Outsourcing Employees Within a Small Business—Should You Do It?

As a small business owner, deciding when to hire an employee for a specific business function can be challenging. Outsourcing employees could be a valuable alternative for certain businesses that aren't yet ready to hire an employee.

Small business owners may not have the time, knowledge, or infrastructure to perform certain tasks or functions in-house, or can't yet afford to hire and properly train employees for some of these roles. Therefore, it's a common practice among businesses to outsource particular tasks to an outside party, either a service agency or an individual contractor. Outsourced services might include marketing, accounting, payroll, and HR services.

Advantages of Outsourcing

Outsourcing employees for some of your business' essential functions can have many benefits, such as reduced costs, increased productivity, faster recruitment, and access to a larger talent pool.

1. Reduced Operating Costs

When you outsource tasks like bookkeeping or marketing services, you'll typically pay less than you would by hiring a full-time employee. Hiring employees for these tasks requires paying a salary and benefits, purchasing office equipment and supplies, and providing the necessary training. A full-time bookkeeper could cost upwards of $4,000 per month, while outsourcing the task could cost you around $500 per month, depending on your level of service.

» Outsourcing payroll services: Learn whether HR functions still do it.

2. Increased Productivity

You can increase your business's productivity by outsourcing the most time-consuming tasks. Engaging a third party to perform some of the most tedious and complicated tasks allows you to focus more on the core functions of your business and other critical issues.

3. Faster Recruitment

Finding someone to fill a specific role in your company is much faster when you choose to outsource. Recruiting a new employee is a lengthy process and comes with additional costs. The hiring process involves advertising the position, interviewing candidates, onboarding, and training the employee. In contrast, locating a third-party service with a simple internet search is a much faster process.

» HR vs. Talent Acquisition: Learn the difference.

4. Bigger Talent Pool

Third-party service providers are specialists in the services they offer, hiring and training employees that are highly skilled in what they do. The service provider likely has broader access to high-quality talent than a small business owner. By outsourcing, you'll have access to a bigger and better talent pool and receive quality work from experts in their field.

Disadvantages of Outsourcing

Outsourcing some of your business's functions also comes with several disadvantages, including limited control over the function, increased data risk, poor work quality, and strained communication.

1. Reduced Control

Suppose you move forward with outsourcing a particular business function to a third party. You wouldn't have full control over the service because it's not conducted in-house. When the task is outsourced, you can tell the service provider what you need, but you can tell them how to do their job. And, if you make a request that's not included in their service offering, you may not receive the quality of work you were hoping for.

2. Increased Data Sharing

A significant risk is involved in outsourcing services like HR, payroll, or accounting. Outsourcing tasks like these involves sharing sensitive data such as employee Social Security Numbers, bank account numbers, and customers' personal information with a third party. Data breaches are a frequent issue, so you want to be sure you can rely on the data security of the third party you engage.

» In-house payroll software vs. outsourcing: See which works better for your business.

3. Compromised Work Quality

Sometimes, your outsourced service providers may not meet your standards. Providers may deliver poor-quality work, deliver their work late, or fail to meet your needs. To increase the likelihood of your expectations being met, request a portfolio or sample of the provider's work beforehand whenever possible.

4. Poor Communication

Good communication is vital to successful business operations, which includes communicating with third parties about outsourced services. However, keeping lines of communication clear and open can be challenging when the function isn't performed in-house. Many factors, such as time zones, unstable internet connections, and even language barriers, can interfere with good communication.

Should You Outsource Employees?

Whether you should outsource employees depends entirely on your specific business and its setup. Your budget will be a major factor in determining whether you should outsource a particular business function. And, depending on the services you require, there may not be a service provider that can meet your needs. In some cases, hiring an employee in-house may better suit your business if control over work quality and performance is more important to you than short-term cost savings.