Cost-saving and freeing human resource professionals to focus on major issues are two significant reasons several organizations prefer to outsource HR functions. The job of HR professionals is to identify the best outsourcing solutions from companies and guide them through vendor selection.
In the following paragraphs, we will try to understand more about key factors for developing an HR outsourcing agreement and transition in an outsourcing relationship. But before jumping directly to these topics, let us discuss more HR outsourcing.
What Is HR Outsourcing?
In simple words, the process in which human resource activities of a company are outsourced to a company that specializes in human resource functions is known as HR outsourcing. There are numerous benefits of outsourcing HR to a third-party vendor; the biggest advantage is that it lets other employees focus more on the core competencies of the organization.
HR functions are considered quite complex and time-consuming as they create problems in managing the company’s major thrust areas. By opting for HR outsourcing services, such issues can be avoided. Furthermore, it will increase the productivity and effectiveness of the company. Studies reveal that small to medium-sized firms outsource HR functions with around 25 to 1500 employees. However, many big firms are outsourcing these services.
There are several HR outsourcing companies out that help meet the HR requirements of an organization. Some companies are generalists who offer a wide variety of services while some are specialists concentrating on certain areas such as payroll, recruitment, and many more. Companies either outsource the entire or certain HR functions.
Understanding Outsourcing Agreement
Several things are required for a favorable HR outsourcing agreement, like human resource professionals should know the relevant business matter and settle on a price for different services.
BPO or business-process outsourcing service agreement comprises fundamental deal terms and conditions while including substantial exhibits. Another most commonly used outsourcing agreement, generally known as master services agreement or MSA, is used by numerous big international companies. This agreement allows regional companies to meet country-specific business expectations and legal requirements.
It does not matter whether you are using a master service agreement or BPO service agreement; the major exhibits should always cover fundamentals of service level, the scope of services, exit plans, additional contract terms. Let us talk more about these key exhibits.
Scope Of Services
The most important decision in an outsourcing contract is to define the scope of base services. Generally, an agreement has a fixed price for a specific amount of work while it also contains a variable cost for decreases or increases from the baseline.
Furthermore, numerous outsourcing arrangements have several pricing methods, while a contract mainly with unit-based pricing is involved in major practices. Now you must be wondering what all standards the pricing model has to achieve? Let us find out.
It deals with quantifiable and understandable prices for a wide range of services.
It talks about keeping the prices competitive throughout the contract.
There should be a model that incentivizes third-party companies to reduce costs.
While talking more about competitive pricing, benchmarking is considered a great method to test whether the price is competitive enough or not throughout the agreement. Apart from this, the ability to move work to other third-party companies also helps to ensure that the price companies pay remains competitive.
There should be automatic termination rights in situations like chronic poor performance or critical service-level failures. Furthermore, HR professionals should have the right to make a set of conditions in which they can terminate automatically if service levels of the individuals are not being met or if credits surpass a specific amount.
For HR professionals, understanding the performance commitments of a vendor is very important. They should have clear and specific service levels and ways for enforcement. There is no doubt in the fact that service levels have to improve throughout the contract period, so HR managers must record or document all existing services during the agreement to ensure the third-party company is accountable.
Additional Contract Terms
There are several topics included in the contract, such as insourcing or the degree of exclusivity of the particular vendor relationship and the ability of the customer to take back services and give them to other third-party companies, also known as re-sourcing. Acquisitions or bankruptcy also affect service requirements. So the outsourcing agreement must scrutinize how to manage the changes in service requirements. Furthermore, the agreement needs to address the following things.
- Limits on liability
- Regulatory compliance, primarily if there is a component of offshoring to the outsourcing deal
- Staff control, including subcontractors
Transition In An Outsourcing Relationship
Transition is regarded as one of the greatest risks in any outsourcing relationship. Transition is a sustained period during which both the supplier and customer accept that failure is possible. The execution period generally consists of several major activities such as:
- The moving of processes from one company to another.
- The moving of responsibility for leases, agreements, licenses, assets, and people from one company to another.
- A change in environment to something cheaper, better, or faster.
The major fundamental of transition is that the employer owns the relationship with the incoming and current outsourcing service providers. Also, the employer must own the transition process with the use of a committed transition management team that controls the scope and output. This is generally true for the recent outsourced services and transition of services between outsourcing vendors.
The main purpose of transition is to ensure that the outsourcing relationship’s required business benefits for customers and vendors are achieved by carefully implementing the terms of the contract. To achieve this, companies must ensure the following things:
- The new service agreements for end-users should be positive, clear, and supportive.
- The transfer of services to the suppliers should be clear or transparent to the end-user. The end-user should experience little or no disruption while the service levels should be maintained at current levels.
- Those employees transferred to the supplier or remain with the customer should not be disrupted. The main focus should be on delivering or being motivated to deliver.
- Transferred employees must be treated with reverence and appreciated for their work. Furthermore, the customer needs to have an important input into the internal communication process of the supplier.
- There should be no confusion regarding the current projects. Identifying all projects during the transition is also quite important.
- Working procedures and practices should be established.
- Sensible measurement should be in place while achievable service levels must be defined. Furthermore, the ability of the supplier to meet levels should also be verified.
Ownership And Resources
When both parties help each other achieve business benefits, it is known as an effective outsourcing relationship. Thus, the supplier and customer must manage the transition process mutually and work together for a successful transition. Several customers will also expect to get a framework of a transition plan from a supplier. They will also look to the supplier to support them in making their part of the project.
You will find several HR outsourcing companies worldwide, but if you want a trustworthy service provider, you can consider working with HRMB Associates LLC. We are known to provide comprehensive accounting and financial services for several decades. We provide our clients with quite simple plans to grow their business. Apart from HR outsourcing services, we offer several other services such as bookkeeping and data entry. Visit our website to know more about our services.