Outsourcing your HR

Why outsourced HR management is becoming more feasible for growing businesses

On October 1, three major pieces of employment legislation came into being.

Under the government’s new ‘common commencement dates’ – meant to make life easier for small businesses – new rules originating within the UK now arrive in two instalments every year.

It means that instead of having to track updates constantly, bosses focus on two ‘red tape days’ (the other is in April). Ministers say this will save you oodles of time and money previously spent wading through updated legal texts.

But changes to the Disability Discrimination Act and dispute resolution procedures, together with a hike in the national minimum wage, still managed to catch thousands of business owners unaware, forcing industry groups and accountancy firms to rush out articles alluding to the dangers of non-compliance.

In general, red tape remains one of the biggest business gripes – many of you complain that form-filling detracts from your core role of developing the business.

Summing up the environment immediately before the updates went live, James Walsh, head of regulatory affairs at the Institute of Directors, said: “More action is needed to get to the root of the red tape problem. We still need to tackle the proregulation mindset that pervades Whitehall and Brussels.”

But a growing number of you are responding to mounting piles of employment- related paperwork in a very simple way: paying someone else to deal with it.
The business benefits

While still in a relatively early stage of development, the human resource management industry is evolving quickly. Businesses offering outsourcing services are developing new, more focused products; and many are exploiting niches in the market.

Years ago, smaller companies disregarded these services, in the same way that people shunned the emerging mobile phone market in the early 1990s. Back then, mobiles were a showy luxury to be enjoyed only by those with more money than sense.

But also like mobile phones, outsourcing has become a viable business tool, and increasingly, businesses that don’t count themselves among the world’s multinationals see it as a serious option.

“The main benefit is that it takes the pressure off,” argues Martyn Hart, chairman of the National Outsourcing Association. “There are so many regulations coming in from the government it’s hard for businesses to keep up, so putting it in the hands of professionals is more efficient.”

In theory, by handing HR responsibilities to an outside agency, companies can save time, stress and money – not just because someone else is doing all the work, but also because they will be au fait with ever-changing employment law and are better equipped to shield businesses from costly employment tribunals.

Outsourcing firms use economies of scale to maximise their appeal. They hire teams of dedicated experts to handle groups of businesses, which on their own could not afford to take on experts of the same calibre and experience.

“People want specific staff dedicated to the issues – someone they can phone and get a direct answer from instead of having to look it up on a website or in a journal,” says Steve Foster, general manager of HR outsourcing at Northgate.

The luxury of choice

On a ‘fully comprehensive’ basis, outsourcers say their clients save between 20% and 30% on in-house HR costs. But they are extremely flexible in their approach and can deliver a targeted menu of services covering, for example, recruitment, payroll or form-filling.

You can request permanent contracts or one-off deals, and any savings will adjust with the amount and nature of work done. Costs are almost always worked out on a case-by-case basis and are calculated according to the size of the client’s company and the scale of work required.

Such is the breadth of services on offer that many outsourcing service providers insist that their clients take part in a kind of ‘due diligence’, which looks at the company’s size, direction and requirements.

“We invest a lot of time and make sure clients know what is involved,” says Bjorn Reynolds, sales director for small business services at Ceridian. “We take them through quite an indepth due diligence process to get a feel for what the company has in place and what they want out of it.”

Meanwhile, several companies have isolated a particular aspect of human resource management – such as recruitment in the case of Hudson HR – and concentrate their resources on becoming the best in the field.

But even these firms are likely to present you with a multitude of options. Because no two companies are alike, outsource businesses must establish the unique qualities of each prospective client.

Tom Mason, UK sales director at Hudson, explains: “Some companies want a temporary solution, others want us to build up a permanent team. Our clients range from retailers to airlines and there is increasing interest for outsourcing among smaller businesses. One example from our client base is a start-up company that struck a deal with a supermarket chain to provide a loyalty card. It proved extremely successful and meant they needed to take on more staff quickly, so they called on our services.”
The next step

If you’re in the dark about the services outsourcers provide and the prices they charge, don’t worry: you won’t be for very long. Your local Business Link or Chamber of Commerce will have information on various outsourcers and may provide you with details of organisations that employ their services.

After you’ve decided on a provider, talked over your needs and undergone due diligence, you will be allocated an account manager and a team of perhaps two or three dedicated personnel.

The amount of contact you have with these will depend on the job in hand, but companies in a long-term contract can expect a lot of to-ing and fro-ing early on.

However, establishing a rapport with the HR team is essential regardless of the duration of your contract with them. They will take control of a large slice of the company, so it’s important to get a good relationship going early.

Martyn Hart at the National Outsourcing Association says it is also important that people on your side of the fence get to know and work with people of a similar position on the other side, thereby ensuring you retain some power over HR decisions.
A halfway house

If such a level of involvement by an outside agency scares you, you could try the middle ground provided by HR software providers. These offer a similar – though less hands-on – support structure, with dedicated phone lines and websites, but allow you to retain control of your people management.

The software is not ‘off the shelf’ as you might imagine, but is tailored to client needs. The various packages deal with a range of HR hurdles including payroll, benefits, appraisals and discipline strategies.

“There is a thorough implementation process,” says Michael Richards, managing director of Snowdrop Systems. “The package helps companies streamline and save without giving up control of a vital part of the business.”

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