HR Costs Guide

As a business owner, human resource services are important to keep your daily operations running smoothly.

HR handles employment contracts, legal compliance, and many other essential types of business documentation.

The downside? Having an HR department is costly—and depending on your budget, you may not be able to hire a full set of employees for every administrative task you need.

But you can outsource—and you can speak to us on 0800 028 2420 to discuss your requirements.

Before that, you can also read our guide on the expenses you can expect with HR—whether in-house or outsourcing.

HR Cost Factors

There are several factors which will affect the cost of your HR department, both internally and externally. To help work out how much it will cost you, you need to ask a few questions of your business:

• How many employees do you have: This is the biggest cost factor for your HR department. The more employees you have, the greater your HR needs and therefore the more it will cost.
• What HR services do you need: Depending on your business size and needs, the services you require will impact the cost. For example, a simple payroll service will be cheaper than employment advice and representation at a tribunal. 
• Do you want retained or pay-as-you-go HR help: Most small businesses are looking to grow and expand, to do this they need regular recruitment. This is where retained services will help, though some may only need occasional HR help. 

What are Human Resources Costs?

It’s the amount of budget you need for common administrative duties, such as your contracts of employment, legal checks, recruitment.

But what do you think? How much does HR cost per employee? The average cost to replace an employee for SMEs is around £12,000 for each member of staff. Then you must factor recruitment fees, hiring, and the new staff member’s wage.

The costs can quickly escalate for your business. So, what are different types of HR costs you must take into consideration? HR cost factors include:

• Funds for office equipment: Most industries have office environments. Funding replacement equipment is a constant requirement—but the amount also adds up over the course of a year.
• Recruitment: One of the most expensive tasks any business has to undertake, hiring new staff is time-consuming and costly.
• HR administration: This is the management of the overall employment experience for your workforce, which takes considerable time and effort to maintain.
• Employee turnover: The number of employees leaving your business on an annual basis. Naturally, businesses want to main a high staff retention rate.
• HR audit costs: When your business examines current HR activities (policies, documents, procedures, etc.) and ensures everything is legal and efficient.
• HR software costs: Such as HRIS software for managing daily HR activities.
• Absenteeism: Very costly for any business—if employees are regularly off work sick, the long-term financial costs can mount up.
•  Planning and developing projects: Whether it’s implementing new software or introducing exit interviews, planning out your latest projects takes time and money.
• Career assistance: Many businesses look to support staff with professional development opportunities. HR functions can help to plan a budget. 
•  Funding an HR department: This means hiring staff to perform the human resources requirements your business needs. Hiring full or part-time employees is the principal source of costs.
•  Funding HR consulting services: This is if you choose to outsource your human resources requirements—you can consider these HR support costs.

Hiring staff to manage these common tasks takes funds from your budget. In fact, HR is an expensive, but essential, requirement for any business. No matter how big or small.

And there are two ways to go about ensuring you have HR professionals for your business:

1. Hire professionals for an in-house department.
2. Outsource to an HR business consultancy.

But how much does HR cost? There’s no specific answer, as it depends on what your business is looking for and whether you outsource or go in-house.

Costs vary depending on which service you turn to. Small businesses will find outsourcing affordable, however, as it’s much cost-effective than an in-house team.

As an example, HR outsourcing average costs are around £200 per month. That can lead to £2,400 per year.

If you have an in-house team, it’s significantly more expensive as you have to hire staff members and pay them a full-time wage.

There are benefits of an in-house team, but the one you choose is up to you.

HR Outsourcing Functions

Function

Outcome

Approx. Price

HR Audit

Review all your company HR procedures & suggest improvements.

£700

HR Support

Provide aid to your business or internal staff during large projects.

£100/month

Fully Outsourced HR

Export all human resource processes, including reviews, payroll, etc.

£200+/month

This table shows what you can expect to pay for outsourced HR services. As mentioned, it is will vary on business size but this gives you an idea of the potential costs. 

HR Audit

An audit allows you to assess existing HR performance. An independent HR consultant will tell you exactly where things are going wrong and how you can improve them. An HR audit will provide an in-depth review of your human resources processes, make any quick fixes, and suggest remedies and training that can help.

HR Support

This is where the work is too much for your current HR capabilities. This is often is used when there is a recent project or expansion, where you will need HR services for a temporary period. 

Contracting an outside company to provide HR support during these periods will ensure compliance with legislation, streamlined HR procedures, and advising on disciplinary matters, redundancy and recruitment.

Full HR Outsourcing 

This is where all the functions of HR are outsourced. Retained outsourcing involves a fixed fee per month and is calculated according to the number of employees you have. 

Outsourced HR will always include on-site support and usually specialist HR software for managing employee records. Some HR consultancy rates will include fully serviced HR packages, whereas others will allow you to outsource different elements of your HR requirements on a more piecemeal basis.

HR Outsourcing Cost VS In-House HR - Pros and Cons

These options have advantages and disadvantages, depending on what you’re looking for, what your business’ budget is and which one suits your needs.

Consider HR outsourcing if your business reaches a stage where you need coordination and management of recruitment, interviews, and office administration.

Human resources is a complex and time-consuming process, but you can take many of the tasks and outsource them to simplify the process. 

The Benefits of Outsourcing HR Departments

There are several benefits of outsourcing hr services or the department. 

•  Reduce costs: Many companies work on a model where you pay hr outsourcing costs per employee, allowing you to save money if you are a smaller business. 
• Save time: As you can receive help with automating many business functions, such as payroll and tax, HR consultants can help you set this up.
• Ensure employment law compliance: This is a complex area for businesses to get right. By outsourcing, you remove the possibility of making legal errors.
• Take advantage of employee assistance programs: You can have an EAP when you outsource, which helps you to manage your employee wellbeing and promote a more positive working environment.
•  Real-time assistance: The best HR consultants offer 24/7 advice, so you won’t miss out on support with employees returning home for the day. If you need help, it’s only a phone call away.
• Happier Employers: Excellent HR services make for a happier workforce and boost morale. When your employees are happier, they tend to be more productive. 

As for disadvantages, the most obvious one is you won’t have a team to talk to directly—there may be a slight delay in receiving support on an issue you have.

Also, it’s important to find a reputable HR consultant so that your intellectual and data properties are secure.

The benefit of hiring HR employees is you’ll have full control over your department, which including monitoring staff productivity.

Plus, you can have direct conversations with your employees—as they’ll likely be in the same working environment as you.

However, you must also factor in the cost of hiring and managing your HR department.

Whether you choose to outsource or go in-house really depends on what you’re looking for. You can always have an in-depth talk with an HR consultant before signing up.

That’ll help you to ask questions you have about the process. But it’s one many SMEs choose in the modern, digital business world.

Simply as with the technology available, outsourcing is similar to an in-house team. Experts are never more than a phone call or email away.

Pay as You Go VS Retained HR costs

First, a bit of clarity on what these are:

• Pay as you go HR: As you might expect, you pay for the HR services over a period of days, weeks, and months. Years, if you want to. And you pay for your specific HR needs as and when you require them.
• Retained HR: This provides HR support over a long-term basis—this can mean more hands-on assistance for your business.

Retained HR consultants can charge anywhere between £60 to £480 each day. It depends on what your needs are.

Pay as you go costs HR costs also vary, depending on your requirements. An HR manager, for example, may cost around £500 per day. HR support and administrative tasks can cost £350 per day.

It’s important to consider your budget before committing to any package—as well as considering the service provider and whether they can meet your requirements.

Peninsula HR costs

If you require support from the UK’s HR leaders, our team of consultants have over 30 years’ experience. And we’ve helped tens of thousands of clients towards ever greater success.

For our HR outsourcing costs, you can check our Peninsula pricing plans to find a package that works for you. We offer:

• Peninsula HR: Provides expert assistance with setting up employee contracts, company handbooks, and other documents. You can also benefit from tribunal representation—and 24-hour HR advice 
• Peninsula HR and health & safety: All the above, with added health & safety support. That includes annual reviews, risk assessment support, and crisis or incident support.
• Peninsula health & safety: This is if you’re looking for support with your health & safety procedures.

Tens of thousands of businesses trust us on an international scale.

HR Cost-Cutting Strategies

There are other methods of cost reduction your business can implement. Try some of these HR cost optimisation strategies to help you along:

• Remove unnecessary programs and benefits to lower costs—such as monthly company perks.
• Outsource your HR functions to cut down on the cost of paying full-time wages.
• Perform a salary review for all your staff—cutting wages isn’t a popular choice, of course, but may prove necessary.
• Look into ways to reduce staff turnover—retaining valuable staff can help cut costs in the long-term.
• Look to hire from within your business to save on external recruitment costs.
•  Involve your employees—ask them for cost saving initiatives.

Want to know more?

We can help you manage your human resources costs with affordable services for your budget. Get in touch to find out more: 0800 028 2420.