Making Sense of Outsourcing; Growing Trend Finds Companies Contracting out Some of Their Human Resources Work

Article excerpt

Byline: CHRISTOPHER CALNAN, The Times-Union

Cindy Hildebrand, the chief executive officer of Jacksonville's CF Machine & Tool Inc., got worried about her company's human resource department.

It was 1997 and the 11-year-old business had only 10 employees, including Hildebrand and her husband, Earl, the company's founder. But workplace laws were constantly changing, and it was tough to keep up with what the company was required to do for workers and what it was prohibited from doing.

The human resource department, namely Hildebrand, got nervous. One mistake could lead to a lawsuit -- and a resulting fine that could deal a deadly blow to the business.

So she contracted with a human resource consulting company that looked at her personnel files and agreed to write a policy manual for CF Machine & Tool. The company also provided advice on the proper -- and legal -- way to terminate an employee and other personnel matters.

Hildebrand became part of a growing trend: human resource outsourcing. Businesses large and small are leaving traditional personnel matters to outside contractors.

Companies have outsourced their legal and accounting departments for years, paying for such functions only when they're needed. That strategy is being expanded into human resources and nearly one-fourth of the nation's companies outsource human resources.

The arrangement can reduce costs and let employers concentrate on their core business. But some observers say involving a third party in personnel issues undermines the employee-employer relationship.

Others say it's like bringing in an expert chef who knows all the right ingredients for a good, healthy meal.

For a small businesswoman like Hildebrand, outsourcing has proved to be a prudent move. It freed her from continually attending seminars and conferences needed to stay abreast of compliance regulations. And just as importantly, it gave her peace of mind.

"I just felt the need to professionalize what we're doing and to make sure what we're doing is right," Hildebrand said. "There's no way I could know all I have to know. I can't tell you how valuable it's been."

Legal labor

Labor-related legal issues have attracted the national spotlight in recent weeks.

In January, the Labor Department said it was considering changing the Fair Labor Standards Act, which was last reviewed in 1975.

The changes, expected by the end of March, would redefine who must receive overtime pay. Under the revisions, 1.3 million low-wage workers could become newly eligible for overtime pay. The Labor Department says 644,000 workers could lose their overtime pay because of how their jobs are defined.

Wal-Mart, the nation's largest private employer, drew fire last month after reports that an internal audit found violations of child labor laws and state regulations relating to mandatory breaks and mealtimes.

Nationally, the human resource outsourcing industry reported $12.3 billion revenue in 2000; the figure is projected to reach $22.3 billion in 2007, according to Rebecca Scholl, an analyst for Connecticut-based Gartner Inc.

The growth is a result of businesses wanting to improve service while reducing costs. They also want to take advantage of the latest technology, Scholl said.

However, some businesses are wary of outsourcing because it means giving up some control. Also, the lack of benchmark figures makes determining the actual cost saving difficult.

Scholl said the U.S. human resource outsourcing business is rising by nearly 9 percent a year.

"The penetration seems to be growing," she said.

That growth seems to be ensured by a constantly changing legal landscape.

Labor laws stay on the books, but how they are interpreted and applied is constantly changing, said Suzanne Lemen, president of Jacksonville's Dynamic Corporate Solutions Inc. …