How outsourcing HR can save businesses money


Given the current economic and political climate, a lot of businesses are really starting to feel the squeeze. While HR isn’t an area that you want to compromise in, it can quickly become a major cost.

Luckily, there are ways that you can economize on HR while still receiving premium service. An increasingly popular solutionOpens in a new tab. for businesses is to outsource HR – let’s look at how it can save (and make) your business money.

Direct savings

First, let’s explore the direct savings you can make by outsourcing your HR supportOpens in a new tab.. This will be especially relevant for smaller businesses that don’t necessarily need nor can afford a whole HR department.

Maximize efficiency

Simply put, HR departments are expensive. No matter the size of your business, you’ll need access to certain professionals with certain skill sets, but with smaller businesses, you’re unlikely to need the advice of those professionals all the time. If you have your own HR department in-house, that can result in you paying excessive sums for a service that you only actually use a small percentage of the time. 

By outsourcing your HR requirements, you can just pay for the services that you need, when you need them. This can already lead to significant savings, with one study finding that the average ROI from HR outsourcing was 27.3%.

Expert advice

For small and medium-sized businesses, if you outsource your HR requirements, you’ll likely have access to expert advice that you simply couldn’t access if you were paying for your own department. When you outsource, the HR consultancy that you use will likely have multiple specialized departments, allowing you to only deal with professionals who have extensive experience in the specific field you need help with.

This means that while you’d be paying a ‘cheaper’, less experienced HR professional to research your issue and learn enough about it to provide practical advice, when you outsource, you just pay for the advice. Not only is that expert knowledge more likely to be factually correct and situationally appropriate, but it will also be given far more quickly, avoiding that preliminary research process.

Indirect savings

Often, the financial gains that businesses stand to make from outsourcing their HR are far more significant than the direct savings. 

Improved work environment

While harder to quantify, one of the benefits of outsourcing your HR is the positive effect it can have on the work environment. By maintaining an open environment, where complaints are dealt with effectively and employees are encouraged to grow professionally, the whole business can stand to benefit significantly in the long run.

HR consultants are often better at implementing these structures, as a result of their external perspective. They’re also often in a unique position to help smaller businesses out that wouldn’t have the budget for an HR department of their own.

Get better employees, for longer

Simply put, the recruitment process can be incredibly expensive. It’s a multi-step process that can take months, and even once you’ve found the right candidate, you still have to onboard them and get them up to speed with your organization’s practices.

Outsourcing your HR can lead to more efficient recruitment processes, cutting costs and increasing the chances that you retain talent for longer. This allows you to grow a team of talented individuals, helping your business to grow in the long run.

Performance management

While an in-house HR team might be able to take care of basic HR functions, it’s possible that their close integration with the rest of the team will mean they’ll be unsuited to performing performance management functions.

Outsourcing your HR allows you to deal with an external team, with an external perspective on issues like performance. They can make helpful analyses, and then make objective recommendations on how to increase performance in various departments. In doing so, you’ll be able to maximize the productivity and profitability of your business.

Data and privacy compliance

Data and privacy laws are becoming increasingly complex and convoluted. These issues are partly the result of our transition into a mainly digital age, and partly the result of remote and hybrid working models becoming the norm.

Achieving compliance with these regulations is incredibly important, with failure to comply often leading to significant fines, or worse. It might be the case that your internal HR department, if you have one, is unable to keep up to speed with these regulatory changes, thereby increasing the probability of infringements. Outsourcing your HR can help avoid these issues, in turn decreasing the risk that you’ll face fines or similar regulatory penalties.

Avoid payroll complications

Outsourcing your HR can also lead to more efficient payment systems being implemented, cutting costs when it comes to your accounts department. Your HR consultant may even be able to advise on a cloud-based, self-service payroll scheme, leading to further cost reductions in that area.

The HR service will then be able to intervene only in cases where an issue has occurred, maximizing the efficiency of your service while simultaneously minimizing the costs incurred.

Avoid doing damage to your brand

HR departments are the most effective entity when it comes to the long-term safeguarding of your brand. They can help ensure that only candidates who are appropriate ambassadors for your business are brought into the team while ensuring that the workplace is a safe, accident-free space.

PR debacles can be more than just expensive, they can ruin the financial viability of a business going forward if they lead to an extensive loss of trust from the public. As a result, avoiding damage to your brand can save your business large amounts of money in the long run.

Focus on your company

If you outsource your HR to a capable HR consultancy service, it then allows you to focus on the parts of your business that you specialize in. This frees up your time to focus on things like business strategy and management, allowing you to grow your business rather than focus on issues like compliance and recruitment.

Freeing up your resources and time in this manner can have a massive effect on the role you’re able to carry out in your business. It will likely allow you to focus on increasing the profitability of your business model, in turn allowing your business to make more money.

Avoid employment tribunals and penalties

If your HR efforts are currently sub-optimal, it’s likely that at some point in the future this will result in either regulatory penalties or an employment tribunal. Staying on the right side of nearly endless employment regulations is no mean feat, and it requires a diligent and competent HR team to achieve that compliance.

By outsourcing your HR, you massively decrease the chances that you’ll face legal action for breaking regulations. It also decreases the likelihood that you’ll enter into an employment tribunal, an event that can be both directly expensive and lead to indirect costs, through future events like recruitment drives if you need to find one or more new employees. 

Clearly, taking your approach to HR seriously can have multiple benefits. From employee retention to avoiding tribunals, if you have any doubts about your current approach to human resources, it’s worth considering the benefits of outsourcing.

Steve Todd

Steve Todd, founder of Open Sourced Workplace and is a recognized thought leader in workplace strategy and the future of work. With a passion for work from anywhere, Steve has successfully implemented transformative strategies that enhance productivity and employee satisfaction. Through Open Sourced Workplace, he fosters collaboration among HR, facilities management, technology, and real estate professionals, providing valuable insights and resources. As a speaker and contributor to various publications, Steve remains dedicated to staying at the forefront of workplace innovation, helping organizations thrive in today's dynamic work environment.

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