Outsourcing HR, what is it and can it be achieved effectively?

There are many administrative tasks within HR management that can be time consuming and costly, especially for small and medium businesses where resources are limited. Outsourcing aspects of your HR function can reap huge benefits for your organisation, but it can also be a nerve-wracking decision! We explore what is involved when outsourcing HR and how to ensure it is achieved seamlessly and in a way that best serves your employees.

What is outsourced HR?

Put simply, outsourcing HR involves paying a third-party to perform HR activities on your behalf. There are many ways to outsource HR including outsourcing the entire HR function or just specific tasks. HR vendors may be based remotely or provide on-site support with face-to-face advice.

Why should I consider outsourcing my HR tasks?

In a recent survey of UK organisations, it was clear that outsourcing models are mostly used by SMEs. Many organisations cite saving cost and time by avoiding the recruitment of in-house staff to carry out transactional HR tasks. If your organisation has an HR team, by outsourcing some of the day-to-day tasks, you can free up precious time to focus on being more strategic and achieving business goals. If you are an SME owner without a dedicated HR team, the burden of these tasks will be lifted from you, allowing you to focus on making your business profitable. We will explore the further benefits of outsourcing your HR in more detail at a later date.

What should I outsource and how?

UK companies that currently outsource HR activities placed the following tasks as their top 5 to outsource:

1. HR process automation
2. Digital transformation
3. Socio-legal regulations
4. Wage costs
5. Rewards

Payroll is a particularly popular task to outsource, with 39% of small organisations and 11% of large organisations delegating this task to their HR provider. Other organisations choose to outsource their entire HR function, especially start-ups and smaller companies. By outsourcing everything to just one provider, you will not only reap the benefits of an outsourced HR department, but also save time on managing multiple suppliers as well.

Sadly, when it comes to outsourcing, there isn’t a one size fits all solution that will be sure to meet all organisation’s HR needs. The way that you outsource your HR activities should be unique to your business and strategy, your organisational structure and your current or future business needs. There are a few alternatives to outsourced HR available however some can also work in conjunction with your outsourcing. For example ‘Software-as-a-service’ (SAAS) allows you to benefit from a sophisticated HR system without having the hassle of managing the technology or users. Similarly self-service systems are becoming increasingly popular where employees can carry out basic HR activities such as updating their personal details, or managing leave and absences.

How do I get started outsourcing my HR?

The first step when considering outsourced HR is to identify where your gaps are and establish whether you have the resource available to fill these gaps or not. Similarly, it is worth considering when the right time is to outsource your HR activities. The CIPD gives some great advice around selecting your HR provider including some questions that you may wish to consider asking your shortlist. They also highlight the importance of considering each partner’s fit within your organisation, be that geographically or culturally.

When contracting with an HR vendor there are some key elements to consider within your contract. We always recommend setting objectives that are SMART (Specific, Measurable, Achievable, Relevant, and Time-specific) and using these to measure performance at set reviews. Ensure that the SLA is both detailed and flexible, this way you can avoid off the shelf packages that don’t suit your organisational needs, while allowing for some wriggle room when your objectives might need to change. CIPD also suggest ensuring that relevant people from within your organisation are involved in the contracting process to ensure you involve expertise in HR matters, rather than relying on other departments, such as procurement to, achieve the perfect agreement.

When it comes to partnering with an HR provider, managing the relationship well is vital to reap the rewards of resource savings later on. Establish a way of working that fosters open and trusting communication as well as collaboration. The rise in cloud-based HR systems has really helped to nurture outsourced relationships, allowing clients to access data and work alongside their providers on complex projects. CIPD warn that following the transition period, it is vital to ensure that sufficient HR expertise and leadership remains internally to manage ongoing strategic direction. When planning the transition period with your HR partner, try to factor in additional training needs for the staff that remain in house.

Overall, outsourcing some or all your HR function can be hugely beneficial in saving both time and money while gaining expert knowledge. However, it is vital to ensure that your unique organisational needs are met through your outsourced HR agreement. If you would like to find out more about how HR outsourcing could benefit your business, contact us for an informal chat.