HR Outsourcing – What You Need to Know

Eric Mochnacz
June 17, 2021

As a small business owner looking to scale, you may find yourself “in the weeds”, managing every single aspect of your business and its people.  Not only is that inefficient, it takes time away from your ability to run the business.  To scale, you want to hire the right people to fill critical roles in your organization.  If you find yourself in need of a skilled HR practitioner, your first thought may be hire an external HR Director.  But an internal hire isn’t the only option.  Outsourcing your HR department to a skilled consulting firm may be the ideal solution for your business – and as the owner – it will get you back to the business of running your business. 

What is HR Outsourcing?

HR Outsourcing is choosing to engage with an HR consulting firm to manage your HR function, rather than continuing to run it yourself or going to market to hire an internal resource.  There are a number of benefits to this type of partnership.  We’ve already determined that running the people operation yourself isn’t an efficient use of your time as a business owner.  Sooner or later, something’s going to give.  And if you don’t have HR experience, you’re doing your business a huge disservice by trying to run the human resources operation yourself.  Eventually, the situation becomes untenable, and your ability to scale is stalled because you’re stretched too thin.  

You could hire a senior resource to take over the HR department, but that can get costly very quickly depending on the salaries in your area.  Additionally, if you don’t have time to run HR, you may think working with a recruiter to source for your HR head is the easiest solution.  They may be able to work quickly, but recruiters often charge a percentage of annual base salary for sourcing your hire, so you’re fronting a lot of money for an unproven HR professional.  You could source a junior HR professional to save some cash, but who has the time to train them?  Some businesses may often create an ad hoc human resources officer out of their office manager.  Although this person may be administratively strong, they may not have the people management, organizational development, or HR law and compliance knowledge to be a successful, full-time HR resource.

With these factors in mind, engaging with an outsourced HR firm is the most viable and cost-effective option for your business.  You will have access to skilled and experienced HR professionals, already vetted by the firm, saving time that you would spend moving through an interview process with a large volume of candidates.  Once you agree to bring in an outsourced HR firm, their consultants are ready to seamlessly transition into your business and successfully run your human resources function.  

How does HR Outsourcing Work?

HR outsourcing is pretty simple.  Qualified consultants and consulting firms are prepared to manage every aspect of a traditional HR department.  As a business leader, you complete your due diligence and identify the firm that will best meet your company’s needs. You want to work with a firm who has the bench strength to offer a diverse combination of depth of experience, unique and flexible service models, and the ability to tailor solutions to your company’s specific HR challenges.  You want to work with a team that offers maximum flexibility in the services they are able to offer.  This means they are prepared to take complete ownership of your HR department while you  refocus your efforts and energy into building your business.  

Your consultants are now positioned to offer strategic and tactical support for you and your people.  Imagine having a dedicated, experienced, professional resource to help take on all people-related tasks.  The best outsourced HR partners move the needle and are accountable for everything related to your people operations; talent acquisition, onboarding, policy development, performance management, career laddering, learning and professional development, employee relations, organizational restructuring, offboarding and terminations.  They are an embedded resource whose sole purpose is to move your business forward and drive success for your HR department, based on the goals you identified at the beginning of the engagement.  Additionally, if your assigned resource isn’t the subject matter expert on one of your burning platforms, they can pull on the experience of the rest of their team to deliver exceptional service and work product.  And, as business needs change and the outsourced HR team makes progress towards key objectives, they can add or remove resources as new goals become apparent or situations arise that require a shift in priorities.  Your outsourced HR resource’s ability to be nimble in the face of unexpected changes is a benefit as they are able to remain focused on HR tasks and they aren’t required to pull other team members away from their job responsibilities.  

How does Outsourcing HR Reduce Costs?

By bringing in an external HR partner, you save the business money because you aren’t responsible for the cost associated with consultants’ benefits, insurance, and payroll costs.  Additionally, by sourcing the outsourced HR resource yourself, and not working with a recruiter to find a permanent HR hire, you aren’t paying recruitment fees – traditionally 20% to 30% of annual base salary, upfront – or conversion fees if you opt for a temp to perm solution.  Depending on your location, HR professionals salary budgets start at $80,000 and can go as high as $150,000, if not more.  Hiring the wrong person could be a costly mistake for your business.

Also, most recruiters only provide a six month guarantee, and it may take longer for you to realize your newly hired Human Resources Manager isn’t a fit.  And if they end up not having the skills you need after a few months, you’ve now spent time (which translates to money) onboarding them and integrating them into the organization, only to have to terminate them and start the process all over again.  On the other hand, working with an outsourced HR consultant provides the feedback loops to address deficiencies.  If your assigned resource isn’t consistently meeting expectations, the firm has the opportunity to assign a different practitioner or provide feedback to address deficiencies.  

Most consulting agreements include terms and conditions for separation which tend to be cleaner and less costly than terminating the employment relationship with an employee.  Potentially firing your new HR Director could require a separation and general release (completed with the support of legal counsel, which will cost the company money.)  Additionally, you may be required to pay severance or pay out unused vacation.  You don’t need to do any of that with an external consultant, so you’re saving money and mitigating risk by outsourcing your HR.

Also, as outsourced HR companies remain current on trends and work to stand out in a competitive landscape, they’ve invested into certifications, tech and tools to best serve your company.  For example, at Red Clover, our consultants, as part of their learning and development, are supported in their pursuit of SHRM certification.  Our clients receive certified, HR expertise without having to invest their money in the study materials and exams.  Our team is also DISC certified, allowing us to integrate DISC assessments and debriefs into recruitment and onboarding processes as part of the engagement cost.   We also save money for our clients by providing them access to our LinkedIn Recruiter and TalentHub license as part of our recruitment process support.  LinkedIn is the largest network of qualified job seekers in the country, and we provide access to that network at a fraction of the cost if a business buys the license themselves.  We also offer Spark Hire, our video interviewing solution, as part of our client engagements at no additional cost to the client.  So, it’s not just the upfront cost savings, but the cost-effective access to resources we offer as your outsourced HR partner.

How to Outsource HR

To get the most out of an outsourced HR relationship, you, as the business owner, develops clear goals and expectations for the business relationship.  You chat with potential partners to see how they can help you meet those goals, and how the investment saves your business money in the long run.  Red Clover has a strong track record of making impactful change at organizations of all sizes while serving as their interim, outsourced HR resource. The first step in getting back to running your business and offloading HR to skilled professionals is by having an initial meeting with the team so we can identify how we can help.  Reach out to us here.

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