Yankee Group report, Should Organizations Embrace HR BPO?, said that the practice of outsourcing HR management reduces HR costs by as much as 20 percent for organizations with more than 10,000 employees.

For substantial cost savings, companies should effectively manage their HR outsourcing. Companies must set up a governance team (CEO, CFO, SVP, etc.), and ensure an optimal mix of technology and HR expertise from a credible supplier. With HR outsourcing like this, a 20,000-employee company will have a 15 percent decrease in employee costs and a five percent increase in revenues. This adds up to about $1 billion saved.

Phillip Fersht, Yankee Group's lead software and services analyst, found that the average cost for HR BPO providers is about $2,000 per supported employee yearly. "These are significant savings [when] many companies spend upwards of $5,000 per employee per year in total HR costs," he said.

Additionally, Fersht explained that outsourcing to a HR specialist comes with an integrated HR suite that can provide valuable data to support management decision-making. Companies can design HR applications, develop self-service employee portals, and build metrics and procedures that optimize employee performance. He said that a well-crafted HR outsourcing configuration provides rapid information that allows executives to effectively manage their workforce.