Outsourcing HR Pros & Cons

Introduction: Why SMEs Need to Stay on Top of HR

For small and medium-sized businesses, HR often starts as an afterthought — handled informally, with templates from the internet and good intentions. But without the right systems in place, this can quickly lead to legal and operational problems that cost time, money, and reputation.

UK employment law applies to every business, no matter the size. Failing to issue the correct contracts, mishandling absence or conduct issues, or using outdated templates can all result in serious consequences — including tribunal claims, legal fees, and management distraction.

Beyond the legal risks, poor HR management often causes confusion, low morale, and high staff turnover — all of which directly affect productivity and profitability. On the flip side, good HR systems help you build a stronger, more stable team and free up time to focus on growing the business.

This guide looks at the pros and cons of managing HR yourself versus outsourcing HR to external consultants, helping you decide what works best for your size, budget, and future plans.

DIY HR Approach

It’s common for SMEs — especially in the early stages — to try to handle HR themselves. This usually means relying on downloadable templates, internet research, and intuition. While this route may save money upfront, it can quickly become overwhelming and risky.

Pros of DIY HR:

• Low upfront cost
  You can find free HR templates online and avoid consultant fees entirely — which is appealing to cash-strapped startups.
• Full control over decisions
  You retain direct oversight over how policies are created and enforced, which can suit businesses with unique cultures or specific management preferences.
• Flexibility to scale at your own pace
  You decide what HR systems to implement and when, without being tied into fixed packages or service levels.

Cons of DIY HR:

• Significant time burden
  Business owners or managers often spend hours researching laws, writing letters, and managing employee issues — time that could be spent on revenue-generating activities.
• Outdated or inaccurate templates
  Many free online resources are generic, legally outdated, or not aligned with UK employment law, increasing your exposure to mistakes.
• Legal and financial liability
  Mishandling a dismissal, redundancy, or grievance can lead to costly employment tribunal claims.
  Potential Costs Include:
  • Employment tribunal award (up to £100,000+ depending on the case)
  • Legal fees (often £200–£400 per hour)
  • ACAS settlements
  • Reputational damage and management distraction
• Lack of expert advice
  Without qualified support, you may miss early warning signs of employee relations issues or inadvertently breach employment law.
• No contingency support
  In complex cases such as TUPE, long-term sickness, or redundancy or employee relations management , you’re left to figure it out alone or pay high fees for urgent legal advice.

Bottom line: DIY HR might appear free, but the hidden cost in time, compliance risk, and legal exposure often vastly outweighs the short term savings.

Outsourcing HR Support

Hiring a professional HR provider gives SMEs access to compliant documentation, expert advice, and strategic support — usually at a fixed monthly or project-based cost. This can free up time, reduce stress, and protect your business from costly mistakes.

Pros of Outsourced HR:

• Legal compliance and peace of mind
  Professional HR providers stay up to date with UK employment laws, reducing your exposure to legal disputes, discrimination claims, and safety breaches.
• Time-saving
  Business owners and managers can focus on growth, sales, and operations — rather than HR admin and employee issues.
• Predictable costs
  Fixed monthly fees or pre-agreed costs allow for better budgeting, especially when compared to surprise solicitor bills.
• Scalable and flexible support
  You can choose from full-service support, one-off projects, or document-only help — tailored to your business stage and needs.
• Strategic HR input
  You gain access to senior HR advice on workforce planning, restructuring, and talent retention — all aligned with your business goals.

Cons of Outsourced HR:

• Risk of long-term contracts
  Some providers lock clients into 3–7 year contracts with auto-renewal clauses and early exit penalties — a costly mistake if your needs change.
• Hidden fees for extras
  Despite claiming to offer ‘all-inclusive’ support, some providers charge additional fees for essential letters, templates, or disciplinary documentation.
• Over-selling of services
  Offers like free tribunal representation may sound attractive but are rarely needed if the HR advice is effective. You might end up paying for features you’ll never use.
• Generic advice or poor service levels
  Not all providers are equal. You might be promised bespoke support but get templated documents and slow response times instead.

What Can You Outsource?

Outsourcing is flexible — you can pick the level of support that suits your size and budget:

• Full HR Support (monthly fee):
  Includes employee contracts, handbooks, HR policies, unlimited phone advice, and document support to handle day-to-day HR matters.
• Employment Law Advice (monthly fee):
  Quick access to expert advice when issues arise — ideal for avoiding high legal bills or tribunal costs.
• HR Document Packages (fixed one-off fee):
  Custom contracts, policies, and employee handbooks designed for your business — without ongoing commitments.
• One-off HR Project Support (fixed fee or hourly):
  Help with specific issues like redundancy, TUPE, employee relations, investigations, or long-term sickness cases.

Key Mistakes SMEs Make When Outsourcing HR

Some small businesses sign up for outsourced HR under pressure or without reading the fine print. Watch out for these common pitfalls:

• Long, auto-renewing contracts
  Providers may lock you in for 3–7 years, with hidden clauses requiring 30–90 days’ notice before the renewal date or full contract buyout fees.
• Over-promised support
  “Unlimited” advice may come with slow response times, and you might find that essential letters or processes incur extra charges.
• Paying for what you don’t need
  Services like tribunal representation sound appealing but may never be required. A good HR provider helps you avoid disputes in the first place.

Is Outsourcing HR Worth It?

Despite some providers using questionable sales tactics, many offer high-quality, transparent, and flexible services that can save you time and money — often enough to cover the cost of the service itself.

Cost-Efficient and Streamlined Operations

Outsourcing HR simplifies day-to-day tasks like recruitment, onboarding, documentation, and compliance tracking. It reduces overheads compared to building an in-house team, and allows leaner operations without sacrificing legal compliance.

Legal Risk Reduction

Professional HR firms are proactive in managing risks — helping you document issues correctly, avoid procedural mistakes, and resolve conflicts early. This reduces tribunal exposure and financial penalties.

Strategic Business Support

During growth, downsizing, or market changes, outsourced HR advisors provide insight into workforce planning, policy development, and change management. This helps you stay agile and aligned with your business goals.

Final Thoughts

Whether you choose to go DIY or outsource your HR functions, the key is understanding the real costs, risks, and resource needs of each approach.

✅ DIY HR may work for micro-businesses, but it comes with time pressures and hidden legal risks.

✅ Outsourced HR, when chosen wisely, is an investment in compliance, productivity, and long-term protection.

Tip: Always check the contract terms, pricing transparency, and what’s included before signing up with any HR provider.