A Guide to Outsourcing

Since the early 1990s, the practice of outsourcing has been growing in popularity. All types of businesses are now turning to this as a way to expand productivity while reducing in-house expenses. But what exactly is it? And is it a good idea? 

Definition

When a business outsources, an outside party is hired to complete a particular task, usually to cut costs. This takes duties and responsibilities away from in-house staff, often eliminating employees and sometimes entire departments. For instance, many large companies have cut in-house customer service or human resources departments and opted for third-party call centers overseas. On a smaller scale, a locally-owned business may hire an IT specialist to come in as needed rather than retain an in-house IT staff at all times.  

Pros

The primary advantage of outsourcing is a reduction in expenses. Working with outside firms or individuals can be cheaper than paying full-time salaries or purchasing required equipment. 

Assigning work that was traditionally handled in-house to outside entities also frees up time and allows employees to focus on other tasks, boosting efficiency and productivity. Often, an experienced, talented third-party will complete the jobs they are hired to do better than in-house employees, which can take the business to a whole new level.

This can be especially beneficial for a business that is growing faster than expected. Hiring a third-party to take on some of the work can allow the business to keep up the pace. 

Cons

Some people oppose outsourcing because of its impact on in-house workers. It may result in job loss for many individuals. Critics argue that cutting an entire department and opting for cheaper foreign companies takes away domestic jobs and reduces quality. Doing this may lead to bad publicity about your business.

Even if employees are retained, reassigning their tasks to outside sources may make them feel inadequate, unappreciated, or confused. Adjusting to these changes can be difficult, and it may negatively impact workplace culture. 

There is also an inevitable loss of control when you outsource to a third-party. Security can be an issue as the outsourced body will have access to private business data. 

Work outsourced to an individual, an independent contractor, should be handled particularly carefully. The IRS may classify an outsourced individual as an employee, which holds you responsible for withholding income taxes and paying Social Security, Medicare, and other taxes for that person.  

Conclusion

Though not without risk, outsourcing can be an effective strategy for your business if the entity you take on is qualified and capable. Be sure to do adequate research upfront to determine if this is a good option for your company. 

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