In the current economic climate, organisations are continually seeking ways to reduce their costs and increase their efficiency. Outsourced HR 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 ecruitment 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 | £23,400 | Based on recruiting once over 3 | ||
Temps | £9,000 | To cover holidays and sickness | ||
Training & professional | £14,000 | |||
Office space and PCs | £25,000 | Office space & PCs for 3 | ||
HR and Payroll system licence | £10,000 | An up-to-date HR & payroll | ||
System implementation and | £10,000 | |||
System annual maintenance / | £6,000 | |||
Server, hosting & IT support | £18,000 | |||
TOTAL £364,200 | ||||
Typical Costs of Full Outsourced HR
and Payroll over 3 years with PlusHR:*
Item | 3yr Cost |
HR Manager | £90,000 |
HR and Benefits Administration | £39,000 |
Web-based HR System with employee | £15,000 |
Payroll | £18,000 |
Total £162,000 | |
Total Savings Over 3 | |
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 | £100,800 | £28k salary plus benefits & NI |
Recruitment | £22,800 | Based on recruiting once over 3 |
Temps | £9,000 | To cover holidays and sickness |
Training & professional | £14,000 | |
Office space and PCs | £25,000 | Office space & PCs for 3 |
HR and Payroll system licence | £20,000 | Fully functioning web-based system |
System implementation and | £15,000 | |
System annual maintenance / | £13,500 | |
Server, hosting & IT support | £18,000 | |
TOTAL | ||
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 | £40,000 |
Payroll | £35,000 |
Total | |
Total Savings Over 3 | |
In-house costs | £324,500 |
Outsourced costs | £155,000 |
Total savings £169,500 | |
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