The increase in scale opens up new opportunities for SMEs but also brings people-management tasks that soon become more complicated.
Where a business used to employ just a few individuals, it may now have to manage teams, managers, various work arrangements and employment-related concerns. Recruiting becomes more frequent. Absences require more attention. There is a need for greater documentation consistency, while managers spend more and more time answering their employees’ questions.
Inevitably, many SMEs eventually reach a point at which they have to decide whether to employ extra HR professionals or to outsource the whole HR function.
The HR Needs of SMEs Evolve with Business Growth
It is rare for a business to “need” HR overnight.
Requirements tend to pile up.
The company hires more staff and needs additional contracts. A manager comes across his/her first grievance. A person requires support with sickness absences. Another employee underperforms. New workplace policies are needed.
Every situation brings new challenges.
However, for SMEs the problem lies in the fact that often the need for HR skills and expertise is not enough to warrant employing HR staff in-house.
Thus, there emerges a discrepancy between having no dedicated HR specialist and the cost of recruiting several HR experts.
What Can Businesses Outsource
HR outsourcing may encompass more than administrative tasks.
Depending on the provider and the service offered, businesses can get professional help with employment contracts, staff handbooks, absence management, grievances, disciplinaries, redundancies, employee disputes and employment law compliance.
Certain outsourcing providers combine professional HR advice with HR technologies and employment law experts.
For instance, Avensure’s HR outsourcing services include getting a personal HR advisor, as well as gaining access to employment law and documentation expertise. The service covers such topics as sickness absence management, grievances, redundancy, dismissals, ACAS early conciliation and even tribunal support.
Therefore, an important question that SMEs should ask themselves is not only “Can we outsource HR?” but “What capabilities do we need to get from an HR specialist?”
When Does HR Outsourcing Become a Good Commercial Decision?
Headcount is not always the best indicator.
A relatively small company that operates in a regulated or people-intensive industry may experience more HR challenges than a large business with a stable staff.
Red flags may include managers spending too much time dealing with HR-related matters, inconsistency in handling employees’ questions, outdated documentation or lack of certainty regarding HR procedures.
Faster hiring is another factor that can lead a business to HR outsourcing.
As an SME grows and hires new people rapidly, any weaknesses in the onboarding process, contract management, HR policy and management procedures start becoming more visible.
Therefore, when calculating whether the company would benefit from HR outsourcing, apart from the cost of the HR staff, businesses should also consider the amount of managers’ time wasted on HR and the risks that arise from it.
Access to a Wider Pool of Experts
One difficulty of depending on one in-house HR professional is the vast range of modern human resources.
The generalist may be an extremely competent professional but he/she cannot possibly specialize in employee relations, employment law, documentation, organizational development, HR systems and complex tribunals all at once.
Outsourcing, however, can provide SMEs with access to a wider pool of HR specialists.
This can be especially useful in case of a rare situation, such as redundancy.
The same goes for complex grievances and dismissal cases.
Outsourcing Should Not Mean Losing the Personal Element
One common concern with outsourcing HR is losing the personal touch.
This depends a lot on the chosen HR outsourcing model.
Working with a call center is quite a different thing from having an assigned advisor that gets to know your organization, its managers and its staff.
Thus, businesses interested in HR outsourcing services should find out the details of the service delivery model.
Will managers constantly communicate with different people? Will the company have a designated HR contact? Is help available after office hours? Who will handle complex employment law cases? How will documentation be produced and kept up-to-date?
These points can be as important as the cost of the service itself.
HR Technology and Human Expertise Should Go Hand in Hand
HR software has made people management easier.
Requests for holidays, absence reports, employee documents and other regular HR-related activities can now be easily managed via digital platforms.
However, technology does not replace judgment.
It is possible to record that an employee has been absent multiple times, but determining how the manager should handle this situation is a totally different story.
Thus, the best HR outsourcing model is a combination of HR technology and HR expertise.
Regular processes become easier and managers can still go to someone with their questions, which require an interpretation, judgment and special knowledge.
Consider the Cost of Creating This HR Capability In-House
Comparing HR outsourcing with the cost of one HR staff member can be a misleading calculation.
When comparing outsourcing with an alternative, businesses should think what equivalent HR capability would cost them.
Would one HR staff member suffice? What happens when it is his/her annual leave or sickness? Would extra employment law advice be required? Does the company need separate HR software? Who will take care of documentation and keep track of HR regulations?
While building such capability may prove to be the best choice for certain businesses, for many others HR outsourcing would be a way of gaining access to resources that would require multiple suppliers or employees.
HR Outsourcing Is Not Only About Reducing Expenses
Cost reduction is certainly one of the key points, but cutting costs should not be the only goal.
Efficient HR management should make managers’ decision-making more effective and consistent.
Thus, one of the benefits of HR outsourcing can be measured in terms of business owners’ capacity to focus on their core functions instead of having to research new employment law requirements.
Selecting the Right HR Solution
There is no universal HR solution for every SME.
Certain businesses would prefer to have HR in-house, others will want to outsource HR almost completely, while growing businesses can adopt a hybrid model, involving both in-house HR professional and external HR specialists.
The right HR model depends on the number, complexity, growth rate, managers’ capacity and required expertise.
The important point is making this decision consciously.
HR processes that worked perfectly fine when a business had ten people may become inappropriate when it hires 30, 50 or even 100 employees.
Growth changes the company’s HR requirements. Recognizing when the existing HR model becomes insufficient can be helpful for SMEs to build a better foundation for the future.
