A guide to HR outsourcing for small business

What is HR outsourcing?

HR outsourcing is when a company pays a third-party group of specialists to carry out human resources functions on their behalf. This can involve the outsourcing of certain aspects, such as payroll or recruitment, or of the entire HR function.

Why outsource HR?

The most common reason to sub-contract HR is to save on the costs of recruiting in-house staff when there may not be enough work to justify it. This is an especially relevant issue for small businesses, who may still be building up their organisation and aiming to turn a profit.

Small businesses may also struggle to keep on top of the more specialist aspects of HR, for example employment relations issues or handling a TUPE transfer. By outsourcing these functions to HR consultants who have a huge array of experience in those areas, employers can free up time to focus on making their business successful and profitable.

How to outsource HR

It’s important to weigh the pros and cons of outsourcing HR for your small business before deciding whether to go ahead with the process. Consider just the HR basics you will need to carry out – plus the employment laws you need to follow – against the amount of time and money your company has. If it seems like it might be a struggle, it may be a good idea to start exploring outsourcing options.

Make a checklist of what your ideal HR provider looks like. Which services do you need them to provide? Which functions do you need help with? Do your research and look for personal recommendations before settling on your preferred option.

A service level agreement (SLA) between your business and the HR provider is essential in order to clearly lay out the expectations and responsibilities of both parties. The contract should include:

• The names of both parties
• The date the contract will apply from and when it will end (if applicable)
• The specific functions that the HR provider will carry out
• Any goals and objectives which the HR provider will aim to achieve
• How the success of the partnership should be reviewed, i.e. set regular performance updates
• Details of payment

By going into detail about exactly how you would like the HR experts to help your company, you can avoid a ‘one size fits all’ result and ensure the service is tailored to your small business needs. However, it’s important to make sure the contract is flexible enough to allow for adjustments in goals if needed.

What are the different types of HR outsourcing?

On-site

The HR consultant visits your work premises to provide face-to-face advice and support. This could be beneficial for more sensitive issues, such as dismissing an employee, but there may be extra costs involved.

Remote

Having your HR consultants work from their own premises means you won’t have to free up any space or resources for them to work on-site. Remote support also allows you access to HR consultants all over the UK, meaning you can prioritise expertise over proximity.

One-off

If there’s just one particular area or issue you’re struggling with, you may want to consider bringing in external HR support temporarily. This will serve as peace of mind if it’s an especially difficult problem you’re faced with.

Ongoing

For small businesses, dealing with regular recruitment or employee relations issues can put a big strain on time and money. Having ongoing HR support will help to lessen the pressure and stress by knowing everything is being handled by experts.

Benefits of HR outsourcing

Reduced costs

Hiring an in-house HR team requires paying each individual a salary, not to mention equipping them with the infrastructure and software required to do their jobs. With an outsourced HR consultancy, it’s so much cheaper to have access to a team of experts that can use their knowledge and resources to help resolve your HR issues.

Access to HR software

An outside HR team will likely have access to the most efficient and effective HR software, which will help to streamline functions such as payroll and performance reviews. HR software will allow your employees to carry out many human resource functions themselves, eliminating troubleshooting needs and giving you more time to focus on running your business.

More expertise

Unlike an in-house consultant who may be a generalist and not have all of the specialist skills you require, an outsourced consultancy is likely to have a team of experienced experts across a range of HR specialisms such as payroll and employee relations. They will have covered everything from recruitment to dismissals to managing office politics, and will know the best way to deal with everything that comes your way.

Better compliance

One of the biggest worries that we see in small business owners is the inability to keep up with changing employment laws, and the fear of receiving penalties for accidental non-compliance. As a third-party consultancy, it’s your HR provider’s job to keep up to date with legal requirements for businesses, and to know how to implement them easily and quickly for your organisation. This way, you won’t have to worry about staying compliant, as the work is done for you.

Improves recruitment

An experienced HR team with top-notch resources at their disposal is much more likely to hire the right candidates for your business than a busy in-house employee trying to manage everything. They’ll have the time and expertise required to source candidates, filter by your chosen criteria and provide any necessary advice about the recruitment process.

Downsides of HR outsourcing

Less control

When you’ve invested so much time and money trying to make your business a success, you might be reluctant to hand over the reins to someone else. That’s why it’s important to do your research first and ensure you choose an HR consultancy that will support and advise you as if your business was their own.

Differing perspectives

It may be that you have a different idea of how your human resources should be run than your HR consultancy does – after all, it’s your business. Make sure you lay out clearly what you want to achieve, and regularly check in to see if your requirements are being met. A good HR provider will listen to your goals while pointing out things you may not have thought of.

Less ‘personal’ approach

It’s possible that your employees might feel like the outsourced approach to HR may take some of the ‘human’ out of human resources, due to the support being offered remotely instead of on premises. Yet what is lost in proximity is more than made up for in expertise, advice and ease of resolving issues quickly and fairly.

The content of this blog is for general information only. Please don’t rely on it as legal or other professional advice as that is not what we intend. You can find more detail on this in our Terms of Website Use. If you require professional advice, please get in touch.