If you have never entered the world of outsourcing it seems a confusing mix of products, hard sell and in the past has carried a bad reputation. The benefits of today's modern HR outsourcing however are now so substantial to an SME manager that the tide is turning towards outsourcing and the market is set to become a £26 pound industry worldwide. Why? And should you be considering it?

A Human Resources (HR) department is a critical component of employee well-being in any business, no matter how small. Human Resources responsibilities include payroll, benefits, hiring, firing, and keeping up to date with tax and employee laws. Any mix-up concerning these issues can cause major legal problems for your business, as well as major employee dissatisfaction. But small businesses often don't have the staff or the budget to properly handle the nitty-gritty details of Human Resources. Because of this, more and more small businesses are beginning to outsource their HR needs

Today, HR outsourcing goes beyond just handling payroll and benefits. This guide can help you to easily navigate through the process, it aims to offer advice on why you should consider HR outsourcing, the different types of HR outsourcing provider available, how to find a good one and what to consider when entering into an agreement with your HR outsourcer.

The benefits for an SME

Strong human resources practices have the potential to increase your company's productivity and profitability, but HR management has become a considerable task, demanding significant resources. Legal and regulatory issues have become an overwhelming task, and time spent on administrative duties is time spent away from growing your business. Outsourcing your ‘people needs' can help you gain a competitive advantage as well as having access to professionals who can cut through the minefield of HR practices and deliver a positive impact on your business. This gives employees better benefits and the owner the freedom to focus on his critical business issues.

Jean Bertrand Lartigue, Chairman of SME HR consultants HR2all and lecturer at Cardiff Business School explains; “Despite recognising the benefits of outsourcing HR, half of small to medium sized business are not making the most of the opportunity. The issues they give for stalling on making the decision are that they are unclear how much it will cost them and more unclear of how much their in house function actually costs them as well. Companies are concerned about employee resistance and HR employees themselves fear they will lose their jobs. The other main reason is anxiety is about managing an outsourcing provider because they have never done it before. In reality by not outsourcing they could be losing up to £1000 per employee, employees will be given a better service, HR employees will be freed to work on more strategic people issues and with the right advice and preparation managing an outsourcer is fairly simple.”

The different types of HR outsourcing providers

HR outsourcing providers generally fall into 4 categories:

Full responsibility organisations
These assume full responsibility of your company's human resources administration. They become a co-employer of your company's workers by taking full legal responsibility of your employees, including having the final say in hiring, firing, and the amount of money employees make. The organisation and business owner become partners, essentially, with the organisation handling all the HR aspects and the business handling all other aspects of the company.

BPOs
Business Process Outsourcing is a broad term referring to outsourcing in all fields, not just HR. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process.

Specifically in HR, a BPO would make sure a company's HR system is supported by the latest technologies, such as self-access and HR data warehousing.

ASPs
Application service providers host software on the Web and rent it to users-some ASPs host HR software. Some are well-known packaged applications while others are customised HR software developed by the vendor. These software programs can manage payroll, benefits, and more.

E-services
E-services are those HR services that are Web-based. Both BPOs and ASPs are often referred to as e-services.

Who's who?
These services listed are fairly straightforward in their own right. But the confusion comes as these services increasingly cross over into other types of services, or shed some of the services for which they are known.

For example, some BPOs will take over legal responsibility in much the same way as full responsibility organisations, while others do not. And many ASPs/e-services will also consider themselves to be BPOs because they are implementing new technology by hosting software and allowing self-service for employers and employees.

So know these service terms, but don't get too sidetracked by the names when interviewing potential outsourcing firms. The key to hiring the right outsourcing firm is knowing what services your company needs and then find an outsourcing firm that can provide them.

What can you get?

When you outsource HR functions, some services go with the ‘all-or-nothing' approach, requiring that they handle all your HR functions or none at all. Others offer their services ‘a la carte,' meaning you can pick and choose from the services they offer.

These can include:

• Job offers and new employee registration
• Benefits administration
• Work-related status changes
• Sickness and absence
• Personal details maintenance
• Payroll data entry, audit and payment.
• Expenses data entry and payment
• Training and appraisal administration
• Health and safety procedures
• HR Procedures and policies
• Leaver administration – references
• Ad hoc enquiries

Coaching and support can also be available in the form of:

• Business and HR Strategies development and implementation
• Business process redesign
• Attract and source people
• Any HR matters and employment law advices

“Selecting an outsource provider is dependant on the each individual business, it is often very useful to ask yourself what you are good at and what your level of knowledge is then where you find gaps, inconsistencies or a large amount of time consumption then find a company who can take those areas over” continues Jean Bertrand Lartigue.

A quick health check of your business

Try answering the following:

1. Have you issued your staff with written contracts of employment?
2. Do your contracts include the requirements of the Employment Regulations Act 1996 (as amended)?
3. Does your organisation have an up to date Health and Safety policy?
4. Do your Employment Contracts cover:
   • Absence and Sickness procedure?
   • Use of equipment, computers, telephones etc?
   • Disciplinary procedures?
   • Appeals procedure?
   • Alcohol, illegal drugs and smoking procedures?
   • Working Time Regulations Procedures?
   • Gross misconduct definitions?
   • Holiday request procedures?
5. Which of these policies do you have?:
   • Disciplinary policy?
   • Grievance policy?
   • Equal opportunities policy?
   • IT and communications policy?
   • Maternity and parental leave policies?
   • Policy for time off for domestic emergencies?
   • Company car policy?
   • Sickness and absenteeism policy?

If you answer NO to any of these questions, this is an area which needs attention.

What to look for when looking for a good supplier

Outsourcing is often compared to a marriage, it will be a close business relationship and it is important that the contract covers what you need it to cover. Always ensure you have considered the following:

• Guaranteed service levels – set specific levels early on
• A proven track record
• Guaranteed cost savings
• A compatible corporate culture and specific timings for managing the relationship between your company and the outsourcer
• Pay attention to detail – if its not in the contract you won't get it

How much will it cost?

There are no clear-cut price ranges with HR outsourcing. The fees range greatly between services, as well as within the services. Aspects like number of employees, the options you choose to use, and even geography, will affect your overall cost.

If you think your quote sounds expensive, do a cost comparison of an outsourcing program you are investigating and the average salary and maintenance of an in-house HR director or staff. You might find significant savings either in money, hassle, or both.

Contracts with HR outsourcing firms will usually run a year. But you should work in a clause in which you can give 30 days' notice to break the contract if you are dissatisfied with the services or don't need the services anymore.

What are the downsides to HR outsourcing?

If the outsource company totally replaces an in house HR person there are some definite drawbacks . An in-house HR person handles perks that you can't necessarily count on an outsourcing service to carry out - like looking into group offerings, building employee incentive programs, even taking care of recognition for employees' birthdays . And employees may want someone in-house who is an impartial co-worker they can trust and see daily to turn to if they have a work-related problem or dispute with another co-worker .

Because an in-house HR person interacts daily with your employees, they will likely have more of an interest in your employees. For example, employees often appreciate having someone on staff that will help negotiate in their favour for certain benefits that are critical these days for employee retention like holiday policies.

The best policy is to keep an in-house HR manager to concentrate on these issues, freed of the constraints of HR administration they should be able to explore all the benefit areas for employees and with a more strategic role, provide an impact to the businesses bottom line. They can also manage the outsource company instead of the owner.

And if you decide to use an e-service, the same issues you'd have with any ASP remain. When everything is stored and handled online, there are concerns about security as well as potential crashes, both of which can be detrimental to your business.

Common complaints about HR outsourcing range from payroll mix-ups to payroll not being deposited on time to denied medical claims. But if you follow the selection criteria when looking for a supplier this should be mitigated.

So should you consider outsourcing your HR?

If you have fewer than 100 employees, the answer is yes. At this size, you often don't have the resources for an in-house HR staff, so outsourcing is just right for you. You don't have to worry about managing all the details that are so critical to HR in your business, and most small-business owners just don't have the skills and experience to do so. Remember, HR functions must be handled correctly as close to 100 percent of the time as possible; slip-ups can cause your business major problems.

If you are smaller and have less than 12 employees, online and electronic services are the way to go. These services are tailored to work with all sizes of businesses, even the smallest. You don't have to give up legal responsibility just yet, and you'll be able to easily access your information online. And since the charge is usually by user, you won't be overpaying.

Jean Bertrand Lartigue concludes; “If you're uncertain about outsourcing everything but know you don't have the staff or experience to keep it in-house, try outsourcing only certain parts, such as payroll and benefits. You can also purchase HR software right off the shelf to support any in-house efforts. Whatever you decide, make sure to keep your employees in the loop. They will appreciate knowing that you are seeking the most affordable solution for the business while doing your best to meet their needs. You get more out of your business when you get more out of your employees, focusing on people does pay off.”

For businesses who would like more information on HR issues for SME's HR2all are offering a series of free morning seminars to SME owners at the following locations:

Free one to one consultancy sessions at your company are also available on request . If you would like to reserve a place at one of the seminars or for more information please contact HR2all on 01656 766 363 or see www. HR2all.com