• Employment
  • February 03, 2022

Advantages and disadvantages of outsourcing

As a small business owner you possibly already have some form of outsourcing in your business, such as payroll and other accounting solutions. But there are many areas of outsourcing that you might not have considered yet which could benefit your business. In this article, we explain what outsourcing means, its advantages and disadvantages and why you might need, or should at least think about outsourcing.

What is outsourcing?  

Outsourcing is the hiring of another company, business or individual to carry out activities on behalf of your business. It is becoming increasingly popular, particularly because of the Covid-19 pandemic and the need to reduce staff or make your business more efficient.  

What are the advantages of outsourcing?

There are many advantages in business outsourcing, such as:

  • cutting expenses
  • increasing productivity and efficiency
  • expert input
  • immediate understanding of your costs
  • competitive edge
  • reduction in staff issues

Cutting Expenses

Usually outsourcing work will be cheaper than hiring your own permanent staff. This means you cut costs, both in terms of spending less time recruiting ‘the perfect candidate’ as well as cutting your expenses by employing and training less staff and reducing overheads.  

Increasing productivity and efficiency

Outsourcing means you spend less time on the processes that your business doesn’t do so well and frees up your time to concentrate on the processes that gain you the most profit. It also means that your business can earn profit even when your staff are not there (particularly if you can outsource work overseas using different time zones). Of course, it also means that things can be done a lot more quickly by outsourcing a variety of projects at the same time, helping your business increase its productivity and efficiency.

Expert input

When you outsource activities to others, you can engage as many specialists in their field to carry it out as you want (which you might not be able to afford or access if it was carried out in-house). That means you know that the work will be compliant with the regulations in your industry. If there are any risks with your project, the experts can steer you clear of the project or assist you in mitigating the risk.

Immediate understanding of your costs

When you use outsourcing for projects, you will know what your costs are to fulfil that project. That in turn will lead to a quicker understanding of your profits and ensure that you can easily control costs and reduce financial risks.

Competitive edge

By outsourcing work, you will engage others with expert knowledge who are used to doing that activity every day. That in turn will usually mean that you have a greater competitive edge over your competitors who use staff in-house.

Reduction in staff issues

Many SMEs will usually face staff difficulties, whether that means staff not getting on with others or other issues such as dealing with poor performance, sickness and dismissals. Outsourcing removes those issues (or reduces them if you have a limited number of staff).  

So, what are the disadvantages of outsourcing?

There are some disadvantages in outsourcing too, such as:

  • loss of control
  • negative impact on staff
  • data protection and confidentiality risks
  • lack of consistency
  • financial and reputation risks
  • less flexibility

Loss of control

By outsourcing activities, your business loses control of how that activity is carried out and may not be in accordance with your own business ethos and way of doing things.  

Negative impact on staff

Although it isn’t always the case, some employees may find themselves carrying out activities that they deem menial and not so interesting, and their morale may fall. They may conclude that they should be carrying out the work and, if they find out the fees the outsourcing company is charging, they may feel they should have a pay rise or leave and find jobs elsewhere (including outsourcing themselves).

Data Protection and Confidentiality risks

Whilst the written agreement between the parties should set out all the terms of the outsourcing, including responsibilities for data protection and confidential information, it can sometimes be easier to enforce the terms of an employment contract than a consultancy agreement, for example.  Employees not only have written terms of an employment contract, they also have implied terms too which include the duty not to compete with the employer and to keep trade secrets confidential. In addition, it might be easier to enforce restrictive covenants against an employee (although perhaps not always) and having restrictive covenants in a consultancy agreement might be an indication that the outsourcing is deemed an employee/worker by an employment tribunal and/or the HMRC (although again not always). 
There are also risks of sending and using data outside of your business.

Lack of Consistency

Although you can set out written terms of the outsourcing, by using different outsourcing contracts you may find that they are delivered in a variety of different ways and not consistent with your brand. In addition, there may be staff, management or substitution changes within the outsourcing itself which means that your activity is delayed; not consistent with previous work done or not up to standard.

Financial and reputation risks

Again, you might have set out what happens in certain situations in the written terms between you and the outsourcing, but there may be situations that you cannot control, including if the outsourcing goes out of business or provides you with incorrect or negligent work.

Less flexibility

You will not have immediate access to the outsourcing in the way that you have with an employee, particularly with an outsourcing that is not located near you. With an employee, you will simply be able to ask how things are progressing, or obtain an update, with a face-to-face meeting or telephone call. With an outsourcing you will not be able to have an update, clarify instructions or talk things over whenever you wish - you could have a zoom call but this will need to be booked in advance and will depend entirely on the outsourcing’s availability.  

Get legal assistance from LawBite

As a business owner, you might be considering having some form of outsourcing in your business. LawBite expert employment lawyers can help you ensure you have the right outsourcing agreements in place, explain the pros and cons and give you all the legal advice you need without hidden costs.

At LawBite, we believe that great legal advice is a fundamental business right. We are committed to providing your business with expert legal advice that is easy to access, clear to understand and affordable.

Book a no commit 15-minute call with our friendly lawyers today or learn more by joining LawBite for free.

Additional useful information

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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