When should growing businesses outsource HR?
HR tends to be relatively easy to absorb when a team is small. But as your business grows, the way you've always handled people operations can eventually reach its limit.
So, how do you know when you’re at that tipping point, and where outsourcing HR fits into your current structure?
What changes when your business expands?
Growth brings momentum, but it can also bring friction. More revenue and bigger targets often come with more people, new management layers, and more complex people decisions. And that changes what you need from HR in a few ways:
People decisions become decentralised, with more managers making calls without senior leaders involved in every conversation.
Informal ways of working start to show their limits, as a larger team needs clearer policies, processes and documentation.
The HR expertise you need becomes more varied, spanning everything from everyday questions to complex employment relations issues.
Consistency becomes harder to maintain when more managers are handling similar situations across different teams.
HR needs to become more proactive, with greater focus on workforce planning, manager capability and preventing issues before they arise.
None of this necessarily means you need to hire a full-time HR person. But it does mean HR requires a bit more structure, expertise and attention than it did when your team was smaller.
When it’s time to consider outsourcing
So, when does outsourcing start to make sense? Usually, it’s when your current HR work has grown beyond what your current set up can comfortably handle.
Here are a few situations where that can happen.
You're moving beyond founder-led HR
In the early stages of a business, HR often sits naturally with the founder, CEO or GM. With a small team, that can work perfectly well.
As headcount grows, so does the time involved in recruitment, onboarding, manager questions, performance issues and everyday employee matters. Eventually, keeping HR on a senior leader's desk can become difficult to sustain alongside everything else they need to be doing.
Outsourcing can give that work somewhere else to go, without jumping straight into building an HR function before you’re ready.
You have someone handling HR, but they need more capability around them
You may already have an office manager, operations person or HR coordinator taking care of some of the day-to-day work. As the business expands, however, they can start encountering situations that need more HR experience than their role was originally designed to provide.
Rather than replacing what's already working, outsourced HR can work alongside that person, giving them someone experienced to turn to and taking on the areas that sits beyond their level of expertise.
What HR duties can you actually outsource to an external provider?
Most of the HR work you'd give to an internal HR hire can also be outsourced.
What that looks like will depend on what you already have in-house and where you want an external provider to take ownership. You might keep recruitment and onboarding internally, for example, while outsourcing employment relations, policies and manager guidance. Or you may want someone to look after most of the day-to-day work for you.
Day-to-day HR management
Employee questions. Changes to hours. Documentation that needs updating. A manager who needs advice before having a conversation with someone.
Individually, these jobs may not seem like much. Together, they quickly add up. These are all areas an outsourced provider can manage, from reviewing what you already have in place to preparing new documentation and keeping it current as your business and employment requirements change.
Support with policies, agreements and compliance
The employment agreements and workplace policies that worked for a team of five may not still work for a larger team of fifteen.
Not to mention, employment law changes over time, and staying on top of compliance takes dedicated expertise.
An outsourced HR provider can review and update your agreements, policies and processes where needed, helping keep the HR foundations your team relies on in order.
Manager and employee support
Consider what happens when a manager needs to address poor performance for the first time, an employee raises a concern, or a conversation starts heading somewhere unexpected.
Your external HR provider can step into those situations too. They might help a manager prepare for a meeting, advise on the right process, review a letter before it goes out or work through an employee issue as it develops.
Depending on the arrangement, they can also become a regular point of contact for the everyday HR questions coming from your managers or employees.
Recruitment and onboarding
You don't necessarily need to hand over recruitment just because you're outsourcing HR.
You might continue finding and interviewing candidates internally, while your provider handles job descriptions, employment agreements and onboarding documentation. Or, during a period of faster hiring, you might bring them into more of the recruitment and onboarding process.
The split can reflect what your team already does well and where there is work you'd rather hand over.
Specialist expertise
Then there are the more complex HR issues you don't deal with every week.
A difficult employment relations matter, a restructure or another complex situation can suddenly require experience you don’t necessarily have in-house.
Working with a wider external team means that expertise can be brought in when it's relevant, rather than expecting one person to be an expert in every area.
These can be outsourced as standalone pieces of work or as part of the ongoing HR relationship you already have in place.
How does outsourcing work day-to-day?
In practice, outsourced HR should feel like an extension of your business rather than a separate service you call when something goes wrong.
You’ll usually agree upfront what stays internal, what your provider will take care of and how you’ll work together, whether virtually, on site or a mix of both. From there, their involvement can flex around what’s happening in the business.
That might mean a fairly steady rhythm most of the year, with more input during periods of hiring, change or more complex employee issues.
That flexibility is one of the key differences from hiring in-house. Rather than employing someone in a dedicated role you’re bringing in the level of HR capacity and expertise you need at the time.
If you're weighing up the two models, our in-house vs outsourced HR guide looks at the differences in more detail.
Is your business ready to outsource HR?
There isn't a magic employee number at which a business suddenly needs outsourced HR. The better question is whether the way you’re managing HR today can keep up with where your business is heading.
If you’ve reached the point where people issues are becoming harder to manage within your current setup, it might be time to consider a different approach.
PeopleEX can work with what you already have in place and provide the level of HR input your business needs as it grows.
