Payroll Outsourcing – Overtaking Benefits Administration as Top Outsourced HR Process

Although our May 13 blog stated that benefits administration outsourcing had taken the top spot on the HRO food chain in terms of projected annual growth rate through 2013 – this per our Targeting Benefits Administration research report published early this year – it appears the tides are changing and payroll outsourcing is taking the lead.

Preliminary findings from a Global Payroll Market Analysis I’ve just begun working on, primarily in the European market thus far, seem to indicate payroll outsourcing will see double digit growth in the next 12 months. Further, looking at HRO contracts signed in 3Q09, the pace of payroll continues to pick up speed as 50 percent of them contain payroll. These contracts are a mix of standalone payroll outsourcing services engagements – some including Software as a Service (SaaS) HR services such as talent management – payroll combined with other multi-process HRO services and SaaS-only deals.

Some of the Q3-signed payroll contracts include:

•  Aditro and Elisa for HR and payroll outsourcing

•  MidlandHR and Ofgem for payroll outsourcing and hosted HRIS

•  NorthgateArinso and Cobalt Ground Solutions for managed payroll and HR systems

•  NorthateArinso and Invensys for HR, payroll outsourcing and SaaS (this one is very large scale; services are being delivered to 21,000 Invensys employees in 50 countries)

I believe the above indicates an optimistic picture for the payroll outsourcing sector. Why? Obviously the downturn in the economy has driven a need for cost reduction among HRO buyers and providers alike. In the payroll outsourcing space, providers have added new services which have prompted existing client movement from SaaS-only and partial payroll HRO – in which the client may perform some of the activities such as data entry and Tier 1 and 2 helpdesk and the provider delivers the balance of services – to full payroll HRO services delivered by the provider. As existing clients are seeing the value of services delivered from their providers thus far, they are increasingly leveraging a fuller breadth of their providers’ capabilities, both in existing and new payroll service offerings.

Further, previously on-the-fence payroll outsourcing prospects are acknowledging the results their peer companies have achieved, and appear to be jumping on the payroll outsourcing bandwagon, whether via SaaS-only, partial payroll HRO or full payroll HRO. Finally, although the trend has shifted from multi-process outsourcing (MPHRO) to single process outsourcing, MPHRO providers that offer payroll as a standalone service point of entry appear to be contributing to the payroll outsourcing uptick, and the increased the health of the HRO industry in general, per increased demand for their other HR services offerings.

It’s a little preliminary to truly gauge the growth forecasts for payroll outsourcing as my research is in the very early stages. But the full results of NelsonHall’s Global Payroll Market Analysis, to be published in December, will tell the full story. I personally think the optimism will continue. What do you think?

Gary Bragar, Lead HRO Analyst, NelsonHall

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2 Comments on “Payroll Outsourcing – Overtaking Benefits Administration as Top Outsourced HR Process”


  1. In future the major changes will be in payroll outsourcing and accounting outsourcing. E-filing, big agencies, foreign competition and many other forces are coming into play.

    • gbragar Says:

      Thanks very much for your additional insight, all important factors contributing to demand for payroll outsourcing.


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