Pricing Trends in Human Resource Outsourcing, Benefits Outsourcing and HCM SaaS


Recent Pricing Trends in HRO, Benefits and HCM Software as a Service (SaaS)

Data from the ISG contract database show a trend in increasing fees for HR outsourcing (HRO). Data for benefits administration outsourcing contracts and human capital management (HCM) cloud-based technology show decreasing fees.

Results are based on ISG’s proprietary benchmark database containing actual outsourced contract pricing. The data include market prices for tier-one service providers from new contracts, renewals and new business proposals with companies that have employee and participant sizes ranging from 20,000 to 75,000.

Benefits Administration Outsourcing Fees in Decline

This is exciting news for plan sponsors. Fees for benefits administration outsourcing for all benefit areas have seen a decline in recent years.

  • Prior to 2017, market pricing was consistently on the decline, due to competition and continuous improvement that drove lower fees in health and welfare (H&W) and, to a lesser extent, defined contribution (DC). Defined benefit (DB) fees also went down because of the continuous simplification and freezing of plans.
  • Between 2017 and 2020, outsourcing fees saw a steady increase with fees flattening in 2019 and 2020.
  • Since 2020, market fees have decreased, most notably in H&W and DC. H&W and DC outsourcing fees for 2022 are between 12% and 19% lower than 2017 fees, indicating a downward shift in outsourcing prices. DB outsourcing fees for 2022 are 8% higher than 2017 fees.

The declining market pricing in 2021 and 2022 reflect highly competitive bids, which are the result of several market drivers.

  • Consolidation – service providers have continued to consolidate, specifically in the DC space, which allows for those providers to enjoy larger economies of scale and provide a better price structure to clients.
  • Automation – service providers are continuing to invest heavily in their technology and, with that, comes automation. From e-delivery to transaction processing, many of the processes that were historically manual or required human intervention now can be processed automatically with the use of AI/robotics. This allows providers to have better, more accurate processes with less staff, which drove much of the cost in the past.
  • Improved connections between service providers – as technology continues to improve, so do the ways providers connect to each other. Single-sign-on and API connections make the participant experience seamless with multiple providers behind the scenes. Many of the large, complex organizations that have been in long-term total benefit outsourcing (TBO) arrangements are gaining confidence in pulling the model apart and moving toward a best-in-breed solution. This opens up the competitive landscape of potential service providers, especially in the H&W outsourced space. For large and complex organizations, the competition between the newer, technology-focused players and the traditional providers has been fierce in securing new long-term contracts.
  • Increasing frequency of Employment Retirement Income Security Act (ERISA) class-action lawsuits – specific to the DC space, we have seen steep fee decreases due to continued market pressures from DC fee litigation.Plan sponsors have increasingly faced lawsuits citing “excessive fee and imprudence,” alleging mismanagement of their 401(k) plans since the beginning of 2022. Plan sponsors have been looking very carefully at all their DC participant fees to ensure competitive rates and fulfill their ERISA responsibilities by not only benchmarking and renegotiating fees regularly, but by taking the plans out to full RFP/bid.

WFA and Payroll Outsourcing Administration Fees Increasing

The HCM SaaS providers include Oracle, SAP SuccessFactors and Workday. Workforce administration (WFA) includes contact center. Data is specific to services in North America.

  • In years prior to 2017, HR outsourcing providers reduced costs by improving global delivery and standardization. Work continued to shift to best-fit locations to keep costs down.
  • Since 2017, fees have steadily increased. WFA costs are 14% higher and payroll costs are 11% higher in 2022 than five years prior. This is for two primary reasons:
    1. Providers have increased their technology investments and new capabilities have found their way into HR and payroll service delivery. Capabilities like automated bots, AI and machine learning are now part of the core services offered by most leading HR outsourcing providers.
    2. Most service center locations saw higher labor costs due to increased attrition, e.g., in India, average attrition levels have been 35% - 38%. This is expected to reverse in the current year and in future years.

Global Payroll Outsourcing

Global payroll pricing from payroll providers has generally increased since 2017. ISG saw a substantial 30% increase in pricing for Asia Pacific, and a 13% increase in pricing for both North America and EMEA since 2017. Fees for Latin America remained largely steady with only a 1% decrease overall between 2017 and year-to-date 2022.

The increase can be attributed mainly to the continued pressure on resource supply – specifically since 2020 due to the pandemic – and increased consolidation in the global payroll market.

HCM SaaS – Cloud-Based Technology Fees Decreasing

HCM SaaS solution pricing has recently trended downwards.

  • Prior to 2017, pricing leveled out after fluctuating in 2012.
  • Since 2017, fees for core HCM, payroll and talent management modules have decreased from between 7% and 14%. This decrease in HCM SaaS fees can be partially attributed to:
    1. The rise of the tier-two platforms, which have been enhancing their capabilities with constant investments and are beginning to challenge the leaders.
    2. Lines of differentiation within the leading platforms beginning to blur as they include additional capabilities that are softening prices.

What Decision-Makers Should Know about HR Trends 

Decision-makers need to understand fee trends in their industry. As we see fees increasing for HRO and global payroll and decreasing for benefit outsourcing administration and HCM technology, key decision-makers may want to use price benchmarking from a third-party. They can help determine solution costs, evaluate service provider pricing during the selection process, perform mid-contract “health checks” and design a strategy for re-negotiations. It is important to note that despite some increases, ISG’s recent 2023 Survey on Industry Trends in HR Tech and Service Delivery has clients generally seeing cost savings in outsourcing.

ISG is recognized throughout the outsourcing industry as the leading source of HR market data and is uniquely qualified to provide price benchmarks. Our data spans the globe and includes clients with up to 300,000 employees from new contracts, business proposals and renewal negotiations. ISG maintains detailed comparative data on engagements covering all major HR, HCM and ERP process areas. Contact us to discuss how we can help you.


About the authors

Jenni Cornwall

Jenni Cornwall

Jenni Cornwall is a Consulting Manager in ISG Business Operations – HR Advisory practice and brings over 20 years of experience to the HR and Benefits services and technology industry. Her expertise includes service delivery assessment, benchmarking, business case development, strategy development and service provider evaluation and selection. 

Anoop Chawla

Anoop Chawla

As a Director in the ISG Business Operations – HR Advisory practice, Anoop Chawla brings more than 22 years of experience leading HR technology and service delivery engagements. He offers ISG clients end-to-end transformation guidance and his proven expertise in HR technology and service delivery and extensive knowledge of the trends that are vital to their success.