Is Outsourcing Business Functions Cost-Effective for Small Businesses?

Small business two people talking.
Small business two people talking. Source: Depositphotos

Outsourcing is a process that involves working with third-party companies or individual contractors to get work done for your business, as an alternative to hiring in-house employees.

Today, there are lots of different companies and professionals offering services that you can outsource, from HR and payroll to web design, marketing, content management, and much more. In fact, it’s entirely possible to run your business based on outsourcing alone, without hiring a single member of staff. But is it cost-effective? Let’s take a deeper look.

Saving on Salaries

In some areas, working with an outsourced company may be a more cost-effective option compared to hiring in-house staff. You will often pay a flat rate to the company, which will give you access to a range of professionals that you may not be able to afford to hire individually if you are running a small business. For example, outsourcing your HR in Phoenix can be a great way to access various professionals for your business in the area without the need to go through the hiring process for each one, or pay each one a salary. Ultimately, you can get better results from spending less.

Avoid Turnover Costs

When you are outsourcing to other companies or individuals, you’re not actually hiring employees, so your business is not going to get hurt by employee turnover rates. Even if you outsource to a company that is going through a period of high employee turnover, this should not affect your business financially, although it might mean that you will need to wait for a certain employee who was working with your company to be replaced. Ultimately, however, your business should continue to run smoothly, without any need to worry about how you’re going to handle employees leaving, taking time off sick, or going on vacation.

Reduce Compliance Risks

Since you are not hiring these professionals but rather working with them as separate contractors, they are not classed as your employees, so employment law rules do not apply to you here. Anybody who is hired to work with your company by the organizations that you are outsourcing to will be the other company’s responsibility in terms of employment law rather than yours. Ultimately, this means your business will spend less time and money ensuring compliance, along with enjoying a lower risk of employment law related lawsuits.

Get Cheaper Deals

Finally, outsourcing small business process such as HR to other companies can enable you to get cheaper deals and better prices on the things that you need. For example, if you are looking for employee benefits packages to offer the in-house staff that you hire, it can be difficult for smaller businesses who do not hire large numbers of employees to get the best prices. On the other hand, when you go through your outsourced HR company, they may be able to get the best deals as they can order the benefits for your business along with other businesses that outsource to them.

Whether you’re just starting a new business or have been running your company for a while, outsourcing can be a cost-effective way to access the services you need.


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