A complete guide to HR outsourcing costs

Human resources (HR) covers multiple functions and takes a lot of time, money, and stress to get right. Because of this, teams often choose to outsource HR. Budget options typically cost around £200 per month, while more bespoke packages can be as much as £800.

The series of new laws and legislation expected to come into effect following the Employment Rights Bill in April 2025 has made it harder than ever for UK employers to stay on top of their HR responsibilities. 

The increasing complexity of employment laws, in conjunction with ongoing economic volatility, has seen HR outsourcing growing in popularity. In this guide, we’ll explain the main elements that affect the cost of a third-party HR provider, as well as the types of outsourcing available, such as audit or support HR.

How much does it cost to outsource HR?

Pricing for outsourcing human resources typically works in one of two ways:

• As a fixed fee: around £20-£30 per month, per employee
• As a percentage of each employee’s monthly wage: approximately 2%-10% of a worker’s monthly salary

However, I’ve never seen pricing lower than £160 a month, and you won’t necessarily save a lot of money if you are a sole trader or microbusiness. As well as team size, the exact cost will depend on the level of support required.

Some providers charge flexibly by the project, day or hour. Others offer monthly packages with a set number of hours, known as a retainer.

For example, a small team of 10 typically pays around £200 per month for a basic two-hour support package. A comprehensive package with 20 hours of support for the same team would cost closer to £2,000 per month.

Our video guide to HR outsourcing costs

Prefer to have someone talk you through outsourcing your HR costs? Watch our deputy editor take you through the key points in just 90 seconds:

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What factors influence HR outsourcing costs?

• Team size: often the biggest cost factor – the more staff you have, the greater your HR needs.
• HR functions: a simple function like fixed-fee payroll, for example, will cost far less than bringing in an experienced employment lawyer to represent your small business at tribunal.
• Overhead and operating costs: consultants need to factor in their own expenses (like software and travel), which can be passed on to clients.
• Industry: sector regulations and trends can impact costs. For example, tech firms often have a global workforce, which can complicate HR processes.

What are the pros and cons of outsourcing HR vs hiring an in-house HR manager?

Choosing how to manage HR is a key decision for growing businesses. As your team expands, you’ll need support with recruitment, compliance, payroll and employee issues. But how do you know if you should outsource HR to a provider or hire someone in-house?

Here are the typical pros and cons of each approach to help you decide which option best fits your business’ size, budget and long-term goals.

Pros and cons of outsourcing HR

Pros and cons of hiring an in-house HR manager

Should I choose pay-as-you-go HR or retained HR?

If you can’t decide whether or not to outsource HR long-term, a good option is to purchase a pay-as-you-go plan, rather than invest in a costly retainer.

This lets you access expert HR support only when you need it and is a flexible, cost-effective way to get professional guidance without committing to a full-time service. Here’s a quick breakdown of how both options work:

• Retained consultancy: you’ll be charged a minimum service fee per month, so you’ll want to make use of a base level of HR support.
• Pay-as-you-go: you’ll be charged a set amount based on what services you require and how long for.

Which businesses are retained models best suited for?

You should consider a retainer, if:

• You have ongoing HR needs
• You want proactive support from a trusted consultant
• You value smooth business continuity

Which businesses are pay-as-you-go models best suited for?

You should opt for a pay-as-you-go model if:

• Your HR needs are sporadic, only needing infrequent support throughout the year
• You budget is tight, and you only want to pay for the services you use
• You prefer project-based flexibility, including who you choose as your HR consultant

What alternative HR services should I consider?

HR outsourcing providers offer custom services that you can choose from. Here are three of the most common services for small businesses:

1. HR audits

A HR audit is a professional review of a company’s HR processes, policies and documents to check whether they’re compliant with employment law and aligned with best practice. These are useful if you have HR services in-house, but need to clarify where changes should be made.

A standard HR audit for a small business typically costs between £700 and £1,000. This cost can increase to several thousand pounds for larger businesses or more comprehensive audits. Generally speaking, that will include:

• Recruitment practices
• Employee development and disciplinary
• Health and safety
• Payroll and benefits

2. Specialist HR consultants

These are external HR experts who focus on a specific area of people management. such as employment law, diversity, equity and inclusion (DEI), recruitment and talent strategy, and conflict management.

For those owners not interested in becoming a HR manager themselves, you could also benefit from the hire of a specialist HR consultant for managing their day-to-day people tasks or projects.

Most of these will charge their own rates. Typically, you can expect to pay slightly less overall if you want your HR consultant on a retainer basis.

These are the estimated costs per hour or day, but keep in mind you may sometimes need to hire a HR consultant for weeks or months at a time:

3. HR support costs

HR support is a way of outsourcing the day-to-day running of your HR function, without fully handing over responsibilities.

Small businesses usually opt for HR support on a monthly fixed fee basis, making the cost of human resources easier to absorb. Common HR support services include support and advice during:

• Disciplinary and grievance procedures
• Workplace redundancies
• Recruitment
• Health and safety
• Training and development
• Payroll
• Company benefits

How to choose a HR outsourcing provider

When choosing the right provider, you shouldn’t just go with the cheapest option. Instead, you should go with a partner that can help you manage compliance, streamline processes and support your employees.

But before making this decision, these are the kinds of questions you should ask a consulting firm:

• Do you have experience in my industry?
• What level of support is included?
• What’s included in your service package and what costs extra?
• How do you stay up to date with employment law?
• Do you offer software or tools for HR management?
• How flexible is your service?
• How quickly can you respond to urgent issues?
• Can you provide references or case studies from similar businesses?

What are the risks of not outsourcing HR?

Managing HR in-house can be challenging for small businesses. Without the right expertise and processes, there’s a lot you can risk.

This is especially important in light of the new Employment Rights Bill, which is set to introduce new legal obligations for employers. This means it’s more crucial than ever to ensure your business stays compliant and protected.

The risks you can face if you don’t outsource HR include:

• Compliance issues: you may struggle to keep up with employment laws and regulations, increasing the risk of fines, legal disputes, or employment tribunals.
• Poor recruitment and retention: lack of a structured recruitment process can lead to hiring mistakes, which are costly to fix and can affect team performance.
• Administrative burden: managers or founders may spend hours on payroll or contracts, taking focus away from core business activities.
• Damaged morale: lack of dedicated HR oversight means company culture can suffer, resulting in disengaged employees, lingering conflicts and breakdowns in communications.
• Higher risk of internal conflicts: without HR expertise, handling grievances, disciplinary actions or performance issues can become tricky and may escalate unnecessarily.

Can I just use HR software?

The obvious low-overhead option is to DIY your human resource tasks with HR software, as software licensing fees are cheaper than outsourcing.

For SMEs with a low headcount and who only have basic needs, using HR software in-house as opposed to paying through the nose for an external HR retainer will be the better option. For example, we know that Staffology by IRIS’ prices start from £7 per month.

However, some functions – like employment law and payroll services – require specialist skills to get right, so outsourcing these can make sense (like assistance with questions such as how you should pay yourself as a business owner). Without expert help you may find you’re spending more time on admin and making errors that are costly to fix.

Remember, you can always start out by using HR software, and scale up to HR outsourcing, if and when you need it.

If you’ve read the above and feel ready to select the perfect fit for your HR needs, our free cost comparison tool can help you to find the best deal.

In conclusion: how much does HR outsourcing cost?

A simple, budget solution to outsourcing your HR basics can be as cheap as £200 per month, while more comprehensive options can be as expensive as £800 per month.

The key services you should be receiving in return are payroll, benefits admin, staff training, recruitment, and compliance management. 

For some newer startups with a handful of employees, it will likely be cheaper to pay for HR and payroll software that will streamline these different tasks for you.