HR is Big in Small Biz Budget

After a period of high unemployment, budget cuts, and hiring freezes, the human resources industry may be poised for a comeback, according to findings from Access Markets International (AMI) Partners, Inc.

AMI is forecasting that the 3.8 million U.S. small businesses (1 to 99 total employees) will spend $50 billion in 2002 for HR-related services, such as staffing, recruiting, training, and outsourcing.

Not an easy feat considering the present job market. The U.S. Department of Labor calculated the unemployment rate at 6 percent in April 2002 – an increase of .3 percent since the prior month. Since its recent low of 3.9 percent in October 2000, the jobless rate has increased by 2.1 percentage points, and the number of unemployed persons has risen by 3.1 million.

However, AMI’s annual survey of approximately 750 small businesses in the U.S. revealed that approximately half ($25.3 billion) of the projected revenue will be spent by them annually on alternative staffing options. Furthermore, AMI projects such spending to grow at a compound annual growth rate (CAGR) of 13 percent during 2001-2005.

“The staffing industry business cycle is extremely sensitive to a downward shift in the economy,” observed Jackie Chan, a Research Analyst at AMI. “As the economy accelerates, temporary employment is the first to pick up as companies want to ensure the improvement is sustainable.”

The influence of the Internet is evident as the research revealed that an estimated 300,000 small businesses have used the Web to recruit employees, while another 200,000 have purchased HR services online. AMI expects these numbers to double in 2002, with the trend reflecting the evolving nature of staffing and an opportunity for small businesses to benefit from adopting new models of HR operation.

AMI estimates that more than 400,000 small businesses outsourced HR services in 2001, including payroll, liability management and compliance, benefits administration, recruiting, employee education, and other miscellaneous services like records management and exit interviews – generating an anticipated $17.6 billion in revenue.

“As business needs and HR management become more complex, small businesses are outsourcing services to staffing companies who offer alternative staffing options as well as full-service HR solutions,” according to Mr. Eric Shuster, executive vice president at AMI.

Hewitt Associates had previously identified human resources as a leading outsourced business function with the most frequently outsourced tasks as:

  • Defined benefit and defined contribution plans, 64 percent
  • Health and group benefits, 49 percent
  • Payroll, 35 percent
  • Retiree administration, 23 percent
  • Staffing and recruiting, 16 percent
  • Organizational development, 15 percent

“The evolution of HR outsourcing is moving along a similar road as it did with IT a decade ago,” said Wright. “IT used to be focused on keeping computers working. Today, in large organizations you’ll find chief information officers helping to shape the business direction with strategic decisions about technology. We see that same shift – moving from transactional to strategic – occurring in HR.”

Additional findings from AMI include:

  • About 30 percent of the small business owners surveyed indicated that employee education and skills enhancement would be a “very important” business focus in 2002 and beyond. This appears to be supported by the half-million U.S. small businesses that spent a total of $8 billion on employee training and development in 2001.
  • AMI forecasts a 14 percent annual spending growth rate during 2001-2005, indicating robust opportunities for outsourced and online employee education and training services for HR services firms.
  • AMI-Partners has found that there is a direct correlation between adoption of IT solutions and its propensity to utilize alternative staffing and outsourced HR services.

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