Frequently asked questions

Unpacking the decision to outsource HR

Frequently Asked Questions

Outsourcing is no longer a dirty word. Forward-thinking companies are constantly looking for ways to make their organisations more flexible and competitive and traditional structures are no longer the only option. Our frequently asked questions guide help unpack the ins and outs of outsourcing HR for Business Leaders looking for different.

1. Why should I outsource HR?

Outsourcing HR can help you improve efficiency and access specialised expertise. HR is an enabler to help Leaders to lead.

Outsourcing is often thought to mean transferring responsibility to an external source, and this is where problems can occur. It is vital to understand that the outsourced task is completed by an external source but responsibility for the task always remains within the organisation.

Outsourcing is a great option when partners are clear on accountability. In the case of HR, business leaders or managers should ensure the internal team is aware of who is responsible for setting and meeting HR goals and what a HR partner can provide.

Communication is key when outsourcing HR. Your HR partner should be involved in or aware of your people strategy, so they are able to effectively support your business strategy. And if a people strategy doesn’t exist, a HR partner can make this happen!

In addition to clear accountability, business leaders must also be clear on their reasons for outsourcing. Often, business leaders consider outsourcing when:

  • the business is growing
  • the business is downsizing
  • the business is changing focus
  • they want more flexibility in HR delivery

Being clear on the reasons for outsourcing and clearly communicating these to your chosen HR partner will ensure they are able to deliver the service you need. This is especially important when outsourcing HR because every business’ HR needs are unique.

Finally, business leaders need to be clear on their business strategy and how their HR needs are changing as the business grows and develops. When your strategy and needs are effectively communicated, a quality HR partner can continuously adapt their services to meet your changing needs.

Outsourcing to an experienced HR partner allows business leaders to focus on core business operations, while being confident that their HR needs are effectively met. A professional, experienced HR partner will ensure day-to-day operations are well managed, while maintaining focus on the future direction of the HR function.

2. Do I even need HR?

Your unique situation will determine what type of HR you need, and your needs will vary depending on which stage your business is at:

  • start up
  • scale up
  • mature and stable
  • mature and high growth
  • mature and decline/consolidation

Generally, medium to large companies need a dedicated HR team to ensure efficient processes are in place and people are well managed. However, small businesses or start ups can also benefit greatly from HR.

When you first start a business, you normally manage all aspects of the business yourself. As you grow, these tasks (including HR) become more time-consuming and begin to impact your own effectiveness in the business. You quickly find yourself spending more time on managing the business than providing essential services to clients. It’s at this point that access to professional HR can become an essential capability requirement.

It’s often even more effective to build a relationship with a HR team right from the outset. That way, you have tailored HR support whenever you need it. HR professionals know how to hire the perfect person for the role, which is vital in managing costs and reducing employee turnover. By involving HR from the beginning, you can ensure you start your business with core processes and quality resources already in place.

We recommend getting a review  so that you can determine what you may and may not need. This is a great way to see how a HR partner can help. When you have never experienced effective HR that focuses on both now and the future, it can be a real surprise to see the difference a dedicated HR partner can make to your business.

3. Does outsourcing HR mean redundancy for my HR people?

The extent you decide to outsource your HR will determine whether you retain HR people internally. Outsourcing your HR does not always mean outsourcing all aspects. To help determine your needs, a great HR partner will work with you to conduct a review. This will identify what is working well in the context of your commercial and cultural objectives and where there is room for improvement.

Often, a combination of some internal expertise and focus coupled with outsourcing is a great option. The key is understanding what your business needs in terms of skills and knowledge and then determining how you can access it. HR tasks usually encompass the following technical areas:

  • Employee Relations and Industrial Relations
  • Compliance
  • Organisational Development
  • Workplace Health and Safety
  • Recruitment
  • Learning and Development
  • Remuneration and Benefits
  • Workforce Planning

Due to the diverse nature of HR, you often need a variety of skills that are better found in a team rather than one dedicated HR person. An internal HR team requires an initial outlay and regular training and development. A HR partner puts a team of people, each with their own specialised skillset and a set of broad HR and industry experience, at your disposal and allows you to focus your time and energy on revenue-raising activities.

The best way to determine how much of your HR to outsource, if any, is by completing a periodical review of your HR capability.

4. How will an outsourced HR provider know my business?

A good outsourced provider will ask the right questions to garner the information they need to provide effective HR that meets your needs. They will also be great sources of knowledge about how you can maximise HR to create innovation and change in your business. An experienced HR partner understands that relationships are critical. Becoming a trusted advisor to business leaders, managers and frontline employees requires quality interactions, consistency in delivery and experience in building trust.

It is your HR partner’s responsibility to guide you and find out the information they need to know. To ensure they are successful in this, business leaders need to be forthcoming and open with information about the business. A true partnership is needed to ensure an effective HR strategy.

Some key questions they may ask include:

  • How is HR going to support your organisational strategy?
  • What are your people priorities that will see some tangible wins for your team?
  • What are some people challenges you have faced in the past?
  • What are you doing to be better, bolder and braver in your people practices?
  • What has worked for you in the past?
  • Where would you like to see growth and change happen?

Every HR partner is different and, often, the level of service you receive will greatly depend on your budget. If you choose a low-cost option, you can expect a more one-size-fits-all approach and less communication. A higher budget will ensure a tailored approach from HR professionals dedicated to delivering HR that meets your specific needs.

5. How can a virtual model of support help my business?

Virtual support models fall into one of two categories: the red phone crisis centre or a remote HR team. The former provides you with support in a HR crisis and the latter has your HR team working remotely to ensure your HR needs are efficiently and proactively met. However, virtual should never mean a HR partner only provides support when you call on them. A great provider will be in regular contact with you, providing you with the metrics and data you need to make decisions, and recommendations to continuously improve your people.

Outsourcing your HR to a highly skilled, client-centric delivery team provides you with a virtual support model that takes care of day-to-day HR activities, while continuing to focus on strategic projects. This dedicated team allows you to focus on your core business and use your specialised skillset for continued business improvement.

We know that a great virtual set up or ‘engine room’ is key to providing a great client experience; however, it’s not the only element of a good HR delivery model. Ask your potential providers for available options and the reason they propose them before choosing what you think will work for you.

6. Does outsourcing mean cost reduction?

The cost of outsourcing HR varies and is dependent on your unique situation. When deciding whether outsourcing will be a cost-effective option for your business, it helps to ask the following key questions:

  • What is the total current cost of your in-house HR?
  • Are you currently getting what you need?
  • What will it cost to set up or improve in-house HR so that it meets your needs?
  • Will outsourcing provide what you need?
  • What is the initial outlay for outsourcing?
  • What are the ongoing costs for outsourcing?
  • How do the total costs of outsourcing versus improving in-house HR compare over time?
  • What are you losing by outsourcing?
  • What are you gaining by outsourcing?

If your current HR isn’t meeting your needs, it’s an indication that you need to invest more, or invest differently into HR. When comparing costs, it’s essential to compare outsourcing costs with the real costs of an in-house HR team that works.

The initial outlay for outsourcing may be high if your current HR infrastructure is out of date or non-existent. Once effective policies and processes are set up, the costs of outsourcing should drop considerably.

The effectiveness of your HR solution is paramount to ensuring your HR budget is used wisely. Reviewing your HR model annually will enable you to see when improvement is needed. As your business grows and changes, so too should your HR strategy. By staying up-to-date with the options available, you can ensure your budget is put towards effective solutions that allow for future growth and innovation.

7. What should a fully outsourced HR company have in their offering?

A great HR partner should have the ability to deliver tailored solutions for a wide range of tactical and strategic HR needs. They should:

  • tailor their service and offerings to meet your needs
  • be onsite with your team for as much time as needed
  • deliver on the day to day
  • add value through efficiencies
  • handle high-risk scenarios
  • advise on options to meet your objectives
  • use the latest HR technology platforms and options
  • have conversations and add value at the executive level.

You may not want or need all of this; however, working with a provider that has demonstrated experience in delivering the full breadth of HR capability allows you to cherry pick for what’s important now and to flex and adjust as your business changes.

When choosing a HR partner, keep in mind that all HR is not created equal. To be effective, HR should be customised to your unique business strategy. Using a template, one-size-fits-all model can create unnecessary risk for the business. Our article on potential HR pitfalls has more information about the importance of finding a tailored solution.

Finally, when choosing a HR partner, check whether they include a termination clause in the contract. It’s not unusual for providers to lock businesses in for 1–5 years with no early termination clause. The best providers stand by their service by allowing you to exit at any time.

8. What questions should I be asking my HR manager?

Part of a HR team’s role is to manage day-to-day people processes and handle any issues that arise. However, an often forgotten and essential part of their role is planning for the future by keeping the business strategy top of mind. When HR becomes all about now and plans for the future are pushed aside, the business becomes stagnant and innovation impossible.

Business leaders can ensure focus is on the future by checking in with their HR team and asking these five key questions:

  1. What are the key priorities over the next 12 months for us to deliver on our business plan?
  2. How are you driving efficiency in day-to-day HR processes?
  3. How are you enabling leaders to lead better?
  4. What are our key people risks and how are you monitoring these?
  5. What do you see as the trends in people enablement and what should we be considering?

A HR partner can work with your HR manager to keep focus on innovation and transformation, while ensuring day-to-day processes are efficient and effective.

9. Some HR providers offer an insurance policy. What does this cover?

A few Australian HR providers sell an Employment Practices Liability policy as part of their solution. While there are some benefits to this, it’s important to understand what it is and what the likelihood is of you needing it. Key questions include:

  1. Why is Employment Practices Liability (EPL) insurance important? In principle an EPL policy provides coverage to businesses for allegations of wrongful behaviours in the hire, management and termination of employees (and in most cases, third parties – e.g. potential new recruit that alleges unfair recruitment process, or, visitor to site alleging harassment etc).  When you consider the range of activities and regulation surrounding employment of staff and the various legislation that governs this there are many instances where an inadvertent breach could result in an employee or third party taking action.  This includes failure to promote, unfair selection processes, unfair dismissal, harassment and bullying.  An EPL policy may cover the legal costs required to defend an action, court attendance costs and compensation payable.
  2. What process criteria must be met to ensure the business is covered by the policy?  If you are selecting a provider because of the inclusion of and EPL policy, it is recommended that you are averse to the conditions to which the policy will be valid (and when it may not be). Some of the scenarios common pitfalls can include:
      • A failure to correctly engage and follow the protocols set out by the outsourced HR service provider may void coverage. That is, if the advice provided is not followed, you may not be covered – this applies even if the advice given does not support your business operation.
      • Some policies contain per claim limits which are significantly less than what we would see under more comprehensive coverage.
      • EPL policies are most focused on ER related issues whereas HR activities can often be broader and management responsibilities certainly are and branch into areas of Work Health and Safety.  If Work Health and Safety is a key risk area in your business, it is recommended that you review the level of coverage (or if you are covered at all).
      • Some policies contain provisions that in the event that the Insured organisation maintains any separate equivalent coverage then that separate coverage must be first to respond to a claim.  This could be problematic in some cases if such separate policy contains a similar provision.

We recommend speaking with your insurance broker about the policy and looking at other products available to you.  It is important to note that access to EPL and Management Liability policies are accessible to any organisation (your broker will guide you here). If insurance is important to you, take the time to assess what you really need and if the level and ability to access it is in line with your level of business risk. A Management Liability policy may be more suitable, and they often provide broader and more comprehensive coverage across a broader range of management activities.


10. When do I need an ER Lawyer?

Employment law is complex and employers can sometimes, inadvertently, find themselves the subject of an employment lawsuit. To prevent this where possible, it’s vital to have a well-informed HR team and knowledge about the potential pitfalls in employment relations. A great HR partner will help you navigate the laws and regulations inherent in employment relations and provide essential advice when needed. They will also have connections with employment relations (ER) lawyers so you have access to their expertise when needed.

There are times when your HR team are the perfect choice for handling employment relations issues or concerns, in the first instance. Examples of these scenarios include:

  • Introducing new policies
  • Conflict resolution (including investigations and mediations)
  • Complaints
  • Workplace Health and Safety
  • Fair Work Matters

However, there are times that the expertise of an ER Lawyer is needed, and a good HR Partner should be well versed in identifying the best placed provider to work with. Examples of these scenarios include:

  • When a Fair Work matter escalates beyond the initial conciliation/conference.
  • Complicated contract negotiations – usually as a check of work already completed by a HR/ER Specialist
  • Matters that may involve the media or have involved the media
  • Serious injury or death of an employee
  • Complicated or large-scale redundancies – checking process only

When choosing a HR Partner, it is recommended that you ask about their depth of experience and capability to handle Employment Relations matters. Having access to a partner provider that knows your business assists greatly when it comes to ER matters. Knowing that your provider can engage the right level of outside expertise when needed provides for an efficient and cost-effective outcome for you.

performHR regularly works with ER lawyers for the benefit of our clients. We provide on the ground, quality ER services that work hand in hand with ER lawyers when matters require their expertise. We are adept at providing assistance in response to situations, as well as providing proactive advice. When handled well, most ER solutions for organisations provide great outcomes in a proactive, pragmatic way with a focus on quality of process.


Changing the way HR is done

Whether you are looking to outsource your entire HR function, or need specialist support or advice for a specific project, we can help. Our approach is unique to ensure we meet the needs of each individual client – there is no hiding behind an off-the-shelf solution. We provide you with a level of choice, control and independent thinking that you just can’t get with an internal team.

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Progressive organisations need progressive capability. We provide entrepreneurial thinking with solid HR know-how, enabling leaders to get on and lead. That’s how you do what you do, and that is why we love what we do.