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Should You Be Outsourcing or Insourcing HR?

Last week I saw an article in Small Business about why it’s worth having your HR function in-house. The MD of a printer cartridge company, Ian Cowley said it got to the point where anything HR related was coming his way meaning he had less time doing what he was good at. That’s entirely normal but it is a distraction for business owners. Mr Cowley said it meant that he also had concerns that he was leaving the company exposed because of misunderstanding a policy or missing a change in the law. He makes the observation that outsourcing HR can be extremely expensive and you’ll need them on a regular basis once you employ more than ten members of staff. He recommended weighing up the costs of an outsourced consultant’s fees against the cost of an in-house position.

I’d certainly agree that outsourcing a law firm will be expensive because first and foremost they’re not HR people and while they can do HR work, they will do it at solicitors’ prices. Of course they will and that’s not likely to be cheap.

Funnily enough one of my articles for Small Business was referenced!

While I understand why he felt this way, there are a good many reasons why outsourcing HR to the right company is a far more cost-effective option than hiring an in-house HR function.

Of course all MDs want value for money and a good company will be transparent about the service and pricing structure. They should also be flexible about the service.

Whoever you go to, if you get your HR files, policies and procedures, and employees in place the cost of that one-off project will take quite a few hours work, so the fee may be high. But many companies, us included, include that work in a monthly retainer which is far more attractive for a company. We almost always find that we do a lot of work at the start of any new contract – there are foundations to be put in place and problems to be solved. I’m not sure to what extent Mr Cowley researched HR options in his area – much of the work he referred to is usually absorbed in the price of most HR retained services.

As well as compliance, welfare and effective systems, training for managers is vital. We find many managers want to hive off all things HR to an HR support function (whether insourced or outsourced) but having a basic knowledge of HR issues and knowing when to call for help is a key part of an operational manager’s toolkit and they have to learn some aspects of HR in order to function effectively and allow the business to develop. Any good HR person should be nurturing that, not doing it all for them.

Once a business gets to around 100+ employees there’s a business case for employing in-house HR. Frankly, up until that point, it isn’t anything like a full time job once the basic employment framework is in place and the problems have been ironed out.

It is important to spend time selecting the right HR consultant for you just as you would if you were recruiting someone in-house. You need to know exactly what you are looking for and whether the consultant can meet these needs. HR serves a number of functions in a business including compliance, welfare, effective business processes, future planning through recruitment and talent retention, risk management and problem resolution, and if worst comes to worst; digging you out of a hole.

As with anything, it is important to research potential providers before you make the decision about who to work with. Ask around and get suggestions from people you know, businesses in your network that are similar to yours. A recommendation is usually the best route to go down. The other obvious route is to do an internet search for HR firms in your area. Take a look at how the firm works and what they offer.

Once you have your shortlist you should meet with someone from the company. Can the company meet your needs at a reasonable cost? A good HR consultant will ask about the future plans of the business in order to help you plan ahead and move forward to where you want to be. Will the service be customised to meet your needs? A more tailored service will be more efficient for any business than a one size fits all.

Before you make any decision consider how well the representative communicated with you. Can you easily get in touch with this person in more than one way? Did they pay attention to what you were saying and ask clarifying questions? Did they try and talk you into an existing plan or try to sell you more than you need? In the long run the price for outsourced support can be reduced as HR will be less than the salary of an employee doing HR. There is the possibility that an HR consultant will just do things by the book, however a good quality consultant will take time to understand your business and the way you operate.

We have a retained HR service offering unlimited advice and a number of other features which is tailored to the company’s individual requirements. Recently we have developed a product for micro-businesses, Affordable HR team and you will really be able to reap the benefits.

Russell HR Consulting provides expert knowledge in HR solutions, employment law training and HR tools and resources to businesses across the UK.

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