Since HR outsourcing eliminates or minimises the need for a complete in-house HR team, a substantial reduction in your operating cost can be seen. Hiring, training and maintaining HR staff, HR technology and infrastructure are some of the areas where cost reduction and decrease in expenses are prominent.

Outsourcing not only offers cost reduction but also provides you guidance from experts in managing HR processes, compliance risk and lowering the overall cost. This is a viable solution for saving money and growth. This blog discusses the benefits and costs of outsourcing HR functions.

What is HR outsourcing?

Before we tell you how HR outsourcing can save you money, it is important to learn what is HR outsourcing. When you outsource HR services, you are hiring a third party to manage and perform your HR responsibilities. These tasks can be payroll, administration, recruitment and compliance with the law.  

Now coming to cost, the average cost of outsourcing HR depends on the type of service you need, the number of employees and other factors. These costs can be incurred on per per-head basis or a fixed monthly/yearly fee depending on the provider.

If you outsource to countries like India and the Philippines, your HR cost will be less than the UK market. In some countries, outsourcing HR services cost is cheaper for top skills and talent.

How much does HR outsourcing cost

The HR outsourcing cost per employee can range from £50 to £150 per employee per month, the cost is directly related to complexity and type of service requested. The cost breakdown also includes a setup fee, monthly retainer fee, per-service charge and many more.

Before costing, understand what is HR Outsourcing and the types of outsourcing in our previous post. The link is here.

Choose a service provider, who is transparent about pricing and services to make an informed decision. Let’s move on to the benefits and costs of outsourcing HR functions.

Cost analysis: Breaking down the fees

Understanding the breakdown of cost is very essential to understand why particular services have higher prices.  Here is a detailed breakdown of cost components, average UK Cost and cost when you outsource to India.

Through this cost analysis, you can observe estimated monthly expense of HR cost in the UK Market is £4000 whereas if you outsource to India the cost of HR is merely £2250 or even less and all this along with top global talent and low operational cost.  

Use our employee cost calculator to see the difference between hiring in the UK and hiring in India.

Advantages of cost reduction when outsourcing

Outsourcing has several benefits in cost and quality, here are some major advantages of cost reduction when outsourcing HR:

1. Lower payroll cost

By outsourcing, your business can avoid the cost and salaries of full-time employees in the HR department. You can also save money on their benefits, training and bonuses.

‍2. Reduced overhead

If you outsource your HR functions, you will not be requiring any physical office space, equipment and supplies for your HR team, this will reduce your overhead costs.

3. Scalability

You can scale up and down your outsourced HR team as per the business needs. This permits you to pay only for services and the person you need.

4. Access to expertise

Outsourcing gives you a global talent pool and skill experts which isn’t possible with local talent in every field. HR professionals who are experts in their field reduce the risk of errors and improve proficiency in the work.

5. Focus on core functions

When functions like HR are managed by a third party this gives you time to focus on your core functions or functions where more of your attention is required. This can bring more clients, higher revenue and rapid growth.  

Outsourced HR cost UK: Regional point of view

The outsourcing cost may also differ according to the region and the deepness of service in the UK. For instance, if companies are based in London, they are most likely to record higher costs than those companies that are based in other small cities as the demand for HR services is high here. A comparison of costs between different providers is beneficial in the assessment of which approach is most effective for the business.

How can a small-scale business start outsourcing?

There is no certain answer to how much does it cost to outsource HR services because it’s all dependent various factors discussed above. For best service hire a trustworthy and proven track record EoR. If you are a small-scale business or new to outsourcing, here is how you can start:

1.  It is not usually expected for the client to sign an extended contract with the company. This means that services can be added or removed depending on the need and cash flow of the business.  

2. The client should start the work on a large scale, for instance, beginning with a general compliance audit and then he/she can always scale down the level of support required. By so doing, you will not be paying for those services that you never required from him or her.

3. If you have some staff in-house managing your company’s HR activities, you only need to outsource it occasionally for some professional advice from senior individuals to improve the capacity of your team.

Generally, all that will be required is a thirty or sixty days notice if you are interested in ending the relationship.

There are more benefits of HR outsourcing HR functions, read all of them in our post on Benefits of HR outsourcing. You can also read about the difference between offshoring vs outsourcing for rational decision making.

Conclusion‍

A good insight regarding the various costs that come with outsourcing HR and the possibility of getting certain savings signifies good management of the expenses. Thus, considering the cost reduction factors and carrying out a cost analysis while outsourcing the HR department, organisations can make the right decision most suitable for profitable growth.  

If a business is striving to lower the price or enhance the efficiency of approaches, outsourcing the HR functions is a cost-effective option that is suitable for every kind of business.

Outsourcing of HR is not always in order to minimise the expenses but to improve the organisational functioning in order to obtain the maximum benefit.

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