Outsourcing: A strategy for tough conditions ahead?

Dated : 17 Nov 2016

Year 2016 is proving to be challenging times for Singapore businesses especially our Small and medium enterprises. Below is a chart extracted from Ministry of Trade and Industry website dated 13 Nov 2016.

Singapore’s GDP growth has been slowing for the last 5 years. Based on MTI’s announcement on 11 Aug 2016, the forecasted growth for 2016 is between 1 to 2 per cent. In addition, the following quote is extracted from a Straits Times article dated 17 Nov 2016,

"The economy shrank 4.1 per cent in the July to September period compared with the previous quarter - the biggest slump since 2012." View full article

 

As unemployment rate has been hovering around 2% in the last 5 years, the Median Gross Monthly Income From Work (Including Employer CPF Contributions) has been increasing at an average annual rate of 6% from S$3,249 in 2011 to S$3,949 in 2015.

(Data extracted from http://stats.mom.gov.sg/Pages/Income-Summary-Table.aspx)

In a period where growth is slowing and cost are still rising steady, Singapore businesses need to look for innovative ways to operate more efficiently.

Regional Trends

Business Process Outsourcing continues to grow in Asia Pacific and is expected growth by an average compounded growth rate of 10.1% through 2020.

Below are the top 5 areas of Business Process Outsourcing (in order of highest CAGR*):

a.       Knowledge

b.       HR

c.       Customer Service

d.       Procurement

e.       Finance & accounting

(Extracted from http://www.strategyr.com/ )

​* CAGR stands for Compunded Annual Growth Rate

Out of the areas listed above, I will touch on HR outsourcing as that is my area of expertise.

Is HR outsourcing the way to go?

For many businesses, payroll services offer an attractive and valuable alternative to in-house processing. Chosen correctly, they provide a less expensive, simpler means of paying your employees and meeting your company’ statutory compliances.

Most companies often process payroll themselves for any the following reasons:

·         they are protective of wage information

·         they want to maintain control over payroll data to handle last-minute changes.

·         they consider in-house processing to be more cost-effective than outsourcing

Let’s us explain the above concerns in details.

·         Confidentiality of data – The most common reason for payroll information leaks are during lunchtime discussion within the employees of the company. Whereas for most service providers, it is a standard practice to sign a NDA (Non -Disclosure agreement) with the client when they manage the payroll for the client.

·         Maintaining control – Well it is great to be absolute control over the payroll process. It would be better to have the processes well defined so that every payroll does not escalate to a full-blown crisis. Companies can then focus more time and resources on their core business activities.

·         Cost savings – Increasingly more and more providers offer more than just the outsourced services, they also provided full pledged cloud based HR solutions to streamline HR operations.

 

Below is a quick overview of the typical solutions available.

From a financial angle, the cost of employing a full-time payroll administrator would cost the company between $40k to $50k a year with Annual Wage Supplement and employee CPF included.

Assuming that this payroll person is managing the payroll for a company with 50 employees, outsourcing this would likely to cost less than $13k annually (Over 60% cost savings).

There are other factors to be considered:

·         Avoid Payroll Knowledge Walking Out the Door

·         Focus on your core business

·         Leverage of expertise in HR matters

HR Shared Services by SPRING Singapore

On top of that, SPRING Singapore has a program called “HR Shared Services” to encourage Singapore SMEs to outsource their HR operations. This program will subsidize 70% of the first-year costs for qualified applicants.

Going back to the same example in the above section. Should the company tap on the HRSS program, their cost savings shoot to over 80% in the first year and they continue to enjoy over 60% cost savings in the subsequent years.

 

Steve Koh

Director, AGHRM

AGHRM is a Singapore based cloud HR and payroll solutions provider. We help companies to streamline HR operations by empowering employee self-service and automating time consuming processes. AGHRM is also an appointed ICV integrated solutions provider.