Do you need to outsource HR?

Outsource HR

Outsourcing Human Resources (HR) can be beneficial for small to medium sized enterprises (SMEs); Jean Bertrand Lartigue, chairman of SME HR consultants HR2all looks at the issues.

HR responsibilities include payroll, benefits, hiring, firing, and keeping up to date with tax and employment laws. Any mix-up concerning these issues can cause major legal problems for your business, as well as employee dissatisfaction. But small businesses often don’t have the staff or the budget to handle the range of people-management issues that can arise. Because of this, more and more small businesses are looking to outsource their HR requirements.

HR consultants now offer an extensive range of services that go beyond handling payroll, benefits and other types of administration.

The benefits

Effective human resources practices have the potential to increase your company’s productivity and profitability, but HR management has become a considerable task, demanding significant resources. Legal and regulatory issues can be overwhelming, and time spent on administrative duties is time spent away from growing your business.

Outsourcing your ‘people needs’ can help you gain a competitive advantage as well as having access to professionals who can cut through the minefield of HR practices and deliver a positive impact on your business. This gives employees better benefits and the owner the freedom to focus on the critical business issues.

SMEs are recognising the benefits of outsourcing HR, but many, however, are still not making the most of the opportunities.

Many businesses complain that they are unclear of the costs involved, while others are concerned about employee resistance, fear change and are uneasy about managing an outsourcing provider.

However, businesses could actually save costs and provide a better service to their employees, if they outsourced their HR requirements.

Making the right selection

Providers generally fall into four categories:

Full responsibility organisations

These assume full responsibility of your company’s HR administration. They become a co-employer of your company’s workers by taking full legal responsibility of your employees, including having the final say in hiring, developing, training, firing, and setting and reviewing salaries. The organisation and business owner become partners, essentially, with the organisation handling all the HR aspects in line with the business strategies set by the company.


Business Process Outsourcing (BPO) is a broad term and includes implementing new technology or applying existing technology in a new way to improve a process.

Specifically in HR, a BPO would make sure a company’s HR system is supported by the latest technologies, such as self-access and HR data warehousing.


Application service providers (ASPs) host software on the web. On-the-shelf and customised solutions are available. ASPs can manage a range of requirements including payroll, benefits and administration.


E-services are those HR services that are web-based. Both BPOs and ASPs are often referred to as e-services.

Increasingly service providers offer a mix of the services outlined above.

Some BPOs, for example will take over legal responsibility in much the same way as full responsibility organisations, while others do not. Similarly, many ASPs/e-services will also consider themselves to be BPOs because they are implementing new technology by hosting software and allowing self-service for employers and employees.

The key to hiring the right outsourcing firm is knowing which services your company requires. A good outsourcer will tailor a solution to your needs.

What can you get?

When you outsource HR functions, some services go with the ‘all-or-nothing’ approach, requiring that they handle all your HR functions or none at all. Others offer their services ‘a la carte,’ meaning you can pick and choose from the services they offer.

Businesses must recognise their own requirements. Identifying what is done well and where help is needed is key to a successful outsourcing programme. Running a health check of your business can aid the process.


Fees range greatly between services. Aspects like number of employees, selected options, and even geography, will affect overall costs.

Compare the cost of retaining in-house HR staff and different outsourcing options to evaluate the best options.

Contracts with HR outsourcing firms will usually run for a year. Consider a break clause, which will allow you to give 30 days’ notice to break the contract if you are dissatisfied with the services or wish to terminate the contract.

The pitfalls

Not all issues are suitable for external management. An in-house HR officer may be more suitable for handling issues including – training and developing staff and even taking care of recognition for employees’ birthdays. Employees may also prefer an in-house, impartial co-worker who can be trusted and approached daily.

A good solution is to retain the services of an HR manager who can focus on strategic issues, contributing to the bottom line while administration is outsourced to a provider.

If you decide to use an e-service, the same issues you’d have with an ASP remain. When everything is stored and handled online, there are concerns about security as well as potential crashes, both of which can be detrimental to your business. Make sure you understand their back-up systems for restoring data and security policies.

Does size matter?

Businesses with fewer than 100 employees can benefit from outsourcing their HR requirements. Most small-business owners don’t have the skills and experience to manage the raft of HR issues that can arise.

Businesses with fewer than 12 employees can look towards e-services for managing their HR requirements. These services are tailored to work for all businesses, regardless of size. Costs can be kept to a minimum as services are usually charged on a per user basis. This solution can give you peace of mind that your policies and procedures are up to date with the latest in legislation.

If you’re uncertain about outsourcing but lack experienced and expert staff to manage HR concerns in-house try outsourcing some of the key functions including payroll and benefits.

HR software can be purchased off the shelf to support any in-house efforts. Whatever you decide, make sure employees are kept in the loop. They will appreciate knowing that you are seeking the most affordable solution for the business while doing your best to meet their needs.

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