These high value, long-term contracts mirror IT outsourcing deals and are underpinned by the automation of the HR function. This allows outsourcers to centralise HR and reduce the administrative burden, and the costs, by getting employees to use self-service HR portals.

The US company Exult claims it defined such full service HR outsourcing in December 1999, when it announced a $600m, five-year contract to create and operate a global HR services organisation for 50,000 US and UK employees of BP Amoco.

The deal covers HR staff and systems, and the administration of compensation, benefits, payroll, organisational development, performance management, training, employee development, recruiting, expatriate administration, domestic relocation, employee relations, policy and legal compliance, employee data and record management and vendor sourcing. HR policy and strategy remain within BP Amoco.

But Sharon Douglas, HR services director at Ceridian Centrefile, an HR service provider, says full service HR contracts remain a rarity. "It's unlikely that an organisation will decide to outsource the entire HR function. Our experience is they are taking a piecemeal approach," she says.

This involves testing the water by outsourcing payroll, then moving onto other areas such as recruitment or pensions administration.

Overall, there is a growing realisation that it is possible to hand over one, or more, elements of HR without compromising the service, and that this frees HR staff from bread and butter administration to contribute to business strategy.

As a result the worldwide market for human resources management services grew by 9.6 per cent in 2002 to $61.2bn, according to the IT market analysts IDC.

This will increase to $103.3bn by 2007, with particularly strong growth in HR business process outsourcing, according to Marc Pramuk, IDC's senior analyst for HR management and staffing services.

"Outsourcing HR processes as a means of cutting costs, improving productivity, and gaining access to technologies is especially attractive in today's market, and service providers are getting better and better at delivering high-quality services with measurable results," says Mr Pramuk.

Ian Marriott, research director at Gartner, another IT market analyst, agrees. "Demand for aggregated HR outsourcing services is becoming more mainstream," he says. "Overall, demand for HR outsourcing in Europe has boomed over the past year."

The growth in the market is inspiring the formation of new suppliers such as Exult, and its UK counterpart Xchanging, and attracting IT outsourcing suppliers such as Accenture and Computer Sciences Corporation to move into HR outsourcing.

At the same time companies that specialise in one aspect of the HR function, such as Elan in recruitment, or Ceridian and Rebus in payroll, are extending their reach into the broader HR services market.

HR is one of the areas where application service providers have thrived, with companies such as oneclickhr.com and powerpay offering outsourced HR processes over the internet.

Services have also been established to help smaller companies, for example Chamber HR, a hosted internet HR service set up by Oracle and the British Chamber of Commerce, to service businesses with fewer than 30 employees.

Mark Lonergan, business development director of Elan ReSource, the managed services arm of Elan, an IT recruitment agency, says clients now want agencies to manage the recruitment process from end-to-end, and across different countries.

"We are no longer just sourcing candidates and passing on their CVs. We do the screening, first day induction, issuing security passes, and so on."

One of the largest full-service HR outsourcing deals to date is that between BAE Systems and Exult, agreed in February 2001. Richard Houghton, chief executive of Xchanging HR Services, says a number of forces are driving the market. "The HR function wants to redefine its role - HR directors want to shed administration and be more strategic."

Meanwhile, chief executives are increasingly disgruntled with the HR function. "They are not getting what they need to run the business, and there is a lot of concern around poor information and correlating performance versus pay," says Mr Houghton.

A third factor persuading companies to outsource HR is the cost of largely paper-based inhouse systems. One of the largest US suppliers of full-service HR outsourcing, Convergys, claims its technology can be used to automate 90 per cent of HR processes. Karen Bowman, president of the company's Employee Care Group, says companies can expect cost savings of 20-40 per cent.

Furthermore, clients get access to detailed analytics, which can inform their strategy. "The key driving force is to turn HR into a truly strategic function. We automate the processes, look after the information and provide it back to the business in a usable form," says Ms Bowman.

Convergys is planning to expand its HR services provision into Europe and has been working with several clients to devise a pan-European model. Ms Bowman says holistic services, covering all the languages and different legal and regulatory requirements across Europe, are hard to provide. "This is very difficult to deal with on a pan-European basis. The environment is extremely complex."

Jonathon Hogg of PA Consulting Group, which provides independent advice on HR strategy and outsourcing, says there is some caution about wholesale HR outsourcing, especially in Europe. "Companies believe that HR business process outsourcing is intrinsically more difficult than other kinds of outsourcing because HR services do not lend themselves to be packaged, standardised and priced."

In part this caution has been fuelled by negative comments from pioneers who underestimated the difficulties of outsourcing all HR processes in one go.

One of the most prominent full-service HR deals was epeopleserve, set up by Accenture and BT to provide HR services to both companies. This was dissolved last year, with Accenture taking the operation back inhouse and rebadging it as Accenture HR Services.

"Expectations have been pitched unrealistically high, in terms of cost savings, service improvements, and the speed with which the transition could be completed," says Mr Hogg.