Dive Brief:

• More than half of respondents to HR Dive's 2021 Identity of HR Survey, 54%, said their HR departments used a benefits outsourcing firm or consultant on a regular basis. Similarly, 53% of respondents said their departments regularly used a payroll processing service.

What types of service providers or vendors does your

HR department use on a regular basis?

BENEFITS OUTSOURCING

54%

OR CONSULTANTS

53%

PAYROLL PROCESSING

37%

STAFFING COMPANIES

26%

EXECUTIVE RECRUITERS

DIVERSITY AND

13%

INCLUSION CONSULTANTS

12%

OTHER

• HR Dive's survey included responses from 419 HR officials. Fewer respondents said their departments regularly used services or vendors for other areas, such as diversity and inclusion and executive recruiting. But more than one-third said they did regularly utilize staffing companies.
• Simultaneously, budgetary restraints were cited as a top challenge created by the COVID-19 pandemic, second only to cultural issues. A quarter of respondents said that "maximizing value within budgetary constraints" was their HR departments' highest priority today, the largest share among the available options in the survey.

Dive Insight:

Outsourcing has long been a strategy for HR departments. This may be partly explained by the complexity of the legal landscape that surrounds certain aspects of compensation and benefits, such as leave management. A 2018 survey by the Disability Management Employer Coalition found that 47% of large employer respondents and about a third of small employer respondents outsourced Family and Medical Leave Act management.

More recently, employers also said they view outsourcing as "an enabler of business transformation," according to a 2020 report by Deloitte. But the firm also found that the coronavirus pandemic led departments to shift their perspectives on outsourcing in such a way as to make cost reduction "increasingly critical." Some clients surveyed by Deloitte "expressed disappointment" about the value delivered by providers, leading a portion to bring some of their work back in house.

There is also the employee perspective to consider. A 2019 report by Mercer found that while the HR model relied on significant levels of outsourcing to create efficiency, cost savings and other benefits, this dynamic led to a fractured employee and candidate experience. On top of this, "the cost benefit was never realized," Mary Tinebra, North America HR and digital transformation leader at Mercer, said in the report.

Even as HR deals with these challenges, outsourcing has been viewed as a catalyst in making HR a more strategic function. The shift to strategy-oriented work has accelerated during the pandemic, according to a 2020 survey by Paychex. The HR outsourcing firm found that 9 in 10 HR professionals reported having a voice in company strategy. A separate report by The Hackett Group found that being a strategic advisor to organizational leaders is HR's top priority for 2021.

However, not all organizational leaders believe HR is ready to take on more strategic duties in 2021, and some believe that the tasks HR departments took on during the pandemic will be permanent changes. A recent survey by software firm Sage found 57% of C-suite executive respondents said they viewed HR as a large administrative function, and most viewed pandemic-driven changes within HR departments as being "only temporary."