Management and Administration Outsourcing Trends for Q1 and Beyond

March 1, 2016
|By Garegin Hakobyan

Outsourced management and administrative services range from human resources to finance and accounting. Management and administration outsourcing in 2016 is expected to grow steadily as companies seek partners to extend their capabilities, focusing on technology solutions and human resources. Here are some trends and focus areas for Q1 and beyond: 

Enterprise HR

In MetLife’s recent study, 41 percent of employees said retention was their top employee benefits goal. Benefits consultants and third party providers will continue to be in demand in 2016 as companies seek cost reduction, technological innovation and process efficiencies. Third party firms can undertake full-service benefits administration or a part of the company’s benefits process. There is a trend towards working with vendors that offer comprehensive admin solutions, from benefits to payroll. 

Finance and Accounting

Research firm Everest Group reported recently that finance and accounting (FAO) outsourcing was reaching maturity, and growth is tapering to almost 6 percent. As this segment continues to mature, Everest predicts that more clients will focus on value delivery centered around predictive/prescriptive analytics provided by third parties.

Benefits Administration

The Affordable Care Act continues to disrupt the healthcare industry, with companies focusing on health and welfare services in the coming years. According to NelsonHall, some professional employer organizations (PEOs) already offer ACA reporting, and more third party providers will follow suit in 2016. The growth of multi-country benefits admin services will be slow but steady in 2016. Some providers will merge with other vendors to extend their capabilities on this front. 

Service providers will boost their capabilities in key services like spending account administration and private exchanges that can be integrated with other service offerings. The majority of vendors are expected to expand private exchanges for employees and retirees this year. NelsonHall predicts that Tier 1 companies will acquire Tier 2 vendors to expand their client base for spending account administration services.

Meanwhile, new pension regulations in the UK will lead to an increase of new offerings that help retirees access the information they need. These offerings include modeling tools, calculators and other mobile/web-based applications. Companies will also focus on retirement planning education and employee engagement.

In other areas of the globe, more companies will focus on employee wellness. A 2015 workforces report found that 26 percent of organizations increased copay and 29 percent increased their premium share in healthcare insurance, which encouraged the majority of employees (59 percent) to take slightly low-paying jobs that came with generous benefits packages. 

This year, more organizations will begin offering consumer-directed health plans (CDHP), indicating a trend towards employees taking greater responsibility for their health and wellness outcomes. Service providers will offer technology solutions such us web-based health management tools that help clients reduce healthcare costs and promote employee health and engagement.

Other Incentives

On average, companies spend over 2 percent of their total payroll on incentives. Those that implement a values-based rewards program tend to have happier employees, according to a 2014 Mood Tracker survey. Companies will continue to revamp their incentives programs and use technology (mobile, social, data analytics, etc.) to determine how to retain and attract talent. 

Employee Training and Education

The growth of outsourced employee training and education in the U.S. remains strong. Service providers now offer a mix of classroom-based learning and online tools for HR departments. This year, more companies are expected to invest in training and education via social networks, video websites, mobile devices and Intranet learning.

Recruitment and Staffing

Everest Group estimates that recruitment process outsourcing contracts are currently valued at $1.8 billion. RPO is the fastest growing segment of human resource outsourcing (HRO), and it is expected to reach $6.6 billion by 2018. The main drivers of RPO growth are skills shortages and cost reduction. In 2016, companies will continue to work with third party recruitment and staffing providers locally and abroad to find low-cost experienced talent, cut turnover rates and address workforce scalability issues.

Workplace Security

Outsourced employee screening and verification services will remain popular in 2016 and the years to come. In a 2015 employee screening study, majority of respondents (93 percent) said they benefited from employee screening, with the main benefit being the improvement of quality of hires. In 2016, expect more companies to use third party screening services like E-Verify for credential verification and background checks as well as integrated screening and tracking systems.

Payroll Services

NelsonHall predicts that the payroll outsourcing market will continue to grow, reaching $17.8 billion by 2018. The growth of payroll outsourcing is mainly driven by cost reduction initiatives, process standardization, risk mitigation, need for payroll expertise and access to the latest technology.

Admin Outsourcing Tech Trends

This year, management and admin leaders will rethink their technology strategies as the number of application vendors and software as a service (SaaS) admin solutions continue to grow. 

Cloud-Based Services

Many companies that have not updated their enterprise resource planning (ERP) systems in years due of time and labor constraints can now do so without overshooting their budgets. As companies adopt SaaS solutions, HR departments will take on more tech support responsibility instead of passing the buck to IT teams.

Mobile Apps

The use of mobile applications and services by management is also expected to grow this year, although the trend is in its early adopter stage. Recruitment teams will focus on mobile applications to offer recruitment and benefits information to younger employees who tend to use mobile devices. However, data security concerns and local laws can prevent some firms from using mobile apps for employees.

Integrated Reporting

New regulations in the U.S. now require large companies to track and report employee data on a monthly basis. This will give rise to systems where data from multiple sources is centralized into a single window that employees, IT and management can access. Many companies that had never had to integrate their systems before may need to work with third party firms to implement a consolidated employee management solution at a cost-effective rate. More firms will choose to partner with one vendor that provides a comprehensive solution.

Data Analytics 

Data analytics has rapidly become a must-have tool for corporate departments. As information accumulates at an unprecedented pace, organizations need powerful tools to convert data into value and manage business lifecycle issues. Data can provide insights into workforce trends, for example, which allows management to change incentive strategies and reduce turnover. In 2016, the use of data analytics by admin departments and the outsourcing of data services to third parties will continue to grow.

Talent Management 

Baby boomers that retire are increasingly replaced by millenials, which will account for almost 50 percent of the world’s workforce by 2020. In 2016 and beyond, companies will focus on retention and engagement of an increasingly diverse and global workforce. Companies will continue to partner with vendors that offer talent management solutions, from standalone systems to solutions that can be integrated with HR, payroll, benefits administration, accounting and training platforms.

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