In the current economic climate, organisations are continually seeking ways to reduce their costs and increase their efficiency. HR outsourcing is becoming an increasingly popular way of achieving savings for UK businesses. A recent survey of UK firms by the CIPD revealed that around half of organisations intend to outsource part of their HR activities within the next 3 years (Source: The Changing HR Function, CIPD) including outsourced payroll. This report will look at how outsourced HR services can save organisations money, whilst increasing the quality and efficiency of the HR and payroll service levels provided.

What is HR outsourcing?

HR Outsourcing is a contractual arrangement with a third party specialist to carry out part or all of its HR activities. Smaller organisations may choose to outsource the whole of their HR and payroll functions as an alternative to employing their own HR staff. Larger organisations may opt to outsource part of their HR function such as HR & Benefits Administration, Payroll or Recruitment, allowing their in-house HR team to concentrate on more strategic activities.

How can outsourcing save money?

There are a large number of costs involved in maintaining an effective in- house HR and payroll function. There are obvious costs such as the salaries of the HR staff as well as less obvious costs such as purchasing, hosting and maintaining an HR and payroll system, training and recruitment costs, office space and time spent developing and improving internal processes and managing the in-house team.

An outsourcing company can split many of these costs across multiple client organisations, meaning that a high level of service can be provided to the organisations at a lower cost. Additionally, by using automated workflow processes, HR and payroll administration can be carried out in a more efficient way, which can reduce costs even further.

Let’s look at some actual costed examples to see how this works.

These examples compare the estimated costs of running an effective in-house HR and payroll function compared with fully or part-outsourced HR and payroll over a 3 year period.

Example A: 100 employee organisation, full outsourcing

In-House Costs over 3 years

 Item 3yr Cost Notes
HR Manager£144,400£40k salary plus benefits & NI
Part-time HR Administrator£50,400£24k salary plus benefits & NI
Part-time Payroll Administrator£50,400£14k salary plus benefits & NI
Recruitment£23,400Based on recruiting once over 3 yrs
Temps£9,000To cover holidays and sickness
Training & professional memberships£14,000
Office space and PCs£25,000Office space & PCs for 3 employees
HR and Payroll system licence£10,000An up-to-date HR & payroll system
System implementation and customisation£10,000
System annual maintenance / support fees£6,000
Server, hosting & IT support for system£18,000
 TOTAL £364,200

Typical Costs of Full Outsourced HR and Payroll over 3 years with PlusHR:*

 Item 3yr Cost
HR Management£90,000
HR and Benefits Administration£39,000
Web-based HR System with employee / manager self-service and workflows£15,000
Payroll£18,000
 Total £162,000
Total Savings Over 3 Years 
In-house costs£364,200
Outsourced costs£162,000
Total savings £202,200

Example B: 250 employee organisation, outsourced HR Administration, Benefits Administration and Payroll

In-House Costs over 3 years

 Item 3yr Cost Notes
HR Administrator£86,400£24k salary plus benefits & NI
Full-time Payroll / Benefits Administrator£100,800£28k salary plus benefits & NI
Recruitment£22,800Based on recruiting once over 3 yrs
Temps£9,000To cover holidays and sickness
Training & professional memberships£14,000
Office space and PCs£25,000Office space & PCs for 3 employees
HR and Payroll system licence£20,000Fully functioning web-based system
System implementation and customisation£15,000
System annual maintenance / support fees£13,500
Server, hosting & IT support for system£18,000
 TOTAL £324,500

Typical Costs of Outsourced HR & Benefits Admin and Payroll over 3 years with PlusHR:*

 Item 3yr Cost
HR and Benefits Administration£80,000
Web-based HR System with employee / manager self-service and workflows£40,000
Payroll£35,000
 Total £155,000

* Note that these costs are indicative and actual costs depend on the services chosen, numbers of employees and duration of contract

Total Savings Over 3 Years 
In-house costs£324,500
Outsourced costs£155,000
Total savings £169,500

Summary

So in summary our advice is if you are looking at your existing internal HR operations or are debating whether to hire your own internal HR team or outsource this always weigh up the costs and the value your internal team bring. A good HR outsourcing provider will focus on how they can add value to your organisation from day one. They will also objectively assess your business needs and translate this into real people actions. In addition if you do have an in-house HR team consider whether their time is spent on needless HR administration or actually adding value to critical business projects and ensuring your business is legally compliant without the need to go to an employment tribunal. At PlusHR we are one of those HR outsourcing providers! We will work with your business and budget and provide a range of HR solutions to act as your in-house HR team or as a welcome addition to improve on your HR  teams skills. Don’t just take our word for it, read what our clients say here.

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