In the UAE, outsourcing your HR function is more than just a cost-saving exercise. It’s a strategic shift driven by the need for small and medium-sized enterprises (SMEs) to remain compliant and competitive in a rapidly evolving environment for employers across the MENA region.
The rate of economic growth in the UAE is accelerating in the non-oil sector, solidifying the UAE’s position as the fifth-largest economy globally in terms of real GDP growth index. While overall GDP stood at AED1.68 trillion at constant prices in 2023, a 3.6% increase over 2022, the non-oil GDP reached AED1.25 trillion, reflecting growth of 6.2%.
This growth is predominantly driven by the increase in SMEs. As of mid-2022, the number of SMEs in the UAE was 557,000, contributing as much as 63.5% to the non-oil GDP. It is forecast that this number will reach one million by the year 2030.
The sheer numbers create fierce competition for the recruitment and retention of employees, which in turn puts great pressure on the HR functions of these businesses. SMEs require specialised HR support with on-the-ground resources and a clear understanding of complex UAE labour laws and employment regulations.
Salaries for qualified and experienced HR managers start at around AED35,000 per month (c. USD9,500). When combined with significant recruitment agency fees, which often represent 15 to 20% of annual salary, various visa and immigration related costs, as well as additional benefit costs, in-house HR represents a substantial cost.
For SMEs, resource constraints, lack of local legal knowledge and a restricted balance sheet often make it difficult to maintain a fully functional in-house HR department that acts as more than a back-office administrator.
And as these businesses grow, the demand for specialised HR services, including recruitment, payroll management, compliance and strategic workforce management grows too. They also need to accommodate evolving employee expectations, increasing complexity of workforce management, as well as the ongoing transition away from traditional work patterns.
Outsourcing provides a viable solution. It allows businesses to access the expertise and resources needed to manage their HR functions effectively at a strategic level without the overhead costs associated with an in-house HR team. It also enables fast growing companies to seamlessly scale up their operations and focus on operational efficiency, without the additional burden of ensuring that their internal functions are keeping pace.
HR outsourcing is an increasingly popular trend, not just in the UAE but across the MENA region. According to ‘People Profession 2023: Middle East & North Africa Survey Report’ by the Chartered Institute of Personnel and Development (CIPD), only 10% of businesses in the MENA region do not outsource any HR functions, compared to 28% globally.
Digital transformation is also pushing businesses to rethink their HR strategies. The PwC Digital HR Survey 2020 highlighted that over 72% of the surveyed respondents confirmed that they have significantly accelerated their digital transformations, with 48% of respondents stating that back-office HR tasks were the key areas for digitalisation.
While digitalisation should create efficiencies, digital platforms and Human Resources Management Systems (HRMS) also come with a hefty price ticket. By outsourcing their HR to the Sovereign Group, which has a team of CIPD-qualified professionals and an in-house HRMS, SMEs on a tight budget can leverage these technologies at a fractional cost.
According to the CIPD report, “upskilling, reskilling and building capabilities are the number one workforce priority in the UAE, with workforce planning and management, engaging with the workforce, and developing leadership talents following suit”, which is being driven by national policies such as Emiratisation.
Outsourced HR services can play a crucial role in helping businesses effectively address these key workforce priorities by providing advice on Emiratisation registration and compliance, effective organisational structuring and workforce planning and development. They can also improve employee relations through bespoke policies and procedures.
With employee engagement becoming a significant priority for businesses in the UAE, particularly in the context of hybrid working environments in the wake of the COVID pandemic, outsourced HR services can assist in implementing effective engagement strategies such as hybrid working, remote working policies or flexitime.
These new working arrangements can be a key factor in boosting employee satisfaction and retention, but they require comprehensive performance management frameworks that are transparent and allow employees to remain engaged and work at their best capacity regardless of their work location. Implementing and managing such frameworks, however, can be beyond the scope of an in-house HR function without substantial new investment. Outsourcing can make it possible.
By addressing these top priorities through outsourced HR services, businesses in the UAE can ensure that their workforce strategies are aligned with nationalisation policies and industry trends and are optimised for growth and competitiveness in a rapidly booming region. This strategic approach to HR management enables companies to focus on their core operations, while allowing us to effectively manage their most valuable asset – their people.
Outsourcing HR services offers significant strategic benefits that extend beyond cost savings, they offer access to expertise. Sovereign’s HR Services team bring specialised knowledge and experience that may be difficult to cultivate internally, especially given the constraints most SMEs face.
Our team of CIPD qualified professionals stays up to date with the latest HR trends, legal regulations and technologies. We will ensure that your business remains compliant with local labour laws and can implement best practices in areas such as employee relations, organisational development, payroll management, talent management and more.
This allows you to focus on your core operations. By delegating HR functions to an external provider like the Sovereign Group, businesses can free up internal resources and management time to concentrate on their primary business activities. This is particularly valuable in the UAE, where agility and focus are key to staying competitive in a fast-paced market.
Sovereign’s HR Services can assist you with everything from onboarding and offboarding, payroll management and processing, HR templates, employment law guidance, employee relations management, performance management and talent acquisition, as well giving you access to our own partnered HRMS.
For further information about Sovereign’s outsourced HR solutions, please ontact Faraz Ahmedc, HR Consultant at Sovereign PPG, below.
