As organizations approach outsourcing contract renewal time, it is a great opportunity to revisit HR outsourcing (HRO) and payroll agreements and realign contracts to the evolving goals of the business.
We recommend these top five tips for getting the most out of your HRO and payroll contracts.
- Refine the service delivery model to meet new requirements. As outsourcing relationships mature, we often find organizations need to shift the scope of services to better meet the changing needs of the business. Providers may be capable of more strategic, consultative services, and there is an opportunity to move up the value chain. New automation opportunities may enable improved efficiency in the model. Or some areas may be underperforming, or organizations may have gained internal capability and no longer need the same level of outsourced support. Take advantage of renewal time to right-size the scope of services and refine the delivery model to get the most value out of the relationship.
- Build outcome-based measures and continuous improvement into the model. Standard service level agreements put in place during the original agreement may not reflect the most meaningful metrics to the business today. Revisit measures to ensure the service levels are the most critical to the business. Achieving the next level of partnership success means that both parties are tied to the same business outcomes and that the relationship is continuing to move forward with ongoing innovation and continuous improvement. The extent to which the provider brings new ideas and proactively manages the account should be an important component of any account management scorecard.
- Benchmark fees and analyze pricing components. Renewals are an opportunity to confirm that pricing is still competitive in the market. Providers have offered reduced fees for certain services. For example, ISG data shows that Benefits Administration and Defined Contribution outsourcing fees have declined an average of 12-19% due to competitive market pressures. In addition, organizations that conduct a detailed analysis of invoices, including variable fees and change requests, can uncover opportunities to reduce overall costs with different pricing structures.
- Build flexibility into the contract. Be sure you have the flexibility you need to address anticipated changes to volumes, potential shifts in strategy or other business changes over the course of a multi-year agreement. A strong partner should exhibit flexibility in addressing an organization’s changing needs.
- Start early. We recommend beginning the renewal planning process 18-24 months in advance to get the best results. In some cases, the ability to go to market and inject competition into the process may be an important option to keep available.
A well-structured contract sets the stage for organizations to achieve maximum results from their HR Outsourcing and payroll relationships. If managed well, contract renewal events can be important opportunities to reduce costs and create new business value. Contact us to find out more about how to start the renewal planning process.