A guide for small businesses to outsourcing HR costs

A guide for small businesses to outsourcing HR costs

Firstly, what does HR involve?
HR involves all elements of Recruiting new staff, Training for your employees, managing an HR system and Employee Relations, which is managing all of the communication between you as the business owner and your employees.
If you are a small business and you want to focus on the day to day running of your business, it can be worthwhile outsourcing your HR operations.

What influences the cost of HR?
There are several things that influence the cost of your HR these include:
1. The number of employees in your business
2. The sector that your business is in
3. The tasks that you want to outsource
4. The service that you want to receive

1. The number of employees in your business
All employees have the legal right to an employment contract from Day 1 of their employment and ideally, you’ll want to be sending out an Employment Contract well before their first day to ensure that you have both agreed to all the terms within it.
It is also recommended that you have an employee handbook with all the legally required HR policies in it that are also relevant to your business.

So, ensuring you have a robust Employment Contract and Employee handbook is very important to effectively communicate your expectations to your employees.
Whether you have less 1 employee or 100 employees the cost of creating a Contract and Employee Handbook is money well spent. However, if you are looking at purchasing an HR system having 1-10 employees will cost you less than if you had 50 – 100 employees.
Likewise, if you are recruiting several members of staff it would cost you more upfront to recruit through an outsourced HR then if you decided to advertise for the staff yourself.

HR Consultancies offer various HR packages to small businesses which can include:
– Employment Relations support, to manage all the communications between you and your employees such as absence and performance related matters
– Recruiting options on job boards
– Training whether it be virtual or in person
– HR systems to hold all of your HR documents and manage holidays, perfromance and sickness

2. The sector that your business is in
Outsourcing HR costs are specific to the sector that your business is in.
For example, if you are an Early Years Provider, which involves recruiting employees who need enhanced DBS checks, taking up several employer references, undertaking qualification checks and pre employment checks under ‘Safer Recruitment’ practices, then the cost of outsourcing your HR is likely to be higher to take all of these administrative functions into account.

3. The tasks that you want to outsource
If you want ad-hoc HR support on an On-demand basis you can pay an hourly rate and utilise HR advice just for that particular case or project you are dealing with. If you want regular HR support every month then an HR Retained package is the better option for you.

For training, you can purchase eLearning courses which offer a range of subjects specifically for your industry or you can ask an outsourced HR consultancy to prepare a specific tailored course for your employees and for the HR consultancy to deliver it in person. You can also contact training providers to deliver courses at their locations where your employees can attend training with other attendees such as first aid training providers.

Recruitment can be done in house, however it can be time consuming as it will involve advertising, responding to applicants, shortlisting candidates and interviewing. There are specialist Recruitment agencies who can advertise and manage a vacancy for you. They know how to recruit for staff in your industry, however outsourcing your Recruitment to an agency is considerably more expensive.

4. The service you want to receive
Many HR consultancies provide solutions across the range of HR services so if you’re looking to outsource your Employee Relations support and you also need an HR system or some recruiting services, then check with your HR consultancy to see what other services they offer.

On-demand v Retained HR costs

On-demand HR – you only pay for the services you use. This could be an hourly rate charge or a fixed price to day rate to deliver a piece of HR work e.g. Redundancy project or handling a disciplinary investigation. In the South of England (not London) the hourly rates of an HR consultant can vary depending on their experience typically from £150-£300 per hour.

Retained HR – you’ll be charged a monthly fee so it’s a good idea to have specific tasks each month that you want the outsourced HR to do, to maximise the services you receive. Retained HR packages range from £100 – £500 per month (in the South of England, not London) as a retainer for day-to-day HR advice and support. HR Consultancies will charge extra for face to face meetings and to undertake complex case or project work.

Retained HR – Advantages:
– Fixed monthly price
– Perfect to manage your HR spend
– Dedicated HR Consultant
– Priority HR support
– Regular HR document access
– Regular Employment law updates included
– Employee Handbook updates included

Retained HR – Disadvantages:
– Higher price if you only need ‘one off’ support
– If you change your HR consultant part way through a contract the established relationship may suffer
– Will need to sign up to a minimum contract term

Who is a Retained HR service best for?
If you want continuity, a proactive approach, value for money and your HR admin and processing taken care of, then Retained HR is the best choice for you.

On-demand HR – Advantages:
– Only pay for what you use
– Occasional HR service usage
– Budget friendly service
– No contract tie in
– Complete control of HR Consultant work

On-demand HR – Disadvantages:
– Retained clients will get priority
– Various HR Consultants might support you
– If a project or case gets complicated, then the costs can quickly escalate

Who is On-demand HR best for?
Businesses who have a small HR budget, who require ad-hoc infrequent HR support.

Are unsure whether On-demand or Retained HR works for you?
If you want to have a discussion about the specifics of your business and what service will work better for you, contact us for a complimentary 30 minute call. Email sam@foreshorehr.com or telephone 023 9298 2685.