July 25, 2020

man beside laptop thinking

Is the HR (HR) department overwhelmed with compliance issues and complex programmes?

Outsourcing HR can help your business in the following ways:

  1. 1Redu​cing Costs
  2. 2Reducing Risks
  3. 3Efficiency Savings
  4. 4Performance Management
  5. 5Flexibility

Are you, the business owner, taking time away from running the business to deal with payroll issues or other HR issues, when you should be working for the business’s clients? 

Are any of the valued employees stuck doing the same? 

If you answered yes to any of the questions above then you owe it to the business to explore the possibilities of outsourcing the HR department, or if you don’t have one, to seek support from HR expert

– BilLY MUIR, Managing Director, LBJ cONSULTANTS

With the company striving to ensure that it delivers its core products and services to its clients, HR and employment law compliance can be an unwanted distraction; but one that must not be ignored.

Employers have legal obligations to provide the statutory provisions to their employees. Failing to adhere to these regulations could lead to Employment Tribunal cases being raised against the company with the stress, financial and time costs that this entails.   

The average award for an unfair dismissal claim, in 2018-19 was £15,007. The highest award in a discrimination claim was £242,130 ​which was awarded for disability discrimination.

£15,007

The average award for an unfair dismissal claim, in 2018-19

These figures are for the award only and do not cover legal expenses in defending any case.  So, it is advisable to deal with issues quickly and stop them developing into legal cases.  The best way to do this is to get proper expert advice to help you deal with any employment matter.

Employers also face the fact that employment laws can be changed or be amended frequently.  It is their responsibility to be aware of these changes and to implement them fully.

With the help of a professional HR provider, either internal or external, employers, large and small, can benefit from effective and innovative employment law compliance, support and advice concerning any areas of employment law. 

Advantages & Disadvantages

Pros and Cons of outsourced HR

Pros

  • Reduced cost
  • Increased efficiency
  • Access to improved HR IT systems
  • Improved management information (including human capital metrics)
  • Access to HR expertise not available internally
  • You outsource other business functions
  • Reduced risk
  • To free HR resources to operate more strategically

Cons

  • Don’t outsource what you don’t understand
  • HR outsourcing does not absolve the organisation of good people management practices
  • HR outsourcing arrangements are often long-term contracts
  • Loss of local knowledge and processeses
  • Standardisation of processes in line with outsource provider

Conclusion:

Each business must weigh up these benefits and disadvantages and how they will affect the company.  By outsourcing the HR function, you are paying for what you need, not paying for what you don’t need.

Crucially, for the employer, all advice offered must be compliant with current employment legislation and should be updated when any changes or amendments are made to existing employment law.

It has been claimed by many people that the HR department is the most important department within any company because it is the unit that processes the hiring and firing of all employees of a company. Some might even say it is the first department that a potential employee gets to know up close and the last it says goodbye to.

Ready?

Ask us anything about HR, Health & Safety or Employment Law. With over 60 years experience we promise to help. 

However, despite its importance, owners of some companies have outsourced their HR department especially at this time of uncertainty when employees are returning to work or might be looking to continue to work from home and the future of the company, be it large or small, could be under threat.

Small companies who don’t have any HR presence and larger companies who do have an internal HR function could also benefit from outsourcing this HR work.  Many companies already outsource their Health & Safety function because they realise that they need expert advice over this. 

Dealing with HR and employment law issues should be treated in the same manner: as failing to get the correct advice at the correct time could have disastrous financial effects for any business, as was mentioned above!

Outsourcing the HR function is a big decision, so it’s important any company considers all the relevant advantages and disadvantages before committing to any agreement.  

There are some distinct advantages to outsourcing the HR function, so it is best to be aware of these benefits well in advance before any company agrees to outsource.

There are other benefits to outsourcing the HR department, these would depend on how large or small the company is, and whether you outsource just one or two HR processes, or you decide to go all in and outsource the whole HR department. Many smaller companies find handing over all HR processes to an external HR provider really frees them up to grow their business instead of worrying about needing to deal with the day to day employee issues.

How to choose the best HR outsourcing company

The first issue that should be looked at is which company will you choose to outsource the HR function to?  How will you choose them?  

Many organisations, when they ask you to join their outsourced HR service, offer employment law support via the telephone or e-mail, does this meet your needs?  You call up and speak to an expert who advises you over the issue that is causing you concern.  They send you a template letter that deals with the issue.

Or would you like a service that is there on site to support and advise you when you need that most and will create bespoke letters and policies on your behalf.  You will need to decide what kind of support you need.  

  • Will you want an on-site presence? 
  • Will you be happy with remote advice being given by telephone or e-mail? 

There are many companies in the market who can provide one or the other kind of service or in some cases can provide both an on-site and remote service.  

Before outsourcing the HR department, you’ll want to meet and get quotes from several HR providers who can deliver the service that is required.  

Listed below are the main benefits that companies can get from using outsourced HR functions. 

Cost Saving

A properly functioning HR department requires well-paid highly qualified trained staff.  Once the HR services are outsourced, the business will save on these overhead costs. Moreover, outsourcing costs are variable and can be expanded or reduced according to the business requirements. 

The fewer employees on staff, the smaller the payroll. By outsourcing, the business is paying for what it needs, not paying for what it does not need.

Whether it is a contract that spells out what the business is getting it will end up paying less for the service than for an employed HR person it is paying a salary to.

The business will also save on the cost of benefits, additional office space, IT equipment, pension payments, National Insurance payments, annual leave and sick leave pay.  

HR staff removed from the distracting elements of the company’s day-to-day operations can be more productive, especially regarding long-term goals like recruitment.

Reduce Risks

Outsourcing HR services helps reduce business risks. Employment law is updated regularly, and it can become difficult for companies to remain up to date with the latest technologies and business methodologies. Outsourcing firms have HR professionals who keep themselves abreast of the latest laws and services. 

Moreover, when HR services are outsourced, companies can always remain ensured about uninterrupted services. In short, outsourcing HR services gives you access to a pool of talent that has knowledge about all the latest changes. 

One of the most difficult problems of the in-house HR department is monitoring changes to employment law and other laws that may impact on HR functions.

When you outsource the HR work, the outsourcing company will devote its resources to monitoring amendments to laws that affect your company, including employee regulations and laws that affect the compensation of your own employees.

Efficiency Savings

Most companies who outsource their HR functions confirm this leads to greater efficiency within the HR department.

Outsourcing HR services helps streamline significant HR activities such as compliance, payroll and employee administration. When companies outsource HR services, they get more time to focus on profits and other core business activities.

Paying employees will get easier because this function can be separated from the managerial functions of observing employee relations and dealing with issues among rank-and-file. The Payroll and Accounting system will proceed smoothly for the good of the entire company so that there are no delays in paying employees.

An outsourced HR provider who focuses solely on HR, offers expertise in areas their client might not have thought of, they have the staff to grow with the client’s business and take care of all its needs. Because the services they offer are wider, the client can add services as needed, keeping costs low and spending their time growing their business.

Performance Management

Often, the overall quality and the time to deliver will improve when a business has an outsourced HR services provider compared to being handled internally. Outsourcing firms often monitor the performance of employees and help with their training. This, in turn, reduces the administrative responsibilities of the in-house managers. 

When employee hiring and training is outsourced, managers and other professionals will be able to concentrate on ways to raise revenues for the company instead of getting side-tracked into routine administrative functions.

Managers are supposed to manage teams within any company so that they are best able to serve its clients and/or customers. When the HR department is outsourced, managers can devote their time to managing those teams because the HR outsourcing company will be responsible for employee development and tackling employee behaviour issues within the workplace.

Flexibility

One of the key reasons why human resource services are outsourced is to ensure that the HR department functions smoothly.

For instance, if any business is facing an influx of information, it can always fulfil their immediate requirements by outsourcing their HR services. 

This also enables the company to keep working as it always has. Flexibility comes as a key benefit of HR outsourcing that cannot be overlooked.  

The company can choose to cut the outsourced HR department down to a level that will help it survive, or add more functions if the company is profitable, as management sees fit.

Other departments of the company will not experience any losses and may continue to function at their optimal best.

A company that is still small will be able to compete better in an industry against the giants if it outsources its HR department function.

This is because the small company will be able to snatch business opportunities as a nimbler and more flexible organisation because there is no need to worry about HR functions. Revenues will be able to grow so that the small business can survive and thrive.

The above-mentioned factors are some of the many benefits of human resource outsourcing.

Whether you are a small-sized or medium-sized organisation that is looking for additional savings and adding new functions to the business, outsourcing human resource services can turn out to be highly advantageous.

Reasons  NOT to outsource your HR function

Handling many of the day-to-day complexities of the business, the HR department is often described as the beating heart of any company.

From employee recruitment and training, to employee benefits, legal compliance and payroll, HR plays a key role in managing talent and securing the company’s growth.

While outsourcing HR functions provides a cost-efficient alternative to staffing an onsite department, there could be some disadvantages of outsourcing which you must consider alongside the benefits.

Distance from Employees

Outsourcing HR functions to an offsite location can lead to a sense of distance between the employees and the company. 

Recruitment Problems from Outsourcing

In some cases, outsourced employees can lack the understanding of the company culture that a regular employee has. The success of a business heavily relies on the performance of its employees, if the employees are not the right fit; the success of the company suffers.

Risks of Information Leaks

Outsourcing HR functions may lead to the release of sensitive company information.

Often, for an outsourced company to provide adequate service, some sensitive information about the company’s organisational structure, product information or other inner workings is necessary for the vendor to perform unhindered.

Whether deliberate or not, when providing an outside company with sensitive information, there is always a possibility for an information leak.

It’s important to make sure protections for sensitive data and trade secrets are spelled out in any outsourcing contracts.

Dependency and Loss of Control

After outsourcing to a provider, executives may give up too much control over the company’s human resource functions or the company may become too dependent on the outsourced provider. 

Companies considering outsourcing their HR functions or another function may wish to try a short-term contract or one without excessive penalties for cancelling or changing providers if things don’t work out.

Conclusion

Outsourcing HR functions can allow the company to scale up for temporary needs, i.e. processing tax forms or hiring a batch of new employees in a period of growth, without having to hire permanent employees.

Overall the objections to outsourcing a company’s HR function can easily be addressed by taking care when hiring the HR company.  

Proper checks should be made before agreeing any contract is agreed.

Confidentiality clauses must be included in any contract that is signed between the parties.  

By hiring a HR company who will ensure they become part of the company’s team and will always project all the values and culture of the business then this will ensure that many of the possible objections to outsourcing the HR function are met.

In today’s business environment, competition is very much apparent in any industry you encounter. One way any company can survive the competition is if it outsources its HR department to a professional company.

The HR company should be assisting its client in helping it grow and to meet its goals.  It can do this by bringing its experience from outside the hiring company to assist it in meeting its targets.  

Many companies are already trying this out and it seems that the small and medium enterprises are the ones who benefit the most by doing so.  By outsourcing the HR function. The leaders of the company can focus on what they do best – and why they started the company in the first place – to manage and grow the business!

By doing this the company’s employees, managers, and upper management will be able to focus on raising much-needed revenue instead – this is important so the company can set aside cost savings into the company “war chest” for future use in revenue-generating activities and programmes.

Ask Us Anything About HR, Employment Law or Health & Safety

Get FREE access to our factsheet library