How to start an HR consultancy business

Cameron Fleming | 16 August 2021 | 3 years ago

How to start an HR consultancy business

Over the past 18 months, there has been lots of news about economic negatives, but one industry with good growth projections is the Human Resources Provision industry. The upcoming 5 years will see the industry receive work from many companies who are outsourcing in order to reduce costs and ramp up efficiencies. Therefore, it is a great time to be starting an HR consultancy business.

Outsourcing to experts has been proven to be successful for many decades, but outsourcing to HR specialists is relatively new. The demand will increase in line with the expected increase in the UK’s total workforce and greater pressures on profitability. Internal pressures are also growing as talent pools seek better benefit schemes, thorough health and safety training and protocols, and remuneration that doesn’t only involve salaries. HR, more than ever, needs to be an agile, strategic service with a laser focus on trends, staff needs, and business goals.

What does the HR consultancy market look like?

Currently, payroll services are expected to remain the most popular service offering, with a projected 45.6% share of the total contracted services. The UK industry statistics show the current market size to be £1bn, serviced by 2,355 businesses with 26,558 employees.

The total market value is comprised of various fees driven by the service required by companies, the skill level of the consultant executing that service, the size of the consultancy, and the brand value.

As a consultant, you would charge hourly fees or fixed prices, sometimes called flat fees.

If a client is open to a retainer contract, this usually works out more cost-effectively for them. Your per hour fee could be approximately £60+ or £480 per day at the time of going to press. For ad hoc services, you might consider charging £80+ an hour or £640 per day.

There are frequently cases where an HR consultant is required on a project for weeks or months at a time. Your daily rate can be extrapolated for that period with a discount.

How to start a business

As with all businesses, several general steps need to be taken when starting out on your own:

  • Advise HMRC 
You have a window period of 3 months, from the start date of your business, within which you need to advise HMRC of your self-employed status. They offer a starter pack online and free online training. It gives you foundational, practical advice on working for yourself.

  • Set up appropriate insurances 
Public liability insurance is an essential first pick, professional indemnity and income protection. If you have an office, the contents will require insurance and the building if you buy it one day. Talk to your advisor to ensure you are appropriately covered.

  • Naming your business 
Companies House is where you find out if your preferred name is available. You can, of course, use your own name. The next step is to get that connected to a website domain.

  • Bank account setups
Whether you are setting up as sole proprietor or not, you’ll need a business bank account. This is a legal requirement for an incorporated company, but as a sole trader, it is just best business practice and assists the AI of bookkeeping software (which you are, of course, buying).

  • Statutory compliance
Satisfy all regulatory requirements, including health and safety, protection of data etc. The website has many valuable tools and tons of helpful information, but an accountant will also easily advise you.

  • Bookkeeping
No, excel is not the answer, even for small businesses. Set up an arrangement with a good bookkeeper. They can guide you on the best bookkeeping software for your needs.

  • Location
Will you WFH (work from home)? Will you need office premises? Check with your local council and workspace sharing for available locations. If you start hiring in staff, this might require planning permission from the council. If you are renting, your lease might forbid operating a business from the premises.

Now that you have set up the basics, you need to define what you will be selling from your awesome business!

What do HR consultancy businesses do?

In a nutshell, HR creates and manages talent.

To achieve this, an HR consultancy will manage employee-related resources, take action and execute related duties for a client’s business, collate data and report on employees, payroll, and other issues. They are not the managers of employees; they are facilitators and talent magic makers.

Outsourcing payroll is one of the biggest growth sectors, but an HR consultant will also develop strategically designed employee benefits, oversee the implementation of these and monitor the success thereof. They will provide sophisticated mentorship of managers and supervisors in employee management and performance. Training programs, succession planning guidance, labour relations, and employee relations will also form a large portion of their work.

Services that can be outsourced include:

  • An HR audit
This HR health check reviews all HR activities, including policies, the quality of issued documentation, the relevance and legality of procedures and systems, the alignment of HR to business objectives, and the ability of HR to be agile. The outcome is a gap analysis and an actionable plan.

Based on rates at the time of going to press, a client could expect an HR audit to cost approximately £700 for a small business audit.

  • HR support services
This encompasses the day-to-day HR operations and supporting the people management objectives. HR tasks are notoriously time-intensive with complex legislation and procedures. Business owners can very quickly create a legal mess instead of getting advice from an HR manager.

A small business client would be best advised to choose a monthly fixed fee contract to simplify budgeting. They could expect to pay a fixed fee from £100 to £200+ per month.

  • Outsourced HR
This is a level above HR services. It is the complete outsourcing of a business’s HR function and is usually driven by cost-effectiveness. The consultant should include an ROI report when feeding back to such clients. Whilst being ‘fully outsourced’, it will still vary from company to company based on its size and industry.

When a client is deciding between outsourcing and in-house, it is not a straight-up cost comparison. HR services need specialists, and mistakes can cost large sums of money as well as affect brand value. As an HR consultant, you can reduce a client’s risk profile, make them more attractive to quality talent resources and be part of helping the business achieve its objectives.

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