HR & Admin Costs for SMEs

Recruitment, induction, skill development, salary, incentives & other financials managed on a good HR software saves 17% for a small business. Check how?!
  • Author: Siva
  • Last updated: November 17, 2022
  • 5 Minutes
HR and admin costs in small and medium business and workplaces in UK explained by Papershift

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HR is a costly element for any business with hiring staff, training, and retaining staff all having high costs that business-owners need to anticipate as part of their human resources budget. On top of this, there can be a number of unforeseen human resources costs that businesses will need to consider. This makes it even more imperative to manage HR and admin costs effectively across the business.

But what are the prominent types of HR costs and how can a small business keep on top of them?

Read on to find out.

What are the types of HR costs that small businesses might face?

In this section we will run through some of the most common HR costs for small businesses and provide tips on how they can be best managed. 

Check our featured guide on ‘Non-wage’ costs that HR Teams’ need to consider and automate with a Payroll software.

a. Recruitment

Recruitment is one of the costliest HR activities for businesses. For small businesses, recruiting the right person for a role can have a huge impact on the whole company. As well as the cost of a salary, you also have to consider recruitment expenses, bonuses, office space and equipment, and the time taken to onboard a new employee. This is why it’s crucial to understand how much you’re spending on recruitment as part of your HR cost analysis.

Our tip is to never skimp on costs when hiring. Make sure you have the right candidate who is invested in your company from the get go. This will prevent higher costs down the line replacing staff or training them to the required level.

b. Retention

High staff turnover rates can be costly for businesses. This is due to the cost of recruiting another employee and the cost of lost output while the new employee learns the role. Many businesses put retention strategies into place to help lower their turnover rate. However, these strategies can get costly too, as companies boost salaries and benefits packages to attract and retain top talent.

Check our featured guide by experts on having ‘Lower Employee Turnover‘ in Small Businesses.

When it comes to retaining good employees, you don’t have to go overboard with the incentives. Make sure your salaries and benefits are competitive but also make sure you have a strong, positive company culture reinforced by robust attitudes (in terms of policy and processes) towards key issues such as mental health, diversity, well-being and bullying.

c. Training and development

Training and other forms of staff development are crucial for both retaining employees and growing the business with employee experience and skills. However, training and development can be costly if not handled wisely. The wrong type of training or an overly-complex form of training could cost the business more than what the resulting learning will reap in revenue.

Businesses can help prevent undue training costs by conducting a training needs analysis to understand where skills are lacking in the business and where training and other staff development strategies can help. This will help them make the correct level of investment in training initiatives.

d. Employee benefits

Employee benefits can be one of the most significant human resource costs for a business. When implemented correctly, however, benefits can help reduce costs through minimizing staff turnover and helping attract talented job candidates.

Ultimately, it’s important to balance the initial costs of employee benefits with their impact on recruitment, productivity, and retention outcomes. It’s important to measure HR data to assess how effective your benefits packages are. 

e. HR administration

As administration tasks are often not front and center of a business, they can be overlooked when it comes to HR costs. The time and effort taken to record staff data and keep it up to date can translate into a hefty cost if your processes aren’t efficient. 

Getting an HR software system in place is the best way to save time and money on HR admin. The right software solution can help managers and HR staff with a range of staff management processes, from holiday and absence management to appraisals and disciplinaries.

Got questions on HR costs automation? Register for a free consultation.

What factors will affect the cost of HR and admin costs?

There are many factors that can impact how much a business pays for HR and admin costs. Here are a few to think about: 

a. The business’s needs

The functionality and cost of any HR system will depend on what the HR system needs to achieve for the business. Some businesses will need a HR system that only covers core HR tasks, others will require extra modules such as learning, employee engagement or recruitment.

You may want your HR system to have some or all of the following functionality:

  1. Employee self-service
  2. Flexible work management for freelancers/gig workers
  3. Absence management
  4. Payroll processing
  5. Recruitment/Onboarding support
  6. Training
  7. Performance management
  8. Multiple country and/or currency options
  9. Learning and development options
  10. Reward and recognition features

b. The business’s size

As many HR system providers charge per employee, per month, the size of a business will have a major impact on the cost of any HR system.

Many HR systems are designed for small or growing businesses and as such, cater to small numbers of employees, with fewer or no restrictions on the minimum number of users. This can save many small businesses a lot of money in the short term. 

c. Cost of implementation and training 

Migrating data as well as setting up an HR system can be time intensive. The costs you pay may need to factor in the time and effort required to get the system up and running. 

You will also need to train employees on how to use the HR software. If you need more time or support for this, then naturally it will cost the business more.

d. Changing business needs

What works today as the perfect HR system may not work in the future. Costs may increase as business needs change.

HR compliances a Small Business in UK should be aware of to avoid huge losses.

What should my HR and admin costs budget include?

Your HR system budget will include the key areas mentioned above such as set up, incentives and internal promotion as well as ongoing support. It may also need to factor in the following:

  1. The cost of software updates
  2. The cost of implementation
  3. The cost of customer (employee) support
  4. The cost of consultants who handle administration
  5. Any internal marketing/incentive costs  

In conclusion

HR and admin costs can be steep for many small or new businesses. That’s why it’s important to keep on top of budgets and factor in all the areas of HR mentioned above to ensure that your business isn’t losing money unnecessarily. Try Papershift’s HR software to automate these tasks and stay in the right side of law.

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Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams :-)