HR OUTSOURCING: The Key Decisions
Are you an organisation deliberating over whether to outsource all or part of your HR? Here, Paul Middlemast, Senior Partner of Osprey hrc a Chartered HR Practice, have put together this guide to explain what outsourcing HR involves, how to do it and what the benefits are for employers.
For any organisation: private, public sector or an NPO knowing when to outsource all or part of their HR management is a challenging decision. The importance of a well-managed HR function; its administration of people management and legal compliance is possibly vital to the success and future growth to the organisation and while there are advantages to taking work outside of the organisation, there are also risks involved.
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, recruitment, administration or of the entire HR function.
The practice of outsourcing aspects of HR is not new, for example payroll. There has been a lot of noise about its benefits and there has been several high-profile deals.
Outsourcing is one manifestation of the transforming shape of HR and, in particular, the increasing demands being placed upon HR functions to deliver greater levels of transactional efficiency at the same time as raising the level of other HR activity to focus on ‘strategic’, value-adding service. Paul Middlemast, along with other commentators, believes that HR functions need continually to improve the efficiency of the administration and legal compliance services they deliver, as part of the shift to a more strategic and influential future of any organisation. Outsourcing is one potential route to achieving this.
Outsourcing in context
Outsourcing involves buying one or more business services from an external provider. This could include HR and/or other services such as Finance and IT. Outsourcing of HR activities has been a growth area for well over a decade, as organisations have sought benefits in passing over a professional labour-intensive and expensive internal or non-core activity to a third-party expert. The drivers of HR outsourcing are varied, including, for example, a desire to reduce costs, increase effectiveness, obtain dedicated external expertise on a flexible and cost-effective arrangement to release their internal management to focus on the core activity of the organisation.
The specific processes of any HR outsourcing arrangement will vary from organisation to organisation – some may outsource virtually all of their HR processes while others select specific components such as a subscription service for policies (handbook), contracts of employment and other employment related documentation plus the administration and other transactional processes of HR including more strategic aspects of managing people in their organisation.
To avoid any confusion, HR Outsourcing is quite different from that of Shared Service Centres. However, there is a high degree of complementarity with HR Consultancy and Outsourcing in the broader context it is one-of-same, that is, a range of options for improving the efficiency and delivery of HR services. Referring back to the definition of outsourcing in the previous section the following is helpful in this respect.
Outsourcing: the delegation of one or more business process to an external provider (Consultancy), who then owns, manages, and administers the selected processes for and on behalf of the organisation.
The Aims of Human Resource Management (HRM)
Before any organisation sets about reviewing their current and future needs it is always good to understand the concepts of HRM. This, to ensure, any decision made on outsourcing is set against the following:
- The driving force behind HRM is ‘the pursuit of competitive advantage in the market place through the provision of high-quality goods and services, through competitive pricing linked to high productivity and through the capacity to swiftly innovate and manage change in response to changes in the market place or breakthroughs in research and development’ or Government policy.
- In a workplace that is inclusive, equal in opportunity, legally compliant set against good HR administration and policy (employee handbook) and contractual framework.
- By ‘valuing employees’ creating a climate to which productive and harmonious relationships can be maintained through partnerships between management and employees and where teamwork can flourish. Getting better results from the organisation, teams and individuals by measuring and managing performance within agreed frameworks of objectives and competence requirements; assessing and improving performance; identifying and satisfying learning and development need; against the background of an employment relationship underpinned by a comprehensive contract of employment; staff handbook (policies); flexible working to provide for rapid response and reward management.
Why Outsource HR to a Consultancy Practice?
Outsourcing can seem like a simple solution, but there is a lot to consider beforehand. Perceived lower costs are often the primary reason for organisation’s opting to outsource rather than use in-house resources.
Organisations are constantly faced with the challenge of focusing their time and expertise on growth or expanding their services. It does not make financial sense for many organisation’s to build the internal expertise to support all aspects of their business, so they look for external partners in areas such as IT, HR/Payroll and Marketing. They also find that internalising all of their HR needs does not make financial sense. Moreover, if an organisation has inadequate support then they may create compliance, legal and reputational risks.
Even when a organisation decides to internalise HR, they often have a “Department of One” and finds it nearly impossible to have all the expertise needed to attract, grow and retain their workforce or to stay ahead of the many challenges brought on by the changing workforce and regulations.
As a result, many employers turn to outside experts consultants to provide the support they need around compliance, handbooks, policies, and procedures, recruiting, training and development, salary surveys and compensation design, engagement and retention strategies and benefits. Outside experts have access to more resources than a company can afford individually as well as knowledge of the latest trends, developments, and legislation.
Organisations are looking for experts that can provide professional support in a flexible and cost-effective manner and is primarily what many outsourcing organisations offer. Below, sets out the service framework provided by a professional and chartered HR Consultancy:
An HR business consultant may not post job advertisements or sit in on candidate interviews, but normally advise on what it takes to attract qualified applicants. Consultants whose specialty areas include recruitment and selection give small-business owners tips on the best recruitment strategies as well as how to make wise hiring decisions. Small businesses often cannot afford to waste resources on ineffective recruitment strategies; therefore, an HR consultant can help you create a productive workforce can ultimately save your company thousands by minimising your cost-per-hire.
An HR consultant can assist you in handling employee relations matters, such as investigating informal and formal complaints file by employees alleging that your company has engaged in unfair employment practices. The advantage of having an external consultant is that it preserves the integrity of workplace investigations. In addition, an HR consultant who is specially trained to mediate workplace disputes can save exorbitant costs to litigate employment cases. HR consultants may also advise you on proactive measures to ensure employee satisfaction so that you mitigate future risks of liability concerning employee issues.
HR consultants have to maintain their expertise to be valuable to their clients. Business owners who don’t have a dedicated HR department within their companies benefit from an HR consultant who can provide guidance on the day-to-day operations. Even if there’s an HR staff member in place, the HR consultant can advise him on HR functions that will sustain employee engagement and productivity. Most HR consultants work hard to continually upgrade their knowledge and expertise in HR best practices so they can market high-quality services to clients and ensure that their clients trust their advice and counsel.
Many HR consultants are well-versed in the pros and cons of outsourcing HR functions. HR consultants may not perform the duties of an outsource provider, such as processing payroll or handling benefits administration. However, an HR consultant can help you decide whether to hire an outsource provider or help you weigh the benefits of one outsource provider over another. In the event your HR consultant does perform some of the HR functions your company needs; you save the expense of paying the salary and benefits of a full-time employee to handle personnel functions that are well within your consultant’s purview.
Strategic human capital development is an HR consultant’s strength. There are two ways an HR consultant benefits your organization concerning the strategic direction of your HR functionality. Your HR staff benefits from the expertise that your HR consultant lends in coordinating the HR tactical functions. This frees the time your HR staff has to devote to designing and implementing your company’s workforce planning. In addition, it gives small-business owners the ability to leave HR functions in capable hands while they dedicate their time and focus to overall business development.
When considering whether to outsource, the following pros will assist the decision:
- You can focus on running your business and streamline the focus of your internal processes.
- A consultant can provide impartial insight
- External HR professionals have access to more resources that you only pay for when you need them, and you do not have to spend time researching every issue that may arise.
- A consultant will impact your bottom line
- Outsourcing all or portions of necessary HR services is less costly than having a fully staffed, in house department.
- External HR professionals can provide you with more expertise on issues such as human resource management and business effectiveness, the employment market, organisational culture, strategic HRM, managing diversity, employment legislation, TUPE and change management, performance and compensation, employee benefits, talent development and retention strategies.
- One of the main downsides of trying to internalise all of your HR support is that it is exceedingly difficult for one person or even a small team to be an expert at everything. Your HR staff has a wide array of duties and as amazing as they are, it would be really difficult to be stellar at every single one of them.
- When you are facing a highly political situation like defining the future HR department structure after a merger a HR consultant can remove the stress. A neutral and unbiased opinion is helpful in strategic system discussions. Your current HR staff sometimes view work through the local impact to their roles, but an outside expert can analyse and present options without history or politics.
In contrast, the following cons should be taken into consideration:
- Outsourcing means fewer HR professionals on-site. If this is a concern for you, make sure you find HR consultants who are willing to meet on-site occasionally. That way you and others at your company will have opportunities to speak with them in person.
- Outside consultants might not be as considerate of company culture. You might find that consultants make decisions that do not align with company values. This can be both frustrating and disastrous. In order to keep things aligned with your company’s culture and values, make sure to ask every firm you meet with what steps they take to familiarise themselves with a new organisation. Avoid outsourcing to firms who do not care professionally research their clients.
- Outsourcing can delay future internal development. None of us can see the future, but there may come a time when your company grows enough that you decide an internal HR department makes more sense. Outsourcing before then might mean depriving your company of developing the talent and skills it will need later. This doesn’t mean that you should take the risk and forego outsourcing, though: instead, try and partner with HR firms that are prepared for your company to grow and evolve—and will help train or otherwise prepare your company for potential transitions.
- Your confidentiality could be at risk. HR professionals deal with a lot of sensitive information, from employee medical history to bank account numbers for direct deposit. While HR firms are obligated to keep this information confidential, you should still never partner with a firm that doesn’t seem to take confidentiality seriously. Be sure to ask the firms you meet with about their methods for ensuring confidentiality.
- Choose an HR professional carefully. Make sure that the individual or firm you hire is in the business of providing HR services as your employees are your greatest resource.
Is Outsourcing HR Cost Effective?
There are a large number of costs involved in maintaining an effective in-house HR and payroll function:
- Salaries of the HR staff e.g. the ratio of a professionally qualified HR manager plus HR administration support to employees is approx.: 80:1 with average cost of £90,000 per year.
- HR regulatory tools and subscriptions
- External Legal Support of the HR staff
- Costs of creating training programs and hiring trainers
- Costs of recruiting tools
- Office space
- Time spent developing and improving internal policies, procedures, and processes
- Managing the in-house team and the people risk of “Departments of One”
- When you hire an HR consultant, you often pay an hourly rate or a monthly retained service. You can decide how little or how much support you need.
- A high level of service can be provided at a lower cost.
- You can hire the best experts at a fraction of the cost of a full-time resource
- You benefit from the shared knowledge and experience of an expert that works with many companies like yours.
So, if, for example, you already have somebody in-house who handles HR, Osprey hrc can offer you your very own named and dedicated CIPD-qualified HR expert to enhance your existing team, by providing practical, hands-on support, either on-site or remotely.
The HR Advisor will act as an extension of your team working with you to run your company’s HR, and being available by telephone, email and in person, as appropriate. They will provide legal, professional, and commercial advice, undertaking HR tasks on your behalf.
Some of the HR services normally include:
- HR policies and procedures / employee handbook
- HR document and Staff Handbook subscription service
- Handling of performance, absence, and disciplinary issues
- Dealing with employees’ issues and requests
- HR support and advice for managers
- Termination / redundancy handling
- Project delivery (including TUPE and redundancy management).
- Assistance during peak workloads.
- Specialist recruitment campaigns.
- Impartial, professional consultation.
- Access to market leading HR software for all your HR administration essentials enabling you to store all your employee records electronically.
Expert guidance will help your business to meet both its operational and its legal requirements. Keeping you up to date with the latest legislation and best practice, providing you with a clear, dynamic service based on your precise circumstances. We won’t take a one-size-fits-all approach with your business.
HR and Employment Law
Since the abolishment of employment tribunal fees in July 2017, the numbers of claims have increased by over 90%, putting businesses under more pressure to do the right thing by their employees, and that is where our expertise could become invaluable to you.
Professional consultants understand the risks of non-compliance and are ready to help you manage your staff efficiently and avoid common pitfalls.
In addition to the above, Retained HR Services package provides you with comprehensive HR support, all of the documents that you need, and the peace of mind that comes from knowing that your business is protected.
Retained HR Services package includes:
- An agreed or unlimited expert consultancy
- Case management documents covering disciplinary, absence, grievance, and redundancy
- Bespoke document templates
- Newsletters and legal updates
- Prices normally start from just £250.00 per month and vary depending upon company size.
As part of the Retained HR Services package, Osprey will, for example, offer bespoke:
- Policies, Procedures and Handbook
- Offer letters
- Terms and conditions of employment
- Compromise agreements
- Appraisal and performance management
- Exit interview paperwork
- Resignation documents
We at Osprey write every word in every HR document. We tailor it all to protect your business and comply with legislation. You can call us any time, any day, and receive instant HR advice—no matter what the subject. And, you’ll receive access to our suite of HR management software tools and optional legal expenses insurance.
At Osprey hrc, we believe in a partnership approach, which is why we can ensure a dedicated team of experts will be on hand to help you when you need it most. That’s why many organisations nationally and internally have outsourced HR to Osprey hrc.
To find out more about how we can help your business please take a look at the Services Section on our web site on https://ospreyhrc.com/hr services for more detailed information on our professional services for the people management of your organisation.
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 Term of our website use. If you require professional advice, please get in touch.