HR Consultancy 101: The Power of Outsourcing Your HR & Recruitment Needs

What is an HR consultancy?

A Human Resources (HR) consultancy specialise in providing a wide range of HR services and expertise to employers.

I find HR consultancies can offer a lot of value. Recruitment is just a small part of what they offer, and other common services include:

• HR policies and procedures: developing and updating HR policies, employee handbooks, giving advice on labour laws and industry standards.
• Legal compliance: helping navigate legal requirements such as contracts of employment, and importantly staying up to date with new case law.
• Compensation and benefits: advice on designing competitive compensation packages, benefits programs and incentive structures to attract and retain staff.
• Performance Management: developing performance evaluable systems, providing advice on setting goals and offering strategies for managing employee performance.
• Employee relations: offering guidance and often practical solutions on managing employee relations issues, conflict resolution, dismissals and redundancies. This can include providing Employment Tribunal cover and representation.

Whilst they’ll always know the HR fundamentals it isn’t always necessary for an HR consultant to offer all these services if you have a unique requirement they’ll often recommend someone more knowledgeable.

Often businesses start work on a limited one-off adhoc basis. As a professional relationship develops it is very helpful to have them on hand to answer questions and deal with urgent matters, but still paying on an adhoc basis. Alternatively you may decide to eventually outsource all HR support so you can focus on your business.

<span class="grey-callout"><span class="text-color-purple">Note:</span> HR consultancies have a reputation for being a cheaper substitute than using a law firm on employment law issues, contracts of employment etc. In my experience, not only are HR consultancies cheaper, their advice is more pragmatic and therefore valuable.</span>

Which business should use an HR consultancy?

Typically SMEs will benefit from using an HR Consultancy. Beyond this size and company’s develop their own inhouse recruiters and HR function.

When a business is first starting to recruit it can be particularly helpful to get HR policies and procedures established and legal compliance checked. New hiring managers often really benefit from a guiding hand to take them through the recruitment process, after which an HR consultant is beneficial as a sanity check.

HR Consultancies get very involved when a business is growing. For this to occur they frequently have investment.

What type of jobs do HR consultancies fill

The short answer is almost everything. I work with a lot of HR consultancies. One moment they’re filling warehouse roles, the next a group Managing Director. They can do this because they already have established business relationships with flat-fee recruiters, job sites, recruitment agencies etc.

How much do HR consultancies charge?

The most common way to pay is an hourly/daily rate, just as you would other professional services. The benefit of this method is you get to trial the HR consultant and only pay for what you need.

Other HR consultancies like to charge a percentage of your annual payroll costs. For example, if you're a small business employing about ten staff your payroll cost is likely to be £300,000, and an HR consultancy may charge 8%, equivalent to £24,000. This fee is spread over monthly instalments, which in this case would be £2,000 per month + VAT.

I’ve also seen some HR consultancies charge on a price per employee per month.

Some HR consultancies insist on a long-term commitment. But these can be problematic if your circumstances change: they’re very happy to increase the charge as your headcount increases, but less agreeable to reducing charges as headcount drops! It can also be very difficult to cancel contracts within financial penalties.

There may be some additional charges. For example it is common to pay a travel fee for meetings – which can frequently happen if they are offering coaching/training, or involved in sensitive issues such as dismissal or redundancy. Or if they are involved in recruitment, they will charge the advertising cost or recruitment agencies fees on top.

Importantly when discussing price, be wary of anyone using scaremongering sales techniques such as comparing their cost against the expensive cost of an employment tribunal and awards. Keep it in perspective, employment tribunals rarely happen to good employers. Also don’t let someone make you feel overwhelmed, whilst there is a lot to consider when employing someone, it will rarely hit you all at once.

What guarantees do HR consultancies offer?

From a recruitment perspective, HR consultancies do not offer any guarantees. If they don’t help you find anyone you still pay them. If they do help you find them and the employee subsequently leaves then you also won’t get any money back.

Aside from that, if they offer some HR advice that is incorrect, then you may be able to take legal action against them and claim of their professional indemnity insurance. But doing so will destroy any business relationship, and it may result in a long-drawn out process where only solicitors profit.

You can buy an insurance policy to offer some protection from employment tribunals which may be considered a form of guarantee. However, this is very limited in scope, and as I discuss in a moment practically useless.

Different types of HR consultancy

It’s worth discussing the size of an HR consultancy (or number of staff they employ) because it is a very polarised market. There are several huge firms that purport to do everything and often these are recruitment agencies or headhunters that have diversified beyond their core competency. But then it quite quickly comes down to much small firms and sole practitioners.

As with many business relationships it is often more important who you deal with, than the company you deal with. Therefore, I often recommend individual HR consultants who have achieved a lot in corporate environments and now offer their services on a freelance basis. You’re able to consistently deal with them, and because they don’t have large overheads they often represent great value for money. A minor downside I’ve found is  when they are unavailable it can be challenging to resolve urgent issues. Additionally in the unlikely event that you rapidly needs extra support, they may not have enough capacity.

An alternative may be to work with a small HR consultancy. This is a group of HR consultants working together, similar to a firm of accountants or solicitors. It is still important to have a dedicated HR contact because you don’t want to keep reiterating yourself and you need a point of contact for urgent issues. They naturally have better capability to ensure availability and meet increased demand. But a common downside is they will often insist on a long-term contract.

I would be very careful of some bigger legal and HR consultancies as in my experience they only provide template documentation, and offer a very impersonal service – it’s as if they’re in a call centre reading from a text book. They may also offer a 24/7 legal hotline which have their place for a quick overview, but give a false sense of security in thinking you’re somehow “covered” by generic advice.

Worse still they may sell an insurance policy against employment tribunals, but the advisors seem more interested in protecting themselves than offering commercial advice. I even went to a sales presentation where they genuinely told attendees that company cars should have their tyre pressures checked everytime before they were used!

How to choose an HR Consultant

It is best to approach HR consultants based on recommendation or researching the directory of a professional body. Be very careful searching the internet as a lot of site offering listicles such as “7 Best HR Consulting Firms” are affiliate marketing sites with clever search engine optimisation. These sites rarely research the HR consultancy market and are more interested in spinning content so they can sell leads.

Aside from meeting an HR consultant to establish rapport and understand their track record, a good test of their expertise and ability is to ask them about recent changes in law such as the National Minimum Wage. They should have an informed opinion, and give easy to understand practical examples.

I also look for HR consultants that can use their discretion and explain their knowledge and experience without revealing they work competitors. If they do provide names, do they throw them around, or preface it with “this is in the public domain, so I can say it”?

As with many business relationships it is often more important who you deal with, than the company you deal with:

• You must have good rapport because you’ll need to trust them with confidential information and you may be working with them for a long time.
• They’ll need to understand and assimilate into your company’s culture to become an effective adviser. Ultimately you need a tailored, not a templated solution.
• They should have professional qualifications. This demonstrates a minimum level of quality and competency, but don’t think this is a gold-standard.
• They should have a strong track record and experience with the problems you’re likely to face. They may even have relevant industry experience.
• They offer pragmatic, real-world solutions. You should rarely be quote employment law as it is generally unhelpful and easy to misunderstand. Instead they should offer solutions in plain English without confusing you.
• They should offer an employees’ perspective. Sometimes, what might appear as right for your business might not be great for employees. So by providing an employees’ perspective, you make more informed decisions and reduce staff attrition.
• They’re available when you need them. This is particularly important as some issues can be urgent.

Because I have the pleasure of working with many HR consultancies (they often outsource their recruitment advertising to a flat fee recruiter like mine), please contact me if you need any recommendations. Alternatively ensure you take references from their current long-term customers to understand if they will be a good fit for your business.

At the very least, try to negotiate a flexible contract initially before committing.

How can an HR Consultant help with recruitment

I’ve got a lot of experience with HR consultancies when they are assisting in recruitment, and they can add a lot of value:

• Creating job descriptions. It isn’t necessarily a job description which is important, it’s the fact time has been taken to really consider what the job will involve, both now and in the future. This is opposed to many hiring managers I work with who seem to be reactive, almost in panic, and regret rushing later on.
• Advertise your job in more places, more cost effectively. Because they frequently use flat-fee recruiters and job sites they often get even better deals that you usually could. Sometimes they will pass these savings on to you, but regardless they’ve got established business relationships that more often deliver better results.
• They have the time to shortlist. It is so important that you are responsive to applications. Not only because they may get approaches from other employers and recruitment agencies, but you may also be charged more by some job boards if you don’t make a quick decision (see Chapter X on pay-for-quality-applicants). HR consultants have the necessary time to shortlist applicants and coordinate interviews.
• Ensure interviews are comprehensive. Whilst every HR consultant will have their favourite questions and techniques, they broadly follow a comprehensive approach that helps ensure you decide on the best applicants.
• Provide written offers and contracts. It’s critical that you get a written job offer and contracts of employment to a candidate quickly. Because an HR consultant will often have this already drafted, it is easy for them to manage this process.

But before choosing an HR consultancy

HR consultancies are most helpful for companies that don’t have the time, resources, expertise or inclination. When helping with recruitment they will adopt similar techniques that I teach in this site. So if you have the time and inclination, you can quickly develop the expertise and resources required.

Therefore, you may want to initially use an HR consultancy on a recruitment project to draft your job descriptions, offer letters, contracts of employment, employee handbooks; and to guide you through a selection process. Thereafter you may want to go it alone.