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Five reasons SMEs waste money on HR

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By Kate Russell on Small Business UK – Advice and Ideas for UK Small Businesses and SMEs

Be sure that you know what you want from your HR consultancy

Business guru Peter Drucker once said: “Do what you do best and outsource the rest”. Wise man. For most SMEs it makes sense to buy in some services on as “as required” basis, and HR consultancy is a prime example of where you need some help sometimes.

Most small businesses are really microbusinesses too small to have an inhouse HR manager. Possibly a staff member with some HR experience has been seconded to the role. But employment law changes so rapidly and you could unwittingly be leaving yourself open to legal action by a disgruntled employee, if you don’t exactly follow HR procedure.

Or it may be that you yourself, as owner-director, handle all your own recruitment – taking precious time away from what you do best: running your business. A 2022 study by NatWest found that 95 per cent of small businesses have struggled when recruiting staff members.

‘Some companies require you to sign up for five years … some prisons are easier to escape from’

Outsourcing to an HR consultancy makes sense for an SME too small to have its own inhouse manager.

Like everything else you buy, the service needs to work well and efficiently for you. If not, at best all it does is cost you money but not much else. At worst, it weakens your situation and may even expose you to risk.

To ensure that your outsourced HR provider enhances the health and wealth of your company (and yours come to that), avoid the following five mistakes.

#1 – Poor quality service

One of the main mistakes is not ensuring that you get really high-quality service. Some outsourced HR companies take a one-size-fits-all approach.

Whenever we inherit another client from one of these companies, I could tell you exactly which one it was by looking at the paperwork. Handbooks, terms of employment etc all identical. All they do is change the client name.

A good HR company will take the time to understand your specific business and what you want to achieve. However, you need to be clear about your business needs from the outset, to avoid a one-size-fits-all approach. Satisfy yourself that its consultants are practical and business-driven; that they can respond quickly. Make sure you know that your outsourced partner will take time to understand your requirements.

A guide to HR outsourcing for small business – Outsourcing HR makes sense for businesses that are too small to have their own inhouse manager. However you need to be clear about what you need from the outset to avoid a one-size-fits-all approach

#2 – Lack of flexibility

Will your HR provider give you the flexibility you need? If you want help with a tricky situation, you want the comfort of someone who will come to site to support you. If you sign up with a provider that only offers phone advice, you’ll have to pay twice to get someone else to visit you in person. Do they think out of the box when it comes to solving your issues?

#3 – Poor quality HR advice

Too much HR advice is correct but flabby. In my view, the overly cautious style of advice generates more problems than it solves. You want to know what you can do, not what you can’t do. To avoid mistakes, insist on a provider with a very practical approach.

Find out whether the consultants have the skillsets to meet your requirements and that their knowledge is current (employment law changes furiously quickly). As part of this, investigate the skills and capabilities of the advisors. How well are they qualified? How do they keep up to date? Test them a bit.

#4 – Long contracts

Some companies require you to sign up for five years and give six months’ notice by a particular date to terminate the contract. Some prisons are easier to escape from. You should be able to walk away if things don’t work out, rather than stay chained to an unwanted provider and/or paying twice to end the agreement.

#5 – Unnecessary insurance cover

It’s tempting to go for a company that has an insurance hedge against tribunals. Except that all the advice given is then likely to be in the interests of the SME HR consultancy avoiding tribunal claims, rather than protecting your business. Don’t underestimate the frustration that you can suffer when you just want to bring a protracted process to a conclusion and your advisor says that you need yet another medical report.

Do you really need separate insurance? Probably not. A good quality provider will give you advice that limits your risk and if you check your business insurance, you may well find that legal costs are already included in that. Why have to pay twice?

Getting HR consultancy for SMEs right

The key things you will be looking for are that advice and support given is expert, practical and delivered on time. It’s important to explore if these two businesses – your SME and the HR consultancy — can work successfully with each other.

Ask the following questions before reaching your decision:

  • The best route is recommendation. Ask your business friends and colleagues if they can recommend anyone from their own experience
  • Ask them for a demonstration of their advice. Seeing is believing
  • What is their client retention rate?
  • How does the service work? What does it include?
  • Will the prospective provider educate your managers? How? How often?
  • Do they have a guarantee of satisfaction?
  • What hours/days will they be available by phone, e-mail, or instant chat? What is their standard for returning phone calls?
  • What options will you have for reaching them in emergency situations?
  • Have they got enough resource to meet your needs?
  • What are the qualifications and experience of personnel who are involved in providing this support?
  • What makes them better than other outsourced HR companies?
  • What is their track record on tribunal cases?
  • What are their cancellation terms?

Kate Russell is founder of Russell HR Consulting

More on small business HR

Five areas of UK employment law businesses must be aware of – Before taking on any employees, it’s important to grasp the basics of employment law. In this piece, we look at what you need to know

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