Over the past several years, Human Resources Outsourcing has grown from an interesting topic in limited business circles, to an accepted way of doing business by a broad spectrum of industries. Even within the current economic doldrums, the HR Outsourcing industry continues to grow as business owners look for new ways to cut costs, consolidate vendors, and improve efficiencies.

One business strategy and market intelligence firm, Global Industry Analysts, recently conducted a comprehensive analysis of close to 300 human resources outsourcing firms. According to their estimates, the global HRO market could reach $162 billion by 2015, up from $103 billion in 2007 and $61 billion in 2002.

Business that are at the stage of investigating if a Human Resources Outsourcing relationship would work for their organization should  realize there are several important factors to take into consideration. An outsourcing relationship can continue for many years, so selecting the right firm is a serious decision that should be given a great deal of thought.

Consider the following criteria when selecting a provider:

Financial Stability

Many human resource firms manage the fiduciary obligations of the employer, such as paying payroll, submitting payroll taxes and covering insurance premiums. Look for a firm that has been in business for at least a decade and has long-term banking relationships, strong financial credentials, and can prove taxes and insurance premiums have all been paid to date.

Proven Service Track Record

While good financial references and longevity may prove stability, it does not necessarily equate to good human resource practices or exceptional customer service. Check the credentials of the staff of the HR firm – look for a team consisting of licensed human resources professionals, request at least 3 current and former client references, and verify they have a proven track record of support in all areas of regulatory compliance, safety and benefits.

Niche vs. Diverse Client Base

Depending on the client’s industry, it may be more beneficial to work with a niche HR firm, or to work with one that has a diverse client base. Some HR companies develop an expertise in a particular niche market – hi-tech, transportation or the entertainment industry, for example – and it may behoove a business in those markets to team with a specialty HR outsourcing company. On the other hand, the benefit of working with a non-niche HR firm is that this diversification can insulate clients in the event of economic or insurance fluctuations within a particular market. It also dilutes the employment and insurance risks over a broader industry base. Diversification can take the form of geographic location, industry, or size of employee base.

Local Market Presence

Many state employment laws and tax guidelines vary from the federal rules. It is recommended to work with an HR firm that has experience in the state in which you do business. California employment laws, including state overtime and minimum wage guidelines differ greatly from their federal counterparts, as dozens of new state-specific HR-related bills are passed each year. A local, state-based vendor will be well versed in these irregularities.

Flexible Service Options

Finally, many human resource outsourcing firms take a “one size fits all” service approach. They require clients take all their services as a package deal. This can include everything from payroll and insurance products, to training and recruiting. Clients will be charged a fee which includes all these services, whether they avail themselves to all of them, or not. One some business may indeed require the full spectrum of services, others will not. It is therefore advisable to analyze which areas of employment administration and compliance requires help, and which do not. Find a vendor that is flexible and is able to customize their HR services to match your company’s precise needs.

For employers looking to outsource HR, these five pointers are a good starting point in finding the perfect HR outsourcing relationship.