Saving Money Through Outsourcing HR and Payroll

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 yrs

 

Temps

£9,000

To cover holidays and sickness

 

Training & professional memberships

£14,000


 

Office space and PCs

£25,000

Office space & PCs for 3 employees

 

HR and Payroll system licence

£10,000

An up-to-date HR & payroll system

 

System implementation and customisation

£10,000


 

System annual maintenance / support fees

£6,000


 

Server, hosting & IT support for system

£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 / manager self-service and workflows

£15,000

Payroll

£18,000

Total £162,000

Total Savings Over 3 Years

 

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 Administrator

£100,800

£28k salary plus benefits & NI

Recruitment

£22,800

Based on recruiting once over 3 yrs

Temps

£9,000

To cover holidays and sickness

Training & professional memberships

£14,000


Office space and PCs

£25,000

Office space & PCs for 3 employees

HR and Payroll system licence

£20,000

Fully functioning web-based system

System implementation and customisation

£15,000


System annual maintenance / support fees

£13,500


Server, hosting & IT support for system

£18,000


 TOTAL £324,500

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 / manager self-service and workflows

£40,000

Payroll

£35,000

 Total £155,000

Total Savings Over 3 Years

 

In-house costs

£324,500

Outsourced costs

£155,000

Total savings £169,500

Source: Plus HR - UK