HR services, including recruitment, benefits administration and payroll outsourcing, represented one in five outsourcing deals agreed in the UK in 2014, research has revealed.

The arvato UK Outsourcing Index identified £126 million of HR outsourcing contracts in 2014, with private sector organisations behind 90 percent of contracts signed. Companies providing business services – including professional, property and people services – were the most active buyers, accounting for 32 percent of deals, followed by manufacturers (16%) and energy & utilities companies (13%).

Debra Maxwell, managing director of arvato UK, said:

“HR is an increasingly strategic area of business, as many domestic industries struggle with a skills gap and growing competition from overseas.

“The surge in the inclusion of RPO within wider HR contracts indicates that in this climate UK organisations are increasingly trusting their outsourcing partners to provide more strategic services. While the rise in the procurement of self-serve employee benefits administration portals signals an ongoing desire to achieve efficiency savings and free-up HR resources to focus on more business-critical issues.”

The research revealed that talent management and increased standardisation in employee benefits administration were the main drivers of HR outsourcing, with UK-based organisations entrusting more strategic business functions to their partners.

The index, which tracks the volume and nature of UK outsourcing agreements, revealed that Recruitment Process Outsourcing (RPO) was integral to 50 percent of multi-service HR contracts in 2014, compared with zero per cent in 2013, when it was always procured separately.

In addition, the roll out of benefits administration portals – which allow companies to standardise transactional HR processes across multiple sites – became a feature of 45 percent of deals, up from less than a quarter (23%) in 2013. These web-based portals frequently included employee and manager self-service functions to deliver improved efficiency.

The arvato UK Outsourcing Index is produced by business process outsourcing (BPO) provider arvato UK and leading industry analyst NelsonHall.

The full-year index for 2014 identified a total of £6.65 billion of UK business process and IT outsourcing deals in 2014, 37% of which came from the public sector and 63 percent from UK-based businesses.