Typical cost of outsourcing HR

Here’s the rub on one of the most important factors of adapting the outsourced HR model: the costs and what determines their nature. It may be intimidating that outsourcing costs in general seem to vary so widely, but the common formula for many is based on manpower, i.e. the cost per full-time employee (total costs of operation, divided by number of billable full-time employees).

Our quickest answer on what to expect from outsourcing HR is a cost margin that reflects the size of your business, the number of employees you have in your stable, and the extent of HR services that you’ll be commissioning.

To give a little more detail, expect that costs will be negotiated by your contractor based on the following:

  • Scope of services to be commissioned;
  • Volume of information to be handled;
  • Technology type to be employed;
  • Deal type;
  • Industry vertical (type of industry in which HR services will be contracted, which could actually be different if you are a nonprofit small business, IT company, finance-based company, healthcare institution, design agency, or manufacturing company—for this, you will need to do the research).

Two types of payment scheme can be followed: fixed fee basis, or fee paid per employee to be managed (with a range of $20 to $200 per employee), or percentage basis, in which the fee is based on a certain percentage (from 2% to 10%) of each employee’s salary. You can avail of these services on pay-as-you-go schemes, which may be better if you need the HR services only for particular projects, or retained services, which is better if you are willing to invest in a loyal HR partner.

Another way to look at the financial impact of outsourcing human resource functions is to consider the average cost of hiring a fulltime employee who can handle HR tasks. Here’s a table indicating the average annual income of HR professionals in different countries:

Job Title Annual PH Salary in USD Annual US Salary in USD Annual CA Salary in USD Annual AUS Salary in USD Annual UK Salary in USD
Human Resource Assistant $                  3,254 $               39,124 $              29,685 $                34,027 $               26,428
Human Resource Manager $                  9,069 $               64,476 $              59,778 $                62,690 $               46,398
Payroll Analyst $                  5,664 $               55,184 $              42,801 $                62,808 $               45,503
Payroll Manager $                 13,321 $               64,035 $              51,870 $                72,517 $               40,338
Payroll Specialist $                  5,482 $               46,858 $              41,221 $                59,707 $               35,703
Payroll Supervisor $                  7,900 $               58,764 $              52,338 $                60,040 $               34,246
 1 USD=53.44 PHP  1 USD=1.31 CAD  1 USD=1.35 AUD  1 USD=0.76 GBP

This just goes to show that a company can greatly benefit from outsourcing HR functions to a country with a lower wage range and cost of living, like the Philippines. Doing so allows companies to choose from a wide range of affordable service providers and, in turn, enjoy world-class services without raising their overhead costs.

Comprehensive guide to outsourcing human resources


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