HR outsourcing costs

Human resources (HR) is a very broad business term. Managers have to carry out multiple functions across the business, which can make it confusing to define the jobs involved. Company owners may be unwilling to admit it, but not everyone even understands what HR is.

Outsourcing your HR functions to a third-party consultant will cost UK small businesses around £100-£300 per month. This is much less than the cost of running a full people department, but it's still a hefty amount of resource for SMEs to spend. That's why it's a good idea to do your research, and find the deal with the best value for money before committing.

Thankfully, our experts have been helping thousands of SMEs to run their businesses for over 20 years and can help you find the solution that works best for your firm.

In this guide, we'll explain the main elements that can affect the cost of an outside provider, such as billing cycles. You might also need specific types of outsourcing, like audit or support HR. Read on, for a detailed breakdown of what to look for in a HR provider, how much you should expect to pay, and the pros and cons of every option available.

HR outsourcing prices

HR outsourcing prices vary depending on a number of factors, although, as with many products and services, you can generally make estimates based on average costs, or past buyer experiences. The same is true of HR.

With countless businesses of every size employing and outsourcing HR duties, there is a wealth of information available to help businesses understand the budget that they will need – and therefore the return on investment (ROI) – to facilitate an HR project, whether short-term or long-term.

Take a look at the sections below to find out more about what is included in the various functions, and how much your small business could expect to pay.

HR outsourcing vs HR software

Instead of outsourcing your HR processes to a third-party HR service, you could choose to manage it yourself using HR software – a simple tool that automates HR tasks and makes in-house management much easier.

HR software pricing varies, but paying for it is usually cheaper than paying to outsource your HR. Rippling, one of our top recommended HR platforms, charges prices starting from an affordable £7 per user, per month.

Meanwhile, Deel's HR software, which can automate HR admin and reporting for employees around the world, is free for businesses with up to 200 employees.

HR audit costs

HR audits look at your current HR activities, including terms of policy, documents, procedures and systems, in order to see what needs to be done to get your business operating legally and efficiently.

An HR audit is usually extremely comprehensive and takes a ‘fine tooth comb’ approach to assess all of the different HR practices in your business.

Generally speaking, a full audit will look at a range of features, including:

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

Though these features may be included, some businesses may prefer to specify which functions they want audited – this will especially be the case where smaller businesses have established HR concerns.

In many ways, an HR audit is the simple answer to the question: ‘what do HR consultants do?’ It's therefore your first step in understanding what you need from outsourcing HR, and being able to make sense of human resources costs.

An HR audit is also useful if you have some HR services in-house, but need to establish where changes should be made.

You should expect an HR audit to include some small fixes, but fundamentally the results form the basis of HR consulting services fees going forward, and will feed into an actionable plan.

HR support costs

HR support is a way of outsourcing the day-to-day running of your HR function, as well as supporting the business in its people management endeavours. The problem with HR tasks is that they tend to be time-consuming and require expertise to avoid potentially devastating errors.

As you would expect, HR support varies depending on your specific requirements, and will be available either at a HR consultant hourly rate, or through fixed HR consulting service fees.

Just note that although HR agencies will do the legwork for you, HR support still means support, and will require some degree of involvement on your part, if only to check in on what's happening.

HR backup can additionally help ensure you are acting legally as an employer, provide you support and advice during disciplinary and grievance procedures, redundancy, and recruitment, as well as health and safety, training and development, payroll, and benefits.

Some of the most common HR support functions include:

• Payroll and salary
• Redundancy and hiring
• Health and safety

Small businesses usually opt for HR support on a monthly fixed fee basis, making the cost of human resources easy to digest.

Outsourced HR costs

When considering HR outsourcing, the consulting fees should be viewed on the basis of cost-effectiveness and ROI.

Of course, HR consulting rates for outsourced HR vary enormously, as they are customised to the individual business, and full HR outsourcing is a level above HR support.

Generally, you can expect to outsource all of the functions of HR, and your HR outsourcing costs will depend on the breadth of service you choose, and the size of your business.

Some HR consultancy rates will include fully serviced HR packages, whereas others will allow you to outsource different elements of your HR requirements on a more piecemeal basis.

Understanding the HR consulting fee structure, therefore, requires you to look closely at what function of HR you will need help with. Are you after a complete employment law service with tribunal support? Or, do you just need help keeping your contracts legal?

Unlike with HR support, outsourced HR lets you choose to outsource your HR fully, and includes a far wider range of services.

Outsourced HR costs can cover:

• Appraisals and performance management
• Payroll and benefits administration
• Training and development
• Recruitment
• Employee management (such as absence management)
• Grievances and disciplinary procedures
• Employment law

HR consultants charges – per hour and per day

Most HR consultants will have their own HR consultant rates, which may be broken down on an hourly, daily or fixed fee basis.

Typically, you can expect to pay slightly less overall if you want your HR consultant on a retainer basis. With this option, the HR consultant hourly rate will be in the region of £60+, compared with £80+ an hour if you'd rather pick and choose your HR help.

For a side-by-side comparison of HR consultant costs, this guide should help you:

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.

HR outsourcing costs vs in-house

Deciding whether to outsource HR or handle it all in-house is a common question asked by small businesses and entrepreneurs. It's also an important point to consider, since getting it right will help you minimise your human resources costs.

Human resources, overall, does not generate revenue, so you'll want to take care of it as quickly and cheaply as possible. Just be aware that slip-ups in HR can be extremely costly because many HR services require specialised skills. That's why it's crucial to do it properly.

For the vast majority of small to medium businesses and UK start-ups, it makes sense to outsource your HR function. This lets you focus on the core aims of your business, and sidestep the headache of some of the most difficult and time-hungry tasks involved in running a business.

Ultimately, the choice between outsourcing your HR or keeping it in-house will depend on the specific functions you're after. Some – like employment law, payroll, and pensions – are tricky to manage cost-effectively in-house, so outsourcing these makes sense.

Below, we've weighed up the pros and cons of retained and pay-as-you-go payment plans, so you can best assess the value of each to your business.

Pay-as-you-go vs retained HR costs

But which option suits your small business or start-up best? With retained HR 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.

Though in our experience, the majority of small businesses usually reach the threshold to make this worthwhile. This is especially important if you have no in-house HR skills, and want to be safe in the knowledge you're working within employment law – just note that there will also be a maximum usage cap.

That said, pay-as-you-go can be invaluable if you have an unusual project you need specific HR help with. Or, you could combine this option when needed with a more cost-effective retained arrangement to keep your overall human resources fees down.

HR cost factors

There are a number of different factors – both internal and external to your business – that will affect your human resources consulting fees.

The main questions to ask yourself will be:

• How many employees do you have? – This is the main difference as the more staff you have, the greater your HR needs.
• What HR services do you need? – 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.
• Do you want retained or pay-as-you-go HR help? – Most small businesses find they need some degree of retained support, and this is a great option for keeping costs down.

Compare HR outsourcing prices

From reading this article, you've learned more about HR outsourcing costs, including the factors that may affect pricing and what the potential benefits of outsourcing your company's HR requirements may be.

Here at Startups, we think the best way to find the right HR outsourcing for your small business is to go straight to the suppliers. That's why we've built a quick and easy quote-finder below to help you compare and save on quotes.