR administration. In 2010, 59% outsourced some or all HR services, and another 10% plan to do so within the next two years.
• Five years ago, the majority of respondents that outsourced HR had at least 5,000 employees, and often more than 10,000. Currently, HR outsourcing is increasingly common for organizations with as few as 2,000 employees.

• In 2005, respondents’ top three perceived advantages of HR outsourcing were greater efficiency, better focus on core competencies and lower cost. This year, the primary benefits are access to specialized external technology and expertise, opportunity for total cost reductions and a third-place tie between employee service improvements and the opportunity for employee self-service. There seems to be a growing realization over the last five years of how HR outsourcing can enhance the employee experience.

• Certain perceived barriers to HR outsourcing have remained consistent over the last half-decade: lack of budget and concern over vendor quality. In 2005, the other major stumbling blocks were building a business case and employee communication. In 2010, the main concerns centred around losing control of key processes and vendor management.

• The services being outsourced have expanded since 2005. Whereas five years ago only benefits, pension and payroll administration were outsourced, now organizations are also looking to third parties to handle recruiting, relocation and claims management. Burgeoning areas for HR outsourcing include absence management, learning and development, succession planning and workforce analysis.

• More than half (58%) of respondents to the 2010 survey indicated that they prefer to select an outsourcing provider that has the ability to manage and integrate multiple HR services. The other 42% stated that they would rather partner with the best-in-class provider for each separate service. This “best-provider” approach may become more feasible as individual providers adapt technology to enable them to work in a more integrated fashion.

• Seventy-four percent of those organizations that have measured the success of their outsourcing efforts indicated they have realized the benefits they had hoped to gain, while a smaller number (11%) say it’s still too soon to tell. Given that the impact of outsourcing may not be felt immediately, organizations may prefer to measure outsourcing results over the long term before drawing any conclusions about success or failure.

The 2010 survey data clearly indicate a rising interest in outsourcing the administration of benefits programs and related HR processes. There are a number of reasons why this is the case.

During last year’s recession, some organizations were forced to downsize, leaving them short-handed with respect to staff to handle HR transactional activities. Others had to cut back on plans to upgrade technology, so their systems are not as fast and efficient as they would like. Many employers would like to standardize their HR processes across their entire operations and create a better employee experience as a result. And, as always, there is ongoing pressure to reduce costs without compromising the ability to attract and retain top performers.

Employers can expect further evolution in HR outsourcing over the next few years, as workforce demographics change and technology continues to advance at rapid speed. The results will enable HR professionals to focus on strategic initiatives, while employees enjoy user-friendly online tools to help them make better benefits choices. BC

Jean-François Potvin is a principal with Aon Hewitt in Toronto.

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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the November 2010 edition of BENEFITS CANADA magazine.