Considering HR outsourcing? Consider SaaS.

• Author: Baca, Fidel
• Position: Technology

Many companies outsource their non-core functions, such as tax, audit, information technology, printing, advertising, payroll or benefits enrollment. In most cases, they are seeking additional expertise, scalability, oversight or separation-of-controls.

Five years ago, organizations might have first considered human resources outsourcing (HRO) with an eye toward sending out work that others could perform more cost effectively. But today, they might opt for 'software as a service," or SaaS, the software package in which a provider licenses an application to customers for use as a service on demand.

By employing SaaS, companies can reduce transactional costs in a way that doesn't require traditional outsourcing models.

Which Elements of HR Can Be Outsourced?

Dividing HR into distinct categories allows an organization to better determine what functions should be outsourced and where technology is more appropriate.

Start by dividing HR into three types of functions, from highest value to lowest:

* Strategic: Includes corporate culture, organizational development, personnel resource planning, compensation and benefit design.

* Tactical: Includes compliance, talent acquisition and retention, performance, employee relations and training.

* Administrative: Includes day-to-day transactions related to payroll, benefits enrollment, employee record keeping, COBRA and FMLA servicing.

The high-value functions are more suited to outsourcing, while low-value functions are often more suited to technology. This discussion will focus on administration and payroll processing, the most commonly outsourced function.

The payroll function comprises five components: Data classification, data entry, approval, processing and reporting. Consider which components are suitable for outsourcing.

Data classification includes identification of activities and structure to determine allocations and variable pay rates. Rules have been created to standardize processes and control cost. In addition, codes tied to the chart of accounts are classified to allocate labor and burden costs by activity, client, department, location and business unit to ensure the flow of very granular detail to both payroll and accounting.

Though definitions, setup and mapping--unique to an organization and constantly changing--cannot be outsourced, technology can be used to automate and streamline.

Data entry includes time sheets, swipe cards, biometrics, pin numbers and Web-based time punch. In...