HR outsourcing is when you hire a third party to handle a human resource task or your whole HR function. It brings unique benefits: it can significantly reduce your HR costs, provide access to specialist knowledge, and streamline efficiency so you can focus on your business again.
Typically, outsourced HR functions span payroll processing, benefits administration, recruitment and retention, training, compliance, and employee relations. What you choose to outsource will vary depending on your needs. However, it’s quite normal for businesses to outsource a few specific tasks and manage the rest with HR software, whereas others choose to outsource their entire HR department. This guide will explore how outsourced payroll reduces costs by increasing productivity and streamlining your HR processes.
Cost reduction through HR outsourcing
HR outsourcing offers huge productivity gains. Your business can eliminate the need for in-house HR staff altogether. By saving costs on HR personnel, you can streamline your internal resources, reducing payroll and benefits costs. And, with a trusted third-party solution, you can rely on your payroll and HR function being managed efficiently and compliantly.
ADP’s research found that across France, Italy, Spain, the UK, the Netherlands and Germany, outsourcing payroll and HR administration increased productivity by 55 percent. This enabled HR teams to halve the resources needed for admin to focus on essential HR functions.
Outsourcing your HR functions helps you scale your HR services based on your specific needs, avoiding unnecessary costs. As your company grows, your HR functions can scale with it, but you can cherry-pick services when you need them instead of having to invest in an internal HR department or fully outsourced solution.
Reduced recruitment and training costs
Outsourcing HR enables teams to perform more efficiently by reducing the administrative burden of hiring, onboarding, and training new employees. Outsourced providers can identify the right talent, hold interviews, and manage the process with streamlined efficiency. Outsourcing reduces the usual workload that recruitment brings, saving you money and freeing up time so you can return to focusing on your business.
Outsourcing recruitment functions eliminates the need for an in-house HR team. As a result, businesses can benefit from cost savings on personnel, office space and burdensome admin. For example, in the UK, AO World needed an outsourced solution that could scale with its rapid growth and meet various technical and strategic objectives. They faced significant challenges in their recruitment function:
- Onboarding new staff quickly and accurately
- Increased levels of data to process digitally.
- Streamlining of processes and disparate systems.
ADP iHCM solution is a cloud-based HR software that simplifies payroll and HR management into one scalable, compliant solution. It enabled AO to create a single, real-time, fully integrated system for payroll and recruitment functions–ensuring smooth onboarding and swift payment for their people.
Fast. Intuitive. Affordable. One system for payroll and HR.
Discover ADP® iHCMCompliance and risk management
Managing your HR functions internally can pose significant risks for non-compliance with labour laws and HMRC’s tax rules. Untrained HR teams can be the source of costly errors, such as biases in the recruitment process or poorly managed payroll that falls foul of the law. Outsourcing to a third-party provider ensures you have all bases covered: they’re conversant in the language of HMRC and stay tuned into any tax updates as they happen, reducing your risks of expensive fines or lawsuits.
Outsourced HR brings decades of expertise in handling legal compliance, which mitigates any potential risk to your business. In the case of auditing, experts are on hand to guide you through the process and deal with HMRC directly, saving you resources and reducing any penalties for non-compliance.
Technology and innovation
What does your company’s tech stack look like? An outsourced HR firm invests significant capital in getting the best technology and solutions to automate HR processes, saving time and money.
You can benefit from state-of-the-art HR software and payroll technology without having to make significant investments upfront. Third-party HR providers benefit from economies of scale: They can offer HR services across a wide range of clients, which helps to spread out their costs. Therefore, businesses like yours benefit from laser-focused technology and solutions at a more affordable rate than you could realistically achieve in-house.
Focus on core business activities
HR outsourcing frees up time spent on managing recruitment, payroll and all of the associated admin of HR functions. ADP’s own outsourcing research highlights that HR teams in mid-sized companies spent 45 percent of their time on repetitive admin activities, including payroll (18 percent), leave management (13 percent) or HR administration (14 percent).
Letting a service provider take care of mundane admin like payroll or sick leave management is a proven way to lower costs. This enables companies to focus on what matters: their business.
Outsourcing HR overall increases productivity and revenue growth. The cost savings from outsourced HR functions can be reinvested elsewhere in your company, from marketing initiatives to improved staff training or wellbeing initiatives, which have a positive effect on your bottom line.
Challenges and considerations
When you outsource your HR functions, you will inevitably lose some control over the process. During the implementation phase, it's important to communicate clearly with your teams and the third-party provider to ensure everything runs smoothly.
Transferring staff data to new systems also comes with security risks that could fall foul, GDPR, or data protection rules. A good provider will guide you through this process, ensuring you stay compliant.
When researching HR outsource providers, it’s crucial to pick one that will maximise your cost savings through compliance support, accurate payroll calculations, expert guidance and single-source technology.
ADP is the best-in-class solution, trusted by global companies like Amazon, Cisco and PayPal. With 70 years of payroll experience, they handle the complex, mundane admin for you. Unlike our competitors, we take on time-consuming tasks such as sick pay and legal surveys. This frees up resources so you can focus on your strategic business initiatives. To see how our HR solutions work, book a demo today.
