The Advantages of Outsourcing HR for SMEs

Outsourced Human Resources (HR) is a Growing Solution for Small & Medium Enterprises (SMEs)

Over the past decade, we have witnessed the exponential growth of organisations steering toward HR outsourcing – an option historically reserved for the ‘big end of town’ only.

Small and medium sized organisations (SMEs) have also been taking advantage of the commercial benefits associated with outsourcing their HR function, with the market’s appetite only growing during COVID.

Here, we explore some of the key drivers for SMEs outsourcing HR and how a post COVID world will only further the desire to manage human resources in this way.

Top Benefits of HR Outsourcing for Small Businesses

There are many more benefits of outsourcing HR for SMEs – here are some of the best reasons to make the switch to an external HR team.

1. You Get Access to a Broad Team of HR Experts

A typical SME will have access to either a stand-alone HR Manager or very small team of HR professionals.

Whilst the HR Manager or small team may be capable and willing, HR is a very broad area, which includes discrete specialist areas such as:

remuneration and benefits;
industrial relations;
recruitment;
learning and development;
performance management.

With the best will in the world, it is unreasonable to think that one or two individuals can be experts in all of these nuanced areas of Human Resource Management.

However, an outsourced HR function is able to draw on the internal expertise of a larger team of HR specialists and deploy knowledge as required by the client.

This is a massive benefit to a SME because it ensures that genuine subject matter experts are supporting them.

2. An Outsourced HR Department is More Cost Effective

Organisational leaders often underestimate the true cost of employing internal HR staff. Simply considering an employee’s base salary and superannuation as a total cost does not take into consideration, leave, payroll tax, insurance etc.

In fact, a safe bet is to calculate an additional 29% cost on top of a staff member’s base salary to reach a ‘true cost’.

An effective outsourced HR solution should provide its clients with the ability to scale up and down its level of support so that it is not stuck with a substantial, ongoing fixed cost.

The ability to flex up and down is a key advantage of an outsourced model, so be vigilant of suppliers not offering this key differentiator.

3. External HR Consultants Are Better Equipped to Stay Current with Industry Trends & Updates HR Legislation

The HR landscape is dynamic and forever changing.

If it’s not legislative amendments to the Fairwork Act, it’s new approaches to engagement and benefits or retention trends. Irrespective of the changes, it is critical for organisations to keep abreast of changes that can affect them.

This becomes a lot harder for a stand-alone HR Manager or small team to handle, especially if they are not actively investing in research data.

An outsourced HR provider should be across these new developments and actively communicating the relevant changes to their small business clients.

4. Gain Access to New Technology and Intellectual Property (IP) Through Your External HR Provider

Some HR outsourcing providers may own proprietary technology or have partnerships with technology suppliers.

This often comes with preferential rates that can be passed on to the client and a deep understanding of how the technology can be applied effectively.

Furthermore, providers will have access to HR content/IP that would not readily be available to small internal HR teams.

This means that work can often be delivered quicker and more cost effectively.

5. HR Outsourcing Services are Continually Growing & Improving Post COVID

There is no doubt that COVID has impacted the practical nature of work, but also our perception of work.

The former mentality of needing to be present in the office 5 days per week has largely dissipated and flexible work models are not just a ‘nice to have’ but a requirement if organisations wish to attract and retain staff.

With this shift, we have also witnessed a willingness for organisations to view HR more fluidly and, as a consequence, more open to outsourcing than prior to the pandemic.