HR doesn’t need to be in-house, it doesn’t need to be expensive, and it definitely doesn’t need to be taking up your team’s time.

If you’re an early stage company, you do need HR, but it doesn’t need to sit in-house.

HR and People are not the same. For the purpose of this post (appreciating that companies use similar words to mean different things), here’s how I’m defining the two:

• HR: statutory employment requirements or employment law matters.
• People: attracting, hiring, managing, engaging, developing staff.

Within People, you may have:

• People Teams: the team(s) responsible for supporting managers and providing a consistent framework for all things talent-related eg Talent Acquisition Teams, People Operations/Solutions.
• Talent tasks: what it says on the tin e.g. conducting an interview. A talent task could be undertaken by a manager, a team member or someone in the People Team.

Early-stage companies tend to handle HR in-house, in one or more of the following ways:

• Hiring an HR Administrator.
• Having the People Team take on certain tasks.
• Giving the Office Manager certain tasks.
• Leaving managers responsible for HR for their teams.
• Engaging a company like ACAS to support with advice.
• Using employment lawyers as and when needed.

Just writing that list brings back painful memories. There are so many problems with doing it like this, which fall into the following categories:

• Value-add
• Trust and security
• Blurry lines
• Cost
• Quality

Let’s begin, then.

Value-add

There are two ways to handle HR: badly, or correctly.

Handle it badly and it will cost you in ways you never even imagined. Handle it correctly, and you’ll avoid issues, save time, minimise costs and keep everyone happy.

Once you’re handling it correctly, however, it’s not going to add any more value than that – while People tasks will. HR is HR. It has to be handled according to the law. You don’t get to redesign P45s, you can’t add your own spin to employee’s rights or put a competitive spin on discrimination laws.

It’s the same territory as payroll. Once it’s done right, making the payslip prettier isn’t going to change much.

Having HR in-house doesn’t make it “better”, it just makes it in-house.

Trust and security

I don’t trust most people. This may sound cynical, but if you’ve been around the block in a senior management role you will relate.

I can recall countless unfortunate incidents where employees who were trusted with confidential information (i.e. salaries, disciplinary notes) disclosed those details to other members of staff. Maybe by accident, because they were friends or because they were out drinking and needed to vent … whatever the reason, it happened, and the effects were severe. There’s nothing you can do to stop these incidents either. The clue’s in the name “human error”.

Shared drives are another risk to security, and I don’t have faith in most people’s abilities to manage them correctly. Google Drive is great, but it’s very easy for files to be shared with the wrong people or set with the wrong permissions. I sleep better knowing that HR data is stored separately from everything else, in a system that is 100% compliant and secure. That said, I don’t fancy being the person responsible for maintaining that system.

Blurry lines

If an employee underperforms, their manager needs to give them feedback and help them succeed. If an employee acts the wrong way, their manager should be the one to explain why and how it wasn’t the right thing to do. This is a people-related task to be performed by a manager. The People Team may give advice, but it’s not their role to manage staff for managers.

Now, if things don’t improve, or there are matters with legal implications, that’s when HR functions are required. When both these functions are in-house, the lines get blurred.

I once worked at a company where I was technically the People Team and HR (#StartupLife – where one person = two departments). Two engineers were engaged in a long-term conflict and it reached the point where one of them wanted to raise a formal complaint. Their manager came to me to understand the process (HR), get some advice (People Team), and talk to the individuals (people task).

With both functions sitting in-house (in one person), the temptation to pass along responsibility for managerial tasks was all too attractive. But managers need to do their job.

In a situation like this, outsourced HR brings numerous benefits. One, they’ll advise on any legalities and write out HR policies and processes as needed. Two, they’ll diplomatically nudge the manager to play their part and give them advice that will keep them out of court. Three, if the shit does hit the fan and there are potential grounds for dismissal, it’s clear that this process is being handled by HR. The employees involved will understand the gravity of the situation and are less likely to interpret the judgement as personal.

Cost

In the span of a single year at one company I worked for, we:

• Led a consultation process that resulted in making several roles redundant.
• Dismissed some staff who were underperforming.
• Had staff go on maternity leave (and realised we didn’t have a maternity policy).
• Had one staff member suffer a health issue we weren’t sure how to handle.
• Had one staff member make a formal complaint about another staff member.
• Needed to create a new employment contract because ours were horribly out of date.
• Needed to create an employee handbook because we realised we didn’t have one.
• Hired a bunch of people who all needed employment contracts, new starter forms, payroll set up etc.

In this small business, which had fewer than 50 employees, costs included:

• £40k on a fully loaded HR Administrator.
• £8k on time spent managing HR Administrator.
• £30k on employment lawyers.
• £10k on collective management time overseeing, advising and preparing for HR matters.

All of which comes to an eye-watering total of £88K.

Note this doesn’t even include the cost of hiring the HR Administrator (on average it takes 35 human hours to make one hire).

Quality

Quite simply, when there are a billion things to do, you’re probably not going to prioritise writing a policy, filling in a form or creating an employment contract. So instead, you’ll probably rush it or deliver it late. It’s shoddy and it sends the wrong message, but it happens.

And let’s face it, if your answer to meeting HR needs is to give those tasks to your People Team, or a junior administrator, then it’s fair to say you don’t really have a solid HR function in place. I don’t mean any offence to these roles, it’s just that if I’m trying to scale a disruptive fast-growth business, I’m likely going to be making a lot of (potentially controversial) people-related decisions, and when I do, I want to rely on an HR resource that has 20+ years’ experience. But I don’t necessarily want to pay upwards of £150k to have that expertise in-house. Or have to keep paying lawyers by the second.

From in-house to outsourced

I’m not pointing the finger of blame. I used to do things the old-fashioned way too. I had an HR Administrator in-house, I called on employment lawyers as and when needed, and I took on a lot of tasks myself (such as advising on disciplinary matters and consultation processes) because I had the relevant experience to do so.

Then one day something happened. I met a man.

Don’t get too excited folks, this isn’t a love story.

Kieron was an expert in HR matters, and he also happened to be the sweetest human being I’ve ever met. I decided to outsource all my HR to his company, and from there my life changed.

My advice to you? Outsource all HR. Immediately.

What happened when I outsourced it?

Firstly, I paid £500 per month. £6K per year.

This included:

• Creation and maintenance of employment contracts and employee handbooks.
• Managing HR for all new starters: creating their employment contracts, collecting new starter forms, setting them up on various portals, liaising with payroll etc.
• Unlimited employment law advice.
• Maintenance of our HR/holiday portal.
• Support for managers who weren’t sure how to handle difficult situations.
• Alerts on sick leave patterns, upcoming probation reviews etc.
• Listening to recordings of conversations and providing feedback.
• Handling of all maternity/paternity paperwork.
• Creation of disciplinary or other formal letters as required.
• Creation of settlement agreements, handling all negotiations with the employee and their lawyer.
• Offboarding of leavers and exit interviews.

With all this covered, senior management time spent on HR decreased by about 50% and all other costs were removed.

Thinking back to that particularly “busy” year for HR, we would have spent £11k versus £88k. If you prefer percentages, that’s a saving of 87.5%.

More importantly, it was a better service.

It pushed managers to manage (and gave them the headspace for it), but ensured they had independent and professional support when they needed it.

Administrative or legal matters were left to professionals, who were better at them. And tasks that seemed time-consuming and boring, like setting up new starters, never got deprioritised. My People Team were given scope to focus on actual talent initiatives, and my Office Manager tackled more value-add elements e.g. CSR, health & wellbeing, social agenda.

Everything confidential was kept outside the workplace. Our data was organised and up to date, no one blabbed about salaries or HR matters.

New starters had a great first impression – their contract and onboarding was handled quickly and they saw they were dealing with a professional HR firm.

Staff “got it” too. It was clear to everyone that managers were responsible for staff, but it was equally clear that if there were issues that couldn’t be resolved, we wouldn’t hesitate to call on our HR partner to lead that process. It wouldn’t be personal, and it would be formal.

On a personal note, I slept a lot better knowing I could call Kieron as much as I wanted, and that he’d not only advise me appropriately, but it also wouldn’t cost me more than the fixed fee each month.

OK I’m going to assume you’re sold on outsourcing your HR by now.

Here are three ways to make it a success

1. Choose the right partner
Kieron was transparent about pricing and succinct when it came to legal advice, but also took the time to get to know us. He knew what we did as a business, which managers needed hand-holding and what his tone of voice should be when speaking on our behalf.

2. Invest in ways of working upfront
Kieron and I designed the onboarding process and tools to use together, we agreed on methods of communication and response times, we set rules on who could access him and who couldn’t, and outlined what I did and didn’t want to be involved in. We checked in on this periodically to reflect and iterate anything that wasn’t working.

3. Let everyone know that your HR Partner works for the company
Staff knew they could contact Kieron’s company if they had generic HR questions (e.g. “How many KIT days am I entitled to during maternity leave?”), but that:

a) Our HR partner was not their manager.
b) Our HR partner represented the best interest of the company, not the individual.

If an employee contacted them to say they were thinking of resigning and wanted to know what kind of notice period they’d have to give (yes, that happened), you can be sure Kieron would call me to say “Richard is thinking of resigning”. Our partner handled HR and left managing to the managers.