Study shows human resources outsourcing on the rise

Outsourcing human resources functions is yielding savings for government agencies and better services to employees, according to a report issued yesterday by the Conference Board, a New York City-based research group.

The study was based on interviews with human resources executives at government agencies in the United States and abroad. Among those functions most often outsourced were payroll and benefits processing, Web sites and call centers, vendor management, and recruitment. Consulting firm Accenture, which provides some human resources outsourcing services, sponsored the study.

The report follows on the heels of an earlier Conference Board survey of human resources outsourcing in the private sector. The new report found that national and state governments are rapidly joining the private sector in outsourcing key human resources functions. The interviews revealed that a desire to reduce information technology costs, speed development of automated processes, and transform fixed costs into variable ones was fueling the move to outsource.

Still, the report found that outsourcing of human resources has been slower in the United States than in some foreign countries, particularly the United Kingdom and Australia. Among the obstacles facing U.S. agencies are unions that argue outsourcing will cost jobs and reduce the quality of HR services. In response, 38 states have passed laws restricting state government outsourcing, and federal government outsourcing has become a political spark plug.

The report argues that "such blanket opposition ignores the proven benefits to HR employees who suffer the effects of understaffed offices." With outsourcing, "impossible workloads become manageable, and HR employees performed more effectively and experienced greater job satisfaction."

In the federal government, the Transportation Security Administration has been a trailblazer in outsourcing human resources functions, the report says. In addition to outsourcing recruitment, assessment and selection of new hires, such as passenger and baggage screeners and executive staff members, TSA has established contracts with vendors to provide training programs.

The efforts hit some potholes in 2003 when TSA had to fire more than 1,900 screeners after background checks found criminal records and deceptions on job applications. But Dick Whitford, TSA assistant administrator for human resources, told the surveyors that he credited the agency's vendors with enabling TSA to evaluate more than 1.7 million applications and then hire more than 50,000 screeners in 2002, and to do it more cheaply than an in-house organization could have.

The vendors' installation of systems to process employment records and payroll took just "a couple of months instead of a couple of years," as an in-house operation might have, Whitford said.

Of course, TSA had an easier job in outsourcing than other government agencies have. The agency was given freedom in its authorizing legislation to set up its own personnel system separate from the General Schedule.

"We did not have cultural barriers or an existing HR office that might be very resistant to outsourcing," Whitford said. "We had the flexibility and legal authority that other [government] organizations do not have."