HR outsourcing can make great financial & operational sense…. but there are pitfalls for the unwary!

HR outsourcing can make great financial & operational sense…. but there are pitfalls for the unwary!

Times are hard, and employers are being encouraged by banks and advisors to outsource non-core activity, like payroll and HR. But it pays to look before you leap. Some national HR companies are creating a poor reputation for HR with low value, high cost services. Sure, £500 a month is cheaper than employing an HR Manager, but if all they really provide is a phone number to discuss the odd disciplinary issue, is it good value for money and should you be signing that 5 year contract?

The big HR companies have more marketing clout and presence, but try not to be won over by the packaging – what counts at the end of the day is the people you will actually work with, and ironically many of the bigger companies don’t factor personal contact into their service plans at all.

A good quality HR outsourcing business should take time to get to know your Company, should help you identify your HR priorities, and work with you to deliver genuine improvements to your people practices. Improvement in the flexibility of employment practices and in legal compliance (which should stand up to audit) are welcome facets of a successful HR outsourcing arrangement. It’s not all about documents and disciplinaries!

Outsourcing with care can make very good sense, whether for small employers looking to build-in capability and legal compliance, or for larger employers looking to enjoy the benefits of good quality support without the payroll cost (for a link to our January press article on the subject click here). But how do you know that you’re getting a good deal from your prospective provider? Here’s our top tips for the things you should check.

Beware the one man/woman band. There are a lot of redundant HR people knocking around at the moment, not all of whom will have the depth or breadth of skills necessary to advise you properly on the range of issues you might have to deal with. And what happens when they get a ‘proper job’ again? Or they go on holiday? Will they have the capability to deal with an employment tribunal application? Check: how many people they have, do they have local offices (can you visit?), do they have other clients, and can you speak to them? What experience do they have of managing complex HR issues e.g. collective redundancies and TUPE transfers? Can they evidence this?

Look to experience, not qualifications. HR qualifications are no substitute for experience….. when we recruit HR staff at myhrdept.co.uk, ‘CIPD qualified’ is not the first thing we look for.

Beware the call centre. Most national HR companies are in fact call centres and don’t provide local or experienced HR Advisors. You should be able to see the CV of your HR Advisor and speak personally with them at their office if you choose. The alternative will probably be a telephone number to a call centre staffed by CIPD students and graduates somewhere in the North of England! Select the wrong provider (who unfortunately tend to be the largest and best known) & your only contact with a physical person will be the salesman sent to get your signature on the contract.

Think local. HR is a people business. We believe that the best employer/HR relationships are personal ones and so we normally like to work with clients who are close enough to our office addresses to allow us to actually spend time together, without having to spend a whole day on the road to do so. If you operate in London it doesn’t make a lot of sense to entrust your HR support to a Company in Manchester.

Check the contract. Are you signing for one year or more? Why a three/five year deal? If they’re any good you’ll choose to stay with them, but if they’re not you’re tied in whether you like it or not….. the major HR companies employ their own lawyers, and some of them are there to make sure you honour your contract…. Get them to quote on a 1 year deal initially, and if they won’t, walk away. Remember, a 5 year deal at £400 per month commits you to £24K….a 1 year contract at £500 a month is £6K, and if you don’t like the service you can let it go, or renegotiate terms.

Check the services. Some questions to ask:

• Will I have my own personal HR Advisor who I can speak to when I need to?
• Will you review my business HR needs with me and create bespoke contracts of employment & other key documents (not stock templates)?
• Will you work with me to identify my HR priorities and improve my organisations performance e.g. recruitment practices, performance management/reduce absenteeism etc.?
• If I have a major HR event will you (and have you the capability to) support me through it, e.g. redundancy consultations, or a TUPE acquisition/disposal?
• When dealing with HR issues, will you draft the letters and other paperwork etc. on my behalf?

NB: don’t take the salesman’s word for it….ask to talk to other clients to see what their experience has been – see taking references below.

How much should you expect to pay/could you save? This really depends on what you expect. £500 a month to have a helpline to discuss disciplinaries is not good value, but unfortunately the major HR companies seem to get away with this. Be clear with your HR provider what it is you’re looking for help with – if it’s just to have and maintain good quality HR paperwork for a small company and have the odd bit of advice, the bill shouldn’t top £100 - £400 per month. Larger companies should aim to save 20 – 50% against the costs of employing HR staff & external advisors (e.g. employment lawyers), with some limits and guarantees possibly required from both sides.

Beware the public sector. If you are a private sector employer steer clear of HR advisors who only hail from the public sector, and to an extent the reverse is true too..….the cultures are so very different and (in the main) HR staff from one sector rarely succeed in the other, or understand the other’s needs.

Don’t be fooled by the insurance policy. "Up to £1m cover against tribunal awards against you" may sound enticing, but the reality is that resolving HR ‘issues’ often involves a degree of risk. We’ve seen too many examples of HR companies refusing to help employers resolve issues because the insurance would not cover the resolution. A good quality HR provider will be able to help you evaluate the options including those that have some degree of risk. Sometimes you might decide that purposeful action is worth some managed risk. Being fully insured as long as you take no risks makes little sense in an employment context.

Finally….take a reference. Ask for examples of other companies who have used their services and ask for permission to speak with two or three directly.

Why not contact myhrdept.co.uk to discuss your HR outsourcing needs? With full service Premium Plus packages for medium sized companies typically from only £400 per month (less for very small companies and start ups) we believe we offer the best combination of quality and price available in the UK. Call us on 01628 820515 to discuss your requirements or email us.