Why Should A Small Business Outsource Their HR?


There will come a time in the evolution of a small business when the business leader will have to deal with one or more of the main aspects of HR and will inevitably find that it can be difficult to manage them with limited resources, knowledge and time.

These aspects might include:

  • Administration, including the legalities of employment: As soon as, and even before the business can employ more people the person responsible needs to know what are the legal obligations that must be fulfilled before offering a job; and once the job is offered, how to administer a payroll and deal with auto-enrolment of pensions.
  • The recruitment of new staff: Making sure that the staff hired are the most appropriate people for a specific role, having the necessary skills, knowledge and behaviour for the business is a crucial element in running a successful business. It should be noted that the more skills and qualifications required for a role, the more time consuming and expensive the process becomes.
  • Training: Having invested a significant amount of time and money employing staff, they need to grow and develop until they feel best equipped and qualified to perform their duties.  Training is often seen as the “soft option” in terms of budget, and external training is often used as the preferred method.  But it is expensive and not necessarily curtailed to meet the demands of an individual business.  Is there a better, more cost-effective way to train staff without prohibitive spend?
  • Staff retention: Once the investments are made, the return on investment is realised by getting the most from staff members This means appropriate reward and development schemes are put in place to ensure that the workforce is motivated to stay.
  • Dealing with long term sickness: One of the worst nightmares for a small business is when a member of staff is lost for a significant period of time due to illness.  What does the law say? Is the illness related to physical, mental or financial matters? What should the business do to guard its own interests, but be fair to the employee, both legally and morally?


How many of these aspects can a small business owner hope to understand sufficiently to undertake to a high standard, as well as running the business to ensure not only its survival, but its growth and financial success?

A temptation is often to double up on jobs, giving HR responsibility to a senior role.  After all, it’s just people “stuff”, so the Finance Director can probably manage it alongside the numbers?  No, this will not only reduce the productivity and usefulness of the Finance Director, but that person is unlikely to have the necessary skills to understand the nuances that are required to deal with all aspects of human nature at work, nor the necessary knowledge.  This is the remit of HR.

Of course, you could employ an HR Professional at the start of a business, but this probably isn’t the best use of limited resources when there are better alternatives.  This is where outsourcing HR functions can be cost effective and can give the business owner the comfort of knowing that the business is acting lawfully and effectively.

At the most basic level rudimentary processes such as payroll and pensions can be easily outsourced and the recruitment of staff can benefit from the advice and participation of an expert who understands the market, quickly getting to grips with the vision of the business and its culture, in order to attract the right kind of candidates.  Of course, it will always be the business that makes the final selection, but it can do so with the knowledge that the pool of candidates is catered to a specific role. Following this up is the act of ensuring the employment process is legal, that the necessary documentation is sought and maintained properly, and that the follow up induction and training plan is suitable for both the new employee and the business. By ensuring that the new employee gets the best possible start, the risk of turnover can be significantly lowered as the employee feels that they are being treated well and that the business has a continued interest in ensuring that they can do their job to a level that satisfies both sides.

The cost of hiring an HR administrator at the basic level of qualification averages around £20,000 p.a. and a HR Manager can go up to around £45,000 p.a. The on-costs also need to be accounted for e.g. tax, National Insurance, etc which are likely to raise the amount invested quite significantly.

Outsourcing is a flexible option, which can be bought in on a fixed fee, monthly retainer or a daily rate.  For a highly experienced, capable and adequately-qualified HR professional, the day rate could be as high as £700 per day, but measured against the cost of a permanent employee, it’s still cost effective and is likely to give a good return on investment.  The key is to be clear on what you are outsourcing.  Is it an ongoing requirement that you will need month on month, is it a project with a clearly defined scope and timescale or is it a flexible, potentially call-off arrangement whereby you’re prepared to pay a higher premium for the comfort and flexibility of having someone on hand when you need them?  The clearer you are on your requirements, the better position you will be in to find and contract with the most appropriate provider.  Remember, longer-term relationships give the outsourced provider more certainty which they will value; this should enable you to negotiate a better detail.

As the business grows the time may come when the number of staff and the addition of different departments makes it necessary to hire permanently into an inhouse HR role, but in the meantime, outsourcing HR at all levels is the most cost effective and efficient route for small business.


What are the main advantages of outsourcing?


As demonstrated above, it’s going to be a more cost-effective and flexible option for a small business.

For more advanced HR requirements, an HR consultant with expertise in a specific field of business will give their input ensuring the business gets the highest standard of service.

It takes pressure off the business owner and senior managers, allowing them to direct their attention and resources to the matters of running the business, but always keeping in touch with the HR plan.

HR outsourcing companies are flexible and can tailor their offer to suit the business and budgetary needs.

There is huge value in having HR management consist of experts who are ahead of the trends and whose aim will always be to give the business the best possible service.  After all they want to retain the business as a client.

A small business must move fast, stay ahead of its market and innovate, all whilst managing a tight budget.  Outsourcing HR can ensure that the people aspect is in good hands and is being handled lawfully and appropriately. This will remove one less headache and hopefully allow the business owners to get a better night’s sleep!

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