Small business HR outsourcing

As a small business, outsourcing your HR needs is usually best - find out if this is the case for your business

Whether it’s running payroll, completing paperwork or managing the recruitment process, HR is a crucial component of business operations, and often requires specialist knowledge, as well as dedicated time and resources.

Small companies, just like larger companies, require the best HR to ensure they can be as successful as possible. Many of these HR issues will be evident, and clearly, it is important to have these procedures in place.

For many small business though, these aspects can be difficult to define and manage, so we have created this page on HR outsourcing to help you understand the different options available to you.

In this article, we’ll cover:

  1. Which small businesses need HR?
  2. Small business HR solutions
  3. HR outsourcing for small businesses
  4. Small business HR costs

To find out more about the range of HR options that are available for your small business, read on.

Or, if you would like to compare quotes from several chosen HR suppliers now, simply complete the form at the top of the page.


1. Which small businesses need HR?

Below are several of the main aspects of HR that every business will have to deal with at some point, and as a small business it can be difficult to manage them with limited resources and staff hours.

Measuring performance

It can be difficult to decide when and how to measure performance in order to develop staff.

‘Doubling up’ job roles

As a small business grows, HR responsibilities are often covered by staff who then ‘double up’ in their own responsibilities relevant to their job, and HR responsibilities – this reduces productivity and means untrained staff are performing HR duties.

Lack of time/resources dedicated to HR

In a small business, a lack of dedicated HR staff means that employee issues will not be dealt with properly, and company policies may be difficult and slow to change.

Staff retention

Staff are your most important resource, and in order to retain your best staff members, you need to provide the best support and training for each of their specific needs. For lots of small businesses these can go ignored, as staff are occupied with their everyday tasks, and are usually not prepared or trained to deal with these issues.

Training

In relation to staff retention, training allows staff to grow and develop themselves and should be encouraged, forming part of their own personal development plan to ensure that they feel – and actually are – valued members of your organisation, as well as being better equipped to perform their duties.

New staff recruitment

Finding and hiring the right members of staff for your business can be, and often is, a very difficult process, with a lot of your time and money at stake. Having a specialist team to carry out this duty for you will save you plenty of both, and ensure that your business is finding the right staff to ensure your current and future success.

Rewarding staff

Whilst this does obviously increase an employee’s self worth and value towards the company, the main benefit is that it encourages best practice towards your company policies and procedures, as well as motivating staff to perform as well as they can.

It can be difficult to keep track of these rewards, though, as well as various staff member’s individual performance metrics, especially for a small business with limited resources and staff hours.

Long term sickness

It can be difficult to know how to deal with a staff member’s long term sickness, and it can be tough to apply the right mixture of sympathy – staff will be sick from time to time, and need time to recover properly – and best practice, to ensure the sick staff member is aware of their rights, but also their responsibilities – as sickness will cost your company money and negatively affect productivity.

Keeping up to date administration with changing employment law regulations

These can quickly become out of date – as legally binding documents, they must be current, relevant and useful, and for small businesses with a lack of resources it can be tough to dedicate the resources for this.

Health and safety

It’s crucial – both legally and morally – to ensure that your employees have a safe working environment, and sufficient training to work with all relevant equipment.

Proper implementation of more general aspects of safety – such as CCTV, alarms and fire escape routes – require a great deal of attention and knowledge, and with a limited amount of staff hours, these aspects can drop in standards.

There are, of course, many more aspects to HR for a small business, but these are some of the main ones.


2. Small business HR solutions

To summarise, one useful way to help you decide whether to invest in the services of an HR firm for your small business, is to consider whether any of the above points are affecting your business.

Many owners and members of staff will begin to take on tasks such as recruitment, training, and payroll, whilst their business-related responsibilities suffer. It is at this point that it is worth considering the worth of your time as the owner of your business, and the members of staff that work for you.

These tasks can all add up and remove valuable time from the productivity and overall success of your business – if you and your staff cannot keep up with the above aspects of HR and maintain their productivity, it is probably time to consider outsourcing your HR needs to a specialist organisation.

HR checklist – does my small business need HR?

In addition to the above aspects of HR, it is also worth asking yourself the following questions:

  • Do you have a high rate of staff turnover at your company? Often this can come as a result of you not fulfilling your employee’s individual requirements.
  • Are all of your employee files organised properly? Do they contain all of the relevant documents and do you know what they are? Are they stored correctly? Do you know how they should be stored? The contents and storage of these details, as well as the way your business handles them, are strict.
  • Do you have an employee handbook and do all employees have access to it? This will give details on all of your main policies and procedures.
  • Are you recruiting new staff as quickly as you would like to? As previously mentioned, staff are your primary resource and are crucial to your growth.
  • Is a performance review process for employees in place? Formal feedback will enable employees to work to the best of their ability.

If you feel that any of these areas require some work and investment of time and money that you cannot provide, find someone who can come in and help you take these things under control.

Business size – is my company big enough for HR?

In short – yes, your business is always big enough for HR, no matter what the size. It can, though, be difficult to define the size of your business by its number of staff, however some industry experts do have suggestions on how many HR staff certain business sizes require.

An industry standard for determining how many HR team members are needed has traditionally focused around one HR for every 100 employees.

The HR-to-employee ratio is 2.60 on average, according to the 2017 Human Capital Benchmarking Report published by the Society for Human Resource Management.

Internally hiring a member of staff can often be a much greater expense to your business than outsourcing your HR needs – even businesses with over 200 employees may still outsource HR to alleviate costs or ensure these duties are performed correctly.


3. HR outsourcing for small businesses

The information on this page has aimed to make it clear how important HR is to your business and its future success.

There are two key options at this point, which will be broken down to help you decide which is best for your organisation:

  1. Having an internal member of HR staff
  2. Outsourcing your HR needs

Internal HR staff

The first option is hiring an internal member of HR staff, either by promoting from within or through a normal recruitment process. See below for the advantages and disadvantages of hiring an internal HR staff member for your small business.

Advantages Disadvantages
Good chance to promote a member of staff/give them a new role Not a cost-effective solution – the member of staff will have to be salaried which is a much greater cost than outsourcing HR
You can specifically choose who deals with your HR HR agencies are experts in what they do – it can be difficult to get a member of your own staff to uphold these standards
Having an HR manager actually in your business will make HR processes and changes quicker as meetings are likely to be easier to arrange Your staff members and you as the owner are liable if any HR processes go wrong
If you promote a member of staff internally, there will be a huge responsibility on your part to train them to a proper standard
Dealing with HR is hugely time consuming – and to do it well, it requires an even bigger amount of knowledge and investment of resources

Outsourcing HR

The second option is to outsource your HR needs to an HR agency. See below for the advantages and disadvantages of doing so.

Advantages Disadvantages
Outsourcing HR will usually be a more cost-effective option for small businesses By outsourcing your HR requirements it means you will not get a chance to internally promote a staff member and give them a new career path
As previously mentioned, an HR agency will be experts in that field, ensuring your business will receive the highest standards of HR management Not having an internal staff member means less direct control over your HR management
By outsourcing your HR needs, you can take the pressure of yourself and your staff, and direct your attention and resources to tasks more relevant to your job role As your business grows, it may become less cost-effective to outsource your HR needs. At this point it is worth considering an HR team within your organisation.
HR companies will tailor their offers to your business, ensuring you get the right HR management for your needs Implementing changes may take longer because your HR manager will not be in-house
There is huge value in having experts perform your HR management. They will stay ahead of any trends and changes in HR, and constantly aim to improve their services to ensure you remain their client. It’s within their interests, therefore, to give you the best service they can
Your business will not be liable for any problems that arise with your HR

Summary of pros and cons

Generally speaking, internal HR staff will give you a chance to promote internally, or at least select your own HR staff, meaning you have more control over the specific person(s) responsible for HR. Having them in-house will also mean changes may be quicker, as you will be able to see the member of staff face-to-face.

Internal HR staff, however, will usually not be the most cost-effective solution, and there will be a considerable responsibility on your part to train the member of staff and uphold their standards.

Your business will be liable for any HR problems, and generally, dealing with HR is a difficult and time-consuming task that will require a significant amount of resources.

In outsourcing your HR needs, you’re likely to save a substantial amount of time and resources (which is crucial to a small business’s growth) all the while using the industry-leading expertise that your selected agency will offer.

Outsourcing HR is more cost-effective for smaller businesses (as explained in the next section) and will take the pressure off you and your staff. It’s also worth bearing in mind that it is in the HR agency’s best interests to give you the best service they can, as you’re more likely to stay with them or recommend their services to other businesses.

How to find the best HR consulting firm for your small business

While every business will have different requirements, what should you look for when choosing an HR consultancy? We outline some of the main factors to take into consideration:

  • Specialism – does your company need a firm that specialises in working with small businesses, or a particular area of HR?
  • Location – consider if you’ll need a consultant who understands the location you’re working in, or if someone from another area could offer an objective perspective
  • Services – think about what you want a consulting firm to provide your business, whether it’s one-off advice or ongoing support, as this is likely to influence the type of company you choose
  • Reviews – search online for reviews to compare other business’ experiences and to discover recurring positives and negatives of potential firms
  • Budget – once you have an idea of the type of services you want a consulting firm to conduct for your business, consider the funds that you can allocate for this as this will influence which firms are available to you

The above points should help you to get an idea of what type of HR consultancy service is most suitable for your start-up. But how do different companies compare against each other, and what are the various types of services they may offer?

To assist you in refining your search further, we’ve compiled a shortlist that profiles some of the top HR consulting firms – visit this page for more information.


4. Small business HR costs

One of the main reasons that a business may consider outsourcing their HR needs is due to the potential savings this can bring. In a small business, this is obviously a critical aspect of growth, as keeping costs down will allow you to expand in the future.

Internal HR staff costs

Taking on a HR manager or executive will not just cost your business their salary, but also the cost of their recruitment, training, as well as the time and money invested in the establishment of new HR processes.

According to reed.co.uk, the average HR manager’s salary is currently around £47,000.

In addition to this, as mentioned previously, you will also pay for their training, which incorporates the salaries of those that train the new HR manager, as well as any costs of new materials and equipment that the new staff member will need. These costs can easily exceed thousands of pounds.

Outsourcing HR costs

It might be that your business needs occasional support with your payroll, admin or more general advice, but it would be unnecessary to pay for an internal HR manager – hence why businesses are taking the route of outsourcing their HR needs.

HR agency
Obviously, with the huge amount of various HR functions that a business will need, it can be difficult to give an accurate price – here we outline a guide to approximate costs.

Function Outcome Cost
HR Audit Full review of current HR procedures to provide any quick fixes £700/month
HR Support Provide aid to your business or staff during large projects £100-£200+/month
Outsourced HR Outsource all HR processes, including health and safety, payroll and so on £100-£300+/month

It is worth bearing in mind that a business looking to outsource all of their HR needs probably will not then get a separate HR audit – so these costs do not necessarily build on one another.

HR consultant

You could also consider a HR consultant, whose prices will differ depending on the professional or the agency you end up choosing.

They will most likely charge a standard rate – this could be an hourly or day rate or a more specific task rate, although these will not be your only options.

It is important at this point to seek out a transparent pricing structure – make sure there are no hidden costs and all information on pricing is present. Also, consider which services your business will require and for how long – is this a one-time problem or will your business require monthly or other regular meetings?

An HR consultant on a pay-as-you-go agreement will be likely to cost anywhere between £40-£100 – this will depend on the experience of the consultant and the task that needs completing.

You can be eligible for lower rates on a retained HR rate (when you work with the same HR consultant over a long period of time) but there will likely be a minimum number of hours required for this.

The following table is a basic comparison of HR consultant fees, comparing both pay-as-you-go and retained consultant costs.

Consultancy type Price p/hour Hours Total
Pay as you go £80 1 (quick fix) £80
Pay as you go £80 8 (day) £640
Retained £60 1 (quick fix) £60
Retained £60 8 (day) £480

While these figures might not exactly reflect quotes you may have been given already, but are there to give you at least an idea on the rates you might pay. Read our article on HR outsourcing costs to find out more.

Feel free to alter these prices to reflect what you will pay over the period of a month or year.

If these consultant costs look expensive, outsourcing your HR needs to an agency is probably your best choice – fill in the form at the top of the page if you would like to compare the best HR agencies today.


What does HR software do?

Human resource software can perform various different functions depending on the HR system chosen. The best HR software packages and the best small business HR software should be capable of creating efficiencies and aiding processes in:

  • Payroll
  • Employment law
  • Employment benefits
  • Talent acquisition
  • Training
  • Healthy and safety
  • Strategic HR

Payroll

Payroll systems can be integral to HR systems. At its heart, HR software will serve as an HR information database, being a central point for all relevant employee data.

This should mean you can effectively remove duplication and even hard-copy employee files. Being able to access the information quickly and easily makes for efficient payrolls.

Good systems will make processing employee pay easy and automatic, and make changes, scheduling, and tracking hours simple to do.

Employment law and regulations

With UK employment law, the onus is on the employer to get it right consistently, and all the time. The only way this is possible is with extremely accurate records. HR software allows you to stay on top of employment law and regulations, including data protection, parental rights and pay, sickness and absence management, and more.

Employee benefits

What sells you as an employer is your benefits package. Whilst some are legal necessities such as pensions, and some will be voluntary additions to their salary package for staff, such as private healthcare, they all need to be monitored, recorded, tracked and administered.

HR administration software makes benefit enrolment and management more straightforward.

Talent acquisition and workforce management

Recruitment can quickly become a headache for small business owners, as can time-consuming performance reviews, training requirements, and the like.

HR management software can allow for online performance reviews rather than cumbersome paper versions which are then easily accessible at a future date for tracking.

Contemporary HR cloud software can also integrate job postings to social media, the company website and elsewhere, as well as taking much of the legwork out of filtering applications.

Training

Meeting your business training needs, and being able to record training over time, is essential. HR software UK can act as both a record-keeper for training requirements, and even sometimes as a portal for accessing generic or soft skills training as well.

Health and safety

Obligations on employers in the UK regarding health and safety apply to all small businesses, whether it’s working hours record-keeping, or relevant training and risk assessment scheduling. HR systems make this process easier and more reliable.

Strategic HR

HR management software can radically transform strategic level HR processes. By providing accurate data, more accurate decisions can be made.

At times of growth or redundancies, strategic decisions can be enacted fairly and appropriately. Decision-making at a strategic level becomes easier and more accountable.

On a day-to-day level, HR systems can work as employee self-service functions for tasks like time off requests, making it easier to see the bigger picture regarding employee management.


Benefits of HR software

HR software can bring you a range of different benefits including:

  • Time-saving: Electronic or online HR systems save on duplication and intense HR-based labour hours – crucial in a small business. Time can be saved in multiple ways, for example, streamlining recruitment.
  • Efficiency: Accessing, utilising, and processing data is much more efficient.
  • Analytics: HR analytics can be performed with ease using real data.
  • Automation: Many HR functions, such as payroll, can be automated. This is only possible with a good HR software system.
  • Self-service by employees: Some HR systems act as self-service portals allowing employees to themselves take on many of the time-consuming tasks of the HR function, such as communications and approvals, time and absence recording, leave requests and more. Employees may also be able to manage their own benefits through the HR system.
  • Performance management: Performance management becomes more based on facts and figures, and can be recorded and compared over time.

Why use HR software?

There are multiple reasons why you should use HR software, particularly if you are a small to medium sized business with limited HR staff. By choosing carefully, you can always find the right HR system to get the benefits that will be hugely worthwhile for your business.

With HR software and systems, decisions affecting or regarding staff within the business can be made much more effectively and efficiently. Poor decision-making can be costly in terms of both money and time. Human resources software will always ensure you have the necessary information for making the right decisions.

With small business HR software you will be able to improve productivity. Manual record-keeping is a laborious and time-intensive task, fraught with room for human error.

Many HR systems, especially cloud HR software, put much of the responsibility for accurate record-keeping in the hands of the employees themselves. They can answer their own questions and queries, and process many of their own employment-based requests.

Initial outlay for HR systems can be costly. However, in the long run they typically represent worthwhile and substantial cost savings. For small businesses looking to drive down costs, this is invaluable. Similarly, preventing unwanted costs due to errors and mistakes is important.

Who should use HR software?

There are so many different options available for HR software that it is possible to find one which meets your HR requirements whatever the nature of your business. In the UK it is arguable that every business should use HR software, no matter how large or small they are.

HR mistakes can prove costly, and small businesses are particularly unable to absorb such costs easily. On a day-to-day level, HR software systems remove a considerable amount of the HR burden. This is helpful for small businesses that are unable to sustain a large HR department.

Types of HR software

There are three key different types of HR software which you will find in any list of HR software:

  • Human Resource Information System (HRIS)
  • Human Capital Management (HCM)
  • Human Resource Management System (HRMS)

HRIS

An HRIS system will largely be a data collection and tracking system. It’s where all employee-related data is held and accessed. It allows many of the HR functions to happen, or be processed, electronically. Typically, this will be either a standalone software option, or an online HR system.

These systems are always as good for their data entry functions. They are excellent for meeting the typical personnel requirements of most small businesses. Sometimes you purchase these in modular form, adding on elements which you particularly need.

HCM

HCM software meets the needs of those businesses that view their staff as assets, known as human capital, and need to therefore measure their input and output in real terms in order to make decisions.

These software systems are about using data to make decisions. This may therefore include elements or modules which are dedicated to recruitment, compensation management, and performance management.

Additionally, you can also expect HCM systems to make many of the day-to-day tasks of the HR function more efficient. These systems are in many ways associated with HRMS systems.

HRMS

The forerunner to HCM systems, HRMS were initially designed with strategic HR management at the forefront. They are capable of many of the same features as HCM, except HCM systems tend to integrate the talent-management elements, rather than having them as optional extras.


What are the next steps?

We’ve covered some of the main points to consider when deciding if HR outsourcing is right for your start-up, such as which businesses could benefit from HR outsourcing, as well as reasons to invest in HR. Also, we’ve looked at how HR outsourcing could be implemented in a company and provided a guide to potential costs.

From reading this page you should have an idea whether or not you need to outsource your HR needs. If you do, it is important to get this arranged as quickly as possible, as you may be losing money, and the quality of your business’ output may be reduced.

Whether it is something specific you need, or a more general package, it is worth your time filling in the form below to be put in touch with various suppliers who can discuss with you your various business needs and what they can do to help.

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