What is the Cost of HR Outsourcing

April 2022

Human resources outsourcing sounds like a good idea for some of your HR functions and you want to know what the cost impact would be, compared to keeping all HR functions inhouse. But it’s no easy feat to calculate the cost of outsourcing because, as with many things in life, there might be hidden costs involved.

This is a brief guide to highlight points to ponder when you’re investigating outsourcing HR functions.

 

Benefits of Outsourcing

HR looks after employee wellbeing and ensuring business compliance with local labour and taxation laws. Both responsibilities are critical to business success, but some tasks within this ambit may require more skills than you have inhouse or could be too difficult to manage when you have branches all over the Middle East, for example, where each country has its own laws.

If the demands on HR take them away from enhancing your business strategy or become too costly, HR outsourcing could be the answer.

It could offer some savings because you don’t need the HR expertise and the accompanying cost of the skills.

Equally, if you are paying for staff’s HR skills, the day-to-day HR admin tasks can occupy them up to 40% of their time at work, where they won’t apply themselves to the strategic benefit of the company. Outsourcing the repetitive, admin tasks could benefit your business.

Then also consider the cost of high-level HR skills. Experienced, qualified HR experts have specialist legal and technical knowledge. When you outsource HR management, you have access to these expertise without the constant accompanying cost. Additionally, you have access to multiple branches of HR specialities, whereas having one person inhouse limits your company’s knowledge to their specific field of specialisation.

What to Outsource

You can outsource as much or as little HR functionality that you want. Typically there are three categories of services.

The first one is a third-party service provider that manages your company’s HR processes. This type of organisation assumes full legal responsibility for employees, and can be seen as a co-employer of the workforce.

The second type of provider is a company that handles HR services like payroll, risk management and benefits administration

And then you have HR specialists to whom you can outsource specific areas of HR, like recruiting.

Therefore, the clearest starting point to investigate outsourcing as an option for your business, is to consider what your reasons or goals are for outsourcing.

Cost of HR Outsourcing

A business can outsource HR functions according to different price models, either as a fixed monthly fee per employee, a percentage of each employee’s monthly salary, or specific items picked from a menu of services.

Outsourcing costs can vary wildly depending on the country where you outsource and the type of resources you are outsourcing. Generally, you can pay anything between $10 and $200 per employee each month, or 2% to 10% of each employee’s annual salary, also depending on what functions are outsourced.

Generally, payroll processing is charge at a basic fee, typically including online access for employees and admin, paycheck processing, payment of salaries and running of payroll reports.

To determine the cost of your payroll process, consider how often employees are paid, the number of employees and how complex your payroll is. And of course, the size of your workforce will also influence the total cost of outsourcing.

Outsourcing one HR function is often all you need to have access to other functions if and when you need them. Perhaps you could consider outsourcing payroll. When your company expands rapidly and you are ready to recruit, you can get this HR function from your service provider for the period that you need it.

Software and HR tools

Another big cost when you have inhouse HR functions is the investment in HR tools. Security is important, and the better the tools are your inhouse HR team work with, the better the services they can offer. But investments in software and security are typically sizeable and costly.

When you outsource HR, your third-party provider has the cost of the investment and the responsibility for excellent security. Security is an ongoing expense, and software also needs regular updating and upgrading. HR service providers have this covered, and it is to their competitive advantage to have state-of-the-art tools because HR is their primary business. In this regard, outsourcing is a huge money saver.

When you decide to outsource some or all of your HR functions, consider a partner with regional expertise, like OPS. That could also save you expenses, for example, local regulatory and compliance knowledge is worth its weight in gold.

Want to know more about how OPS can help you with your HR?

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