Recruitment contracts currently account for more than one-third of all human resources (HR) outsourcing activities, according to new research.
The UK Quarterly Outsourcing Index, compiled by industry analyst Nelson Hall and business process outsourcing firm arvato, found 36 per cent of HR outsourcing goes towards hiring services.
Many companies struggle to find, recruit and retain the right employees for key positions at their organisation. Skills shortages, high turnover and increased market competition can make this process even more difficult.
Recent jobs market statistics from the Recruitment and Employment Confederation (REC) revealed that permanent appointments were on the rise in October, but the availability of suitable candidates declined.
According to the REC, this has led to a surge in temporary billings, with contract staff growth climbing every month for the last year and a half. While October's figures eased slightly, contract employees appear to be highly sought after in the current jobs market.
Kevin Green, chief executive of the organisation, said there continues to be good news for jobseekers and businesses across the country.
"The number of vacancies is continuing to rise, with businesses in all sectors of the economy looking to hire more staff," he explained.
However, he added that "ongoing candidate shortages are a major barrier to growth" and there needs to be a concerted effort in finding highly-skilled employees.
As recruiting the right staff becomes increasingly difficult, it is therefore not surprising that more businesses are relying on outsourcing these services to specialists.
The UK Quarterly Outsourcing Index revealed that the average deal value of HR outsourcing jumped 24 per cent year on year between June and September in 2014.
Overall, 25 per cent of all outsourcing is linked to HR this year, meaning the sector is valued at approximately £93 million. Private sector clients are the primary contributors to the market, signing 92 per cent of all HR contracts over the third quarter.
Within the private sector, business service providers were the biggest spenders. The firms - spanning the property, people and professional services segments - were responsible for 39 per cent of deals across the three-month period.
Manufacturers placed second, with the sector accounting for 22 per cent of contracts.
Debra Maxwell, managing director of arvato UK, said that while outsourcing contracts had eased during Q3, the results for recruitment bucked the national trend.
"In HR services, larger contract values reflect growing maturity in the sector, with outsourcing moving up the value chain to deliver more sophisticated solutions, beyond transactional services," she explained.
"The popularity of recruitment process such as outsourcing is a good example - with outsourcers increasingly involved in more judgment-based activities including candidate vetting and shortlisting."
Contracting proving popular?
Contractors and freelancers can be invaluable for companies that are struggling to attract and retain permanent staff to crucial positions.
As the UK's skills gap widens, temporary workers can benefit from demand for their services, provided they have the right qualifications and skills to impress employers.
Similarly, recruiters must prove they have the capabilities to identify the best candidates for advertised roles and prepare them adequately for their expected duties.
And, according to the UK Outsourcing Index, they appear to be performing this function well. In fact, 24 per cent of contracts were extensions or expansions of existing deals.
This suggests clients are placing more faith in service providers to deliver top-quality results in the area of recruitment, as well as other HR functions.
For example, 48 per cent of outsourced employment activity went towards benefits administration, while eight per cent of businesses needed help with learning and development services.
The research indicates a number of trends in the recruitment outsourcing environment, as well as in the wider contracting sector overall.
It appears that more and more organisations are ditching traditional in-house methods to try outsourcing. First-time deals climbed to 64 per cent of total agreements between June and September this year.
The increase was slightly up on the second quarter's 62 per cent and notably higher than the 59 per cent recorded in Q1 2014.
There also seems to be a growing preference for home-grown services, with more than three-quarters (76 per cent) of all contracts being delivered in the UK. This is a rise of 16 percentage points from last year.
Both of these trends seem to be gathering momentum and could mark a new direction for outsourcing services next year.
"While the outsourcing industry has not yet matched the high levels of activity seen at the start of the year, our analysis of the third quarter of 2014 holds some promising signs for its health and contribution to the UK economy, in the sustained growth of first time outsourcing and onshore delivery," Ms Maxwell stated.
She also noted that the local government sector showed signs of strength over the three-month period, adding that outsourcing remains a crucial part of public service provision.
In fact, the public sector spent the most amount of money on contracting during the quarter, generating £279 million. Of this, £108 million came directly from local government authorities.