2025 Pricing Trends Signal New Opportunities in HR Outsourcing

HR administration and technology costs have been on a downward trajectory over the past three years. The main drivers of the reduction in fees across HR service areas are competition, innovation and improved oversight. CHROs, HR VPs, Plan Sponsors and key decision-makers have more leverage than ever to negotiate favorable deals in 2025. 

ISG Research is also detecting significant fee reductions as enterprises enhance their HR target operating model, better leveraging provider technology and best business practices.  

These insights come from ISG’s proprietary benchmark database, which contains actual outsourced contract pricing. The data include market prices for 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 Outsourcing Administration 

ISG has seen a decline in fees per participant in the last three years for two categories of outsourced benefits administration: Health and Welfare and Defined Contribution (DC) administration outsourcing. Factors contributing to lower costs include technology automation, consolidation of service providers, a competitive landscape and an increase in employee and manager self-service capabilities in the service provider platforms. 

• Health and Welfare Administration fees are 24% lower over the last five years; fees are 23% lower over the last three years. Fees have been decreasing year-over-year since 2021. Health and Welfare administration costs are on a downward trajectory due to highly competitive bidding, evolving benefits regulations (i.e., fringe benefits, compliance penalties) and technological investments and automation. 

• DC Administration fees are 38% lower over the last five years; fees are 30% lower over the last three years. Fees have been decreasing year-over-year since 2021. DC plan administration costs are on a downward trajectory due to competition, provider consolidation, regulatory changes and continued legal pressures, and technological advancements and automation.  

• Defined Benefit Administration fees are 8% higher over the last five years; fees are 10% higher over the last three years. Outsourcing fees remained mostly flat from 2020 to 2022. Over the last three years from 2022 to 2024, ISG has seen a modest increase in fees. 

Overall administration costs are slightly higher due to higher operational costs, including rising labor costs, inflation and increased regulatory complexity. Improved technology and provider competition are significant drivers to help lower administration costs for organizations. 

Is HR Outsourcing Becoming Cheaper? 

HR Outsourcing Administration fees are 21% lower over the last five years and 10% lower in the last three years.  

Three primary factors driving costs down for multi-process HR outsourcing include:  

1. Continuous digital transformation of the service delivery model incorporating AI, machine learning and increased automation is making the models more efficient. 

2. Enhanced competition is challenging well established Tier-1 providers. 

3. Greater access to low-cost provider markets is forcing traditional in-country players to offer similar fee structures. 

Why Costs for Human Capital Management Software-As-A-Service (HCM SaaS) Are Down 

HCM SaaS fees are 28% lower over the last five years and 25% lower in the last three years. While fees remained flat in years 2019 to 2021, ISG saw fees start to drop in 2022. There has been a significant decline in HCM SaaS fees in the last two years. 

The key drivers for fee reductions include:  

• Tier-1 platforms have been investing for past few years in increasing capabilities which has resulted in reduced differentiation across major platforms 

• Slew of new platforms have been seen in the marketplace in the last 4-5 years, which have provided better capabilities and have proven to be more agile in incorporating technological advancements and are experiencing more successes against the leading platforms resulting in cost pressures 

• A lot of the 1st generation SaaS clients are back in the market to evaluate alternate solutions, which is creating downward cost pressure on the incumbents 

• Provider investments in AI, machine learning, and predictive analytics, and market competition amongst providers 

How HR Target Operating Models Are Changing 

Enterprises are refreshing their HR target operating models to optimize and standardize processes to better leverage technology. A few solutions driving a reduction in HR fees for these businesses include the following: 

• Further centralization of HR operations using self-service 

• Enhanced self-service capabilities through additional outsourcing (e.g. portal, knowledge base, etc.) 

• Implementation of leading technologies 

• Consolidation of service providers 

• Increased use of offshore service delivery models 

We have seen savings for HR service delivery with a run rate of 10-20% year-over-year due to the implementation of these changes.  

Enterprises today have an opportunity to achieve significant cost savings in their HR outsourcing administration and HCM SaaS deals. By embracing innovative technologies and optimizing service delivery models, businesses can not only streamline their HR functions but also enhance their strategic position in a market. Now is the time for organizations to rethink their HR strategies and seize the financial advantages offered by this favorable pricing environment. 

Leveraging benchmarking and competitive RFP bidding can ensure these administration and technology costs are competitive. 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. We maintain detailed comparative data on engagements covering all major HR, HCM and ERP process areas. Contact us to discuss how we can help you.