Complete guide to HR outsourcing costs in 2024

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.

HR outsourcing has grown in popularity in recent years due to ongoing economic volatility. Firms are looking for ways to reduce costs and improve efficiency. Outsourcing offers a cost-effective way to streamline processes and reduce admin overheads.

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. Read on for a detailed breakdown of what to look for in a provider, how much you should expect to pay, and the pros and cons of every option available.

How much does it cost to outsource HR?

Pricing for outsourcing human resources typically works in one of two ways: either as a fixed fee (around £20-£30 per month, per employee), or as a percentage of each employee’s monthly wage (approximately 2% to 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. The exact cost depends on the level of support required, not your team size.

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 ten wanting two hours of support per month may pay £200 per month. But if they opt for a comprehensive package with 20 hours they could end up paying £2,000 per month. Other factors can also influence your bill.

What factors influence HR outsourcing costs?

• Team size: often this is the main influencing factor when it comes to HR pricing, as 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, training, travel, and administrative costs, which can be further 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 should I get with HR outsourcing?

When you outsource your HR functions, you can typically expect to receive the following services:

1. Payroll and benefits administration: for fully-managed payroll, bosses should expect to pay between £10-20 per employee, per month. This includes everything involved in the monthly processing, plus year-end reporting and auto-enrolment into pension schemes.

2. Training and development: according to LearnExperts, SMEs spend £1,121 per worker when training new staff. Outsourcing this is unlikely to save you money (it usually costs around 5% of the employee’s salary) but it will help to cut down workload for managers.

3. Recruitment: includes assistance with job postings, candidate screening, and interviewing. For recruitment costs, agencies typically charge 15-20% of the vacant salary, so a role with a £30,000 salary could cost as much as £6,000. But a bad hire costs much more than this.

4. Compliance management: ensures compliance with employment laws and regulations. Most HR providers will charge between £150 to £300 per hour for experienced HR professionals involved in grievance and disciplinary procedures.

5. Other services include performance management and conflict handling (taking care of employee inquiries or disputes). These will typically be considered premium add-ons, and costs will depend on the amount of project hours required.

Pay-as-you-go vs retained HR costs

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.

• 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

Pay-as-you-go can be invaluable if you have an unusual project you need specific help with. Below, we’ve weighed up the pros and cons of retained and pay-as-you-go payment plans:

Which business is a retained model best suited for? If you have ongoing HR needs, want proactive support, and value continuity, consider a retainer.

Which business is a pay-as-you-go model best suited for? If your HR needs are sporadic, budget is tight, or you prefer project-based flexibility, opt for this model.

Alternative HR services to 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

These are useful if you have HR services in-house, but need to clarify where changes should be made, such as HR policies, documents, procedures and systems. You should expect to pay around £700-£1,000 for an HR audit. Generally speaking, that will include:

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

2. Specialist HR consultants

Businesses can 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.

Of course, you may sometimes need to hire an HR consultant for weeks or months at a time – the rates above can be expanded to cover longer periods of time, or you may even be able to negotiate a discount with your HR support team if that’s the case.

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.

Some of the most common HR support services include support and advice during disciplinary and grievance procedures, redundancy, and recruitment, as well as health and safety, training and development, payroll, and benefits.

Can I just use HR software?

The choice between outsourced our in-house HR depends on the specific functions you’re after. Some – like employment law and payroll services – require specialist skills to get right, so outsourcing these makes sense.

However, human resources does not generate revenue, so you’ll want to take care of it as cheaply as possible. The low-cost option is to DIY your human resource tasks with HR software, a digital solution designed to assist businesses with managing their people.

Software licensing fees are cheaper than outsourcing (Rippling, one of our top HR platforms, costs just £7 per user, per month). Recent technological advancements, such as Artifical Intelligence, have also made systems easier for newbies to get to grips with.

That said, without expert help you may find you’re spending more time on admin and making errors that are costly to fix. That’s where outsourcing HR may be preferrable.

Expertise on tap

Managing, paying, and upskilling employees is an overwhelming responsibility for new bosses. HR outsourcing will let you take back control of your time and business, but provider fees can be unclear. How do you know you’re getting a good deal?

We’ve explained that outsourcing can cost as little as £20 per employee, per month. There are also lots of difference service types that you can pick and choose from to cater for the exact level of support you need.

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. And, if you’re still undecided, the below guides might help you to understand more about what HR outsourcing can give you:

• Best HR and payroll software for SMEs
• Best HR consulting firms
• How to become an HR manager
• How to pay yourself as a business owner