How much does outsourced HR cost?

May 20

Whether you’re a fast-growing startup or a well-established business, an external HR effort can have a tremendous impact on the longevity of your organisation. Strategic and therefore effective HR implementation is fundamental to business success and good leaders know how important it is to get it right.

There is of course a cost involved, and unless you have unlimited budgets, you’ll quite rightly need to find the most cost-effective solution to your HR needs. In this article, we’ll explore the benefits of outsourcing your HR, the benefits of working with HR consultants, the areas of HR you can outsource and give you an idea of the costs associated with outsourcing your HR function.

As always, if you have any questions about outsourcing and whether it could work for your business, please get in touch with one of our HR consultants.

What is outsourced HR?

Outsourced HR is a contractual agreement between an employer and a third-party provider that supports in human resource functions. The end result is a non-biased HR department – however temporary or permanent – working within your organisation. At a basic level, outsourced HR is operational, supporting with the likes of legal and regulatory compliance as well as employee relations, such as performance and disciplinary issues.

To step up to a function that also provides regular support like recruitment and payroll services, personnel training and coaching, and reactive or strategic HR, businesses should consider HR consultancy. A good consultant will partner with your organisation to realise your business goals: the ‘H’ in ‘HR’ stands for human, and ultimately, it’s the people within your business that help to drive your success.

Why should you consider outsourcing your HR?

When it comes to running a business, you might find yourself wondering why you should bother outsourcing HR when you could do it yourself or hire an internal team. But here’s the thing: HR isn’t something you can take or leave if you want to build a sustainable, successful business. It’s an investment.

Positive HR practices aren’t just a “nice addition” to your business strategy; they’re a legal requirement and can be the make-or-break factor in the long-term success of your business. We’ve seen many businesses who’ve DIY-ed their HR in the early days and come to regret it later on. It’s much easier to instil positive HR foundations from the start than it is to reverse HR mistakes down the line, leaving large legal implications, expensive costs and disgruntled employees.

Additionally, external professionals are non-biased, completely objective and have the ability to challenge the thinking of senior management without tarnishing their reputation in the workplace. Sadly, internal HR professionals sometimes feel that they don’t have the same luxury, meaning their loyalties may lie with the business over its people. Having disgruntled employees after a negative internal dealing can result in a bad reputation for HR, in turn lowering the reputation of the business and brand overall.

Knowledgeable specialists to help you get it right first time

HR is an umbrella term for many different specialisms, and outsourcing to a specialist firm ensures you’re getting up-to-date, effective knowledge that’s been tried and tested extensively. This specialist intel can help you to build a business that functions hiccup-free and with more efficiency than if you were trying to do it yourself. By outsourcing, you’re able to utilise HR practices that specialists know work well, rather than figuring it out as you go along.

Plus, you also get access to systems and tools that otherwise would cost you money to buy and time to learn. With an outsourced specialist, they already have systems and tools in place, know them inside out and you’re able to utilise their pre-existing knowledge to the benefit of your business.

Leaning on experts also gives you peace of mind. Legal compliance is a serious issue, and the legal and regulatory side of HR changes all the time. As senior management teams juggle a hundred-and-one different responsibilities, the chances are that keeping up with changes in legislation is something that will slip through the cracks. But with an HR consultative professional onside, your business leaves nothing to chance when it comes to legalities.

Outsourcing HR saves you time and money

We’ve established it’s unsuitable to do HR by yourself, so another option is to build an in-house HR team. But bringing any department in-house incurs a whole host of additional expenses (both financially and in terms of your time, too!). Advertising the roles; interviewing candidates; onboarding new team members; creating, establishing and iterating HR processes; handling pension contributions. And this is without taking into consideration the cost of any additional employee benefits your company offers.

Outsourcing or consultancy, on the other hand, is a predictable, regular cost that you can easily build into your business expenses. There’s very little time investment on your part and, once you’ve found the right supplier, you’ll soon settle into a regular routine with peace of mind knowing your HR is wholly and competently managed.

Which areas of HR can you outsource?

Realistically you can outsource every area of your HR! (And if you’re interested in the above benefits, we’d definitely recommend doing so). But, if you’re simply testing the waters with outsourcing at this stage, there are particular specialist areas you can choose to outsource whilst retaining some HR function in-house. Some of the most common being:

Payroll Management: Regulations and legal hoops galore. Outsourcing this function is a huge time-saver, also making sure that your employment records are kept properly, efficiently and up-to-date should your business face any kind of financial audit in the future.
Recruitment: Finding the right kind of people for your business takes a lot of time and getting it wrong can be devastatingly expensive. Outsourcing to talent acquisition specialists means more time freed up and higher quality candidates, helping you build a better team, faster.
Professional Development: Skills training and career coaching is beneficial (and we’d argue, necessary) for not only new starters but also management-level employees. Professional development facilitated by HR specialists means the investment in your people will pay off in abundance in future.
Legal Compliance: Paperwork is important, but, let’s face it, a bit dull and often highly complicated. Outsourcing to a specialist who understands the ins and outs of contracts, legal requirements and compliance takes the pressure off you and ensures your business is legally sound.
Disciplinary Issues: Disciplinary issues dealt with internally can feel awkward and abrasive – biased even – but add a third party into the equation and tensions are relieved. An objective and highly skilled professional will help your team reach a positive conclusion and move forward.

At Gingko, we specialise in HR strategy, which feeds into every part of your HR function including those listed above. Whether you’re starting with nothing or looking to streamline and improve your existing HR strategy, outsourcing at a consulting level will ensure you’re clear on how HR fits into your wider business goals.

So, how much does outsourcing HR cost?

This entirely depends on your business and what you hope to achieve. Ask yourself: what’s the outcome? Is it reactive or proactive?

Reactive HR outsourcing

For example, if you’re looking for support once employees have brought issues to your attention or have realised there will be changes to working times post-Brexit, you need a reactive HR function. This is generally costed at £200 - £800 per month.

Proactive HR consultancy

Otherwise, if you’re looking for an HR function to anticipate your employees’ issues and help you plan changes prior to Brexit making an impact on your business, for example, you need a proactive strategic HR function. Consultancy outsourcing is costed more in the region of £1000 - £4000 per month.

Why HR consultancy costs more but ultimately pays off

Both of these outsourcing options have their place, however, one will definitely be able to help your business succeed at a higher rate. The key difference here is reactive supports you once an HR issue has already come up, usually when it comes to negative employee relations. Strategic HR, on the other hand, is not limited to only employee relations.

Strategic HR consultancy will plot out key milestones over a given time period while working closely with your other departments, such as finance, to ensure future resourcing plans across the wider business are both prosperous and achievable.

Mapping out your organisational goals (including profit, turnover and performance) and then working backwards – understanding how you can use the talent in your business to get you there – ensures a higher level of success overall, not just in HR but in every aspect of your organisation.

By strategically laying out the options you have, properly planning, getting employee buy-in prior to launching new initiatives and making sure all is done in a legally compliant, people-first way, HR consultancy is a small price to pay for a better functioning business.

Is HR outsourcing worth it?

In a world where HR is constantly bridging the gap between legal compliance, organisational productivity and ensuring the wellbeing of staff – something we’re likely to see more of post-pandemic – employees will be looking more towards non-biased, objective figures in the workplace. In-house HR is rarely considered neutral as their loyalties are seen to lie with the business, but an outsourced HR consultant is completely impartial and highly trained.

This tied in with the overall business benefits explored above means strategic HR outsourcing is totally worth it. HR professionals are specialists in their field, consulting with both a human and business mindset as priority, with the ability to challenge existing management thinking. So if you’re weighing up dealing with HR internally or outsourcing to professionals with a wealth of experience, the latter is always recommended.

Possibilities and outcomes vary depending on your organisation, so for a more bespoke look into your business’s HR, drop us an email or call 020 3195 1414 to speak to one of our people – and see how we can help yours.