HR is not a priority for many start-up businesses and entrepreneurs but it quickly moves up the agenda as the organisation begins to expand and recruits more people. At this point, the business owner is faced with two options: to employ a HR professional or to outsource the function to a provider. The former may appear to be the best route but as the headcount and consequent workload grows, it is likely they will need an additional HR person as well as implementing some form of HR IT system. These costs, combined with the ongoing investment required to ensure that the HR team’s skills and employment law knowledge remains up-to-date can become a major consideration for the business.
Outsourcing may have been viewed as the preserve of larger companies in the past. Flexible service offerings and scaleable solutions supported by smart technology mean that it is no longer cost-prohibitive for smaller companies. Indeed it can provide major benefits to a growing business. Crucially, outsourcing all or some of the people processes, and the associated hassle and potential problems, leaves the entrepreneur free to focus on their strategic vision and building the business. By outsourcing day-to-day HR tasks, employers are also able to better focus on people-related processes that really matter, such as talent management and learning and development.
Another key misconception about outsourcing is that it is simply a vehicle to lower an organisation’s costs. In the past, a provider’s ability to achieve economies of scale led to a ‘stack ’em high, sell ’em cheap’ image but while outsourcing does allow companies to better control costs, saving money is no longer a principal driver for many organisations. The true value of an outsourced service provider to their clients, whether they are delivering HR, finance, maintenance or IT is that they have to deliver a breadth and quality of service above and beyond one that the company could deliver with an in-house team.
It is the scaleability of today’s outsourced options that make outsourcing more realistic for small businesses than before. If you take the basic HR needs of a typical small business, it includes HR administration, payroll and employee relations, topped off with some HR management to make sure everything runs as it should. To do this properly requires three or four people – but they wouldn’t be needed full-time and in the case of an employee relations expert, would only be required in specific instances such as a disciplinary matter. An outsourced option allows companies to have it all, but only when and if they need it. The level of service can be scaled up or down to suit the demands of the business.
Another major advantage of taking the outsourced route is that it allows an organisation to be instantly up and running with its HR function. HR policies, procedures and processes take time to set up and establish if the function is growing organically, whereas the outsourcer will already have these in place. A good outsourcing services provider will also continually invest in its people to offer clients access to the latest skills, thinking and professional knowledge. This is increasingly important in an area such as HR which has spawned a number of specialisms in recent years to meet the increasingly sophisticated demands of the workplace. These include reward or compensation and benefits professionals as well as experts in the field of diversity and HR technology.
Business owners must undertake due diligence when choosing an outsourcing partner. Before they begin their analysis of the market, they should have a good idea of the range and level of services they are seeking. It may be that initially they only want HR administration and management on a retained basis and would like the other services on a pay-as-you-go arrangement. Or they may wish to leave payroll with their accountant but opt for hands-on HR support. Other options may include retaining some people processes to develop in-house skills in an area such as recruitment. Most providers have modular offerings these days and will tailor the package of services to suit a client’s needs; they understand that outsourcing is not a ‘one size fits all’ offering.
It is important to ask for client references and to quiz potential providers on key areas. Firstly, assess the quality of their people; do they have Chartered Institute of Personnel & Development (CIPD) qualifications? What specialists do they have? What is their background and where have they worked previously? It is important that the people providing the service are a good cultural fit with the client organisation. If an individual has only ever worked for large organisations or customers, they may not understand the needs of smaller companies. Also investigate the technology they use and how they plan to interface with the client. Younger recruits to the workforce, especially members of Generation Y and the Millennials expect to be able to perform functions such as booking their holiday and accessing their payslip online, so the outsourcer’s technical offering needs to match these leading edge expectations and requirements. Failure to meet an employee’s expectations on any level could damage the employer’s brand in their eyes.
There can however be disadvantages to outsourcing. Those frequently cited are a loss of control of processes and data, security risks and hidden costs. While business owners should be aware of these, a robust service level agreement (SLA) can help to mitigate many of the risks inherent in outsourcing. In some cases, the outsourcing arrangement fails because the SLA hasn’t been specific enough in spelling out the responsibilities of both sides and/or the service delivered doesn’t live up to the client’s expectations. Business owners should ensure that the SLA is robust and fit for purpose, but they should also understand that engaging an outsourced service provider doesn’t mean absolving themselves of total responsibility for HR. Any outsourcing arrangement has the best chance of success when there is a healthy and respectful two-way relationship in place.
It is fair to say that while entrepreneurs accept that running a business isn’t just about being strategic, visionary and coming up with great ideas, it is within these areas that their strengths lie. They are never going to be in the areas of devising HR policies and procedures and putting systems in place so employees can follow them, nor getting their head around the latest changes to payroll legislation. With the right provider, outsourcing HR can give business owners the right balance of maintaining control of their people processes, as well as costs, while freeing them up physically and mentally to drive the business forward
