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HR Outsourcing – the issues

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Barry Rees

Outsourcing part or all of the HR function is something that is considered by many companies; however, ‘outsourcing’ as a term can mean different things to different businesses, so what are the issues that need to be considered?

By Barry Rees, Director of People Programmes Ltd


What is outsourcing?
Outsourcing, at its simplest, is getting work that used to be done internally, done by a third party individual or company. Some companies will outsource a whole function, like payroll, on an ongoing basis, while other companies may only outsource project based work on a contingency footing. There has been a steady increase over the past few years in HR consultancy firms that will offer to take on the role of HR for small and medium sized businesses.

Reasons for outsourcing
The first consideration has to be ‘why’ would you consider outsourcing in the first place?

Reasons fall into three broad categories:

  • Lack of available skills or expertise in house: for some organisations the lack of suitably experienced people in house will often drive companies to outsource some or all of the HR function.
  • Cost: financial benefits can be gained – there may be an insufficient requirement to justify hiring a person in house, or economy of scale savings to be had via an outsourced provider who can deliver the service cheaper. Businesses may find that they can access higher skilled professionals for the same cost, plus save on accommodation and training overheads.
  • Continuity of service: by outsourcing some roles a company can pass the hassle of providing cover for sick and annual leave onto the outsourcing company.

Planning for outsourcing
There is no doubt that outsourcing some of the transactional HR elements can be appealing. However, it is essential that you think through the outsourcing carefully and plan what you want to outsource and how it will work in practice.

The planning of exactly what you will outsource needs great attention. Would you be asking the outsourced company to effectively run your process and procedures, or would you take their standard process for that element (that is sick absence monitoring and control).

The more they have to divert from their standard service the more it will cost, and in general, the more confusion there will be for your line managers. Consider also that the providers ‘best practice’ approach may not be ‘best fit’ for your company.

Many of the larger outsourcers effectively run the show via call centres, and the first person your employee deals with will be a call centre operative following a script.

These can be very good for 80% of the standard stuff, but we all know that it is the 20% of awkward issues that gives us the grief. Check what escalation process the outsourcer has for dealing with such things, and whether this is included in the price!

If you want an on-site presence this will normally cost more and if this is a requirement you may want to rethink why you are outsourcing in the first place!

Technology issues
As many of the large outsourcers will use an HR system to deliver the services, you also need to understand what those systems are capable of. For instance you do not want to pay the outsourcer to be updating changes of address, when the employee can do it themselves via an intranet link.

Many of the HR systems now have massive “self-serve” capabilities and you may wish to implement these first, thereby reducing the outsourcing requirements. The IT infrastructure needs to be considered carefully, and may need to be upgraded. The costs involved here may negate any savings on the basic contract.

Managing the outsourced contract
The one key role that must be put in place is someone to manage the outsourced supplier. This person will act as the interface between any retained HR folk, as well as your line managers, and the supplier. It is essential that clear communication is effected here. You should consider what metrics you want the supplier to provide you, and encourage your business to give you feedback on the supplier’s performance.

Although any retained HR team will believe they are there to add the strategic elements (usually via some HR Partner type role), they will inevitably be called upon to sort out issues that should be covered by the outsourced supplier. They need to be tough at pushing the rest of the business back to the supplier, and not just doing it, or you end up paying twice.

Outsourcing for SME’s
Many SME’s have approached the issue of HR for the first time over the past 12 months or so, as changes to employment legislation has removed the small business exemption from areas like Disability Discrimination and Dispute Resolution. Outsourcing is probably the wrong term as the provider is usually providing a new service, not replacing an established HR person or team.

For some SME’s the initial requirement can be the implementation of an employee handbook, and checking that their contracts of employment and written statements are up to scratch. For others it is the requirement to make someone redundant or deal with a disciplinary issue that is the trigger. Many of the HR providers will offer both contingency cover and increasingly some form of monthly contract.

Taking up references
What ever outsource provider you talk to, get a list of reference sites, companies that the provider already works with. Go and visit the reference sites and ask lots of questions, particularly around their experience of the actual implementation process and the issues that they had. Also find out how the outsourced provider dealt with any problems, as this may be the true measure of the service you can expect.

Communicate, communicate, communicate
Whatever else you do – you will need to constantly communicate the changes to the rest of the company, and if there will be any job losses or TUPE issues this may require Union or Employee Representative consultation. Feedback from line managers and employees will be a crucial element in the early stages of the project, and you should build appropriate communication channels to facilitate this.


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