To hire or to outsource? That’s one of the most important questions a business owner will ever face. And the answer is: it depends!
There are a couple of questions to answer first, such as:
- What are the exact duties of the position you need to fill?
- How many hours do you need them to perform those duties each day?
Sometimes businesses aren’t sure how to answer these questions, especially when it’s a new position they’re creating. They might have a general idea, but a “guesstimate” is never a good basis for hiring an employee. In today’s ramped-up gig economy, we’d argue that outsourcing should be the default option to consider first!
It’s easier than ever to outsource work to experienced freelancers and contractors who can support your small business remotely. In fact, one of the reasons there’s an ongoing labor shortage is that so many workers don’t want to be employees anymore. They want flexibility and freedom of choice…so maybe your business should look for such qualities, too.
With that in mind, let’s sneak a peek at the pros and cons of outsourcing versus hiring an employee to figure out the best answer for your business needs!
1. Recruitment
Figures vary, but research suggests the average cost of hiring a new employee can run up to $4,000 (by the time you factor in work from the HR team and recruiters, job posting costs, candidate screening, training, etc.).
Maybe that’s why a Harvard Business School survey found that it takes around six months for a new employee to actually add value to the company. They call that the point where the employer “breaks even” from their investment. Doesn’t seem too efficient, especially in this age of high employee turnover.
Why outsourcing may be better
Who wants to wait six months and spend $4,000 to find and train a full-time worker? Is that really the most effective way to spend your time and money? Not when there are potentially hundreds of thousands of experienced freelancers waiting in the wings to work for you!
Platforms like Upwork and Freelancer are brimming with pay-as-you-go talent that you can either find through browsing by category or by posting a job and letting them come to you.
It’s fast and easy to advertise jobs, set up contracts, and get started for very little cost (because these platforms make most of their profits by taking a commission from the freelancer’s end). It’s equally simple to terminate a contract without any hassle if things don’t work out, plus you have an objective third party (the platform) to arbitrate.
2. Training/onboarding
Just looking at training costs alone, businesses spend around $1,252 to get each new employee up to speed. That’s some serious cash—and it adds up quickly! Training Magazine notes that midsize companies allocate nearly $1.3 million a year for employee training.
Another downside to new employee training is that your business may use one of its other employees to do said training. So now you’re paying two people—the new employee plus the trainer, while little actual work is getting done by either. Yes, training is a necessary burden, but it’s time-consuming and affects your bottom line in the interim.
Why outsourcing may be better
Freelancer contractors have to be trained, too, but your pool of potential candidates is so vast it is easier to find ones who require far less training than others.
That said, if your freelancer will be interacting directly with your customers—such as in customer service or sales roles—you might want to invest in some one-on-one training to ensure this is someone you trust in a customer-facing role.
Ideally, you’ll just want to create a virtual onboarding process that shows them everything they need to know and can be reused over and over.
3. Compensation
Oh boy, here’s where the real cost savings come into play (if saving money matters at all to you)!
Employees are expensive. You’re not just paying their salary—you, as an employer, have to pay half their Federal Insurance Contribution Act (social security and Medicare) taxes, and you (or your payroll administrator) have to deal with withholding their federal and state income taxes. Then there are mandatory benefits you must pay for, like unemployment insurance, workers’ comp insurance, health insurance, dental insurance, Family and Medical Leave Act (FMLA) protections, disability insurance (in some states)…the list goes on.
Don’t forget the non-mandated benefits that employees have come to expect, such as paid vacation time, matching employees’ 401(k) retirement plan contributions, Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), tuition assistance, health and wellness programs, employer-subsidized childcare, etc.
Then there are raises, cost-of-living pay increases, bonuses, and potentially other pay bumps to factor in. You get the gist!
Why outsourcing may be better
Seriously, there’s no comparison here. With freelance contractors, you can forget about 80% of the above compensation and benefits hassles. Freelancers generally pay their own taxes and don’t typically receive benefits or employer-paid insurance or other perks.
As far as pay—most charge either by the hour or by the project at a fixed rate. You only pay for what you need and don’t have to deal with the rest!
4. Trust
Trust is both invaluable and hard to measure. Employers must be able to trust their workers, even if the worker doesn’t have access to any physical inventory. If they serve in customer-facing roles, their actions affect your reputation and profits.
80% of customers agree that “trust is a deciding factor in their buying decisions.” And since you’re “buying” the labor of either a freelancer or an employee, trust should matter to you, too.
But who can you trust more—an employee or a freelancer?
That’s open to debate! There may be an assumption that an in-house employee will be more loyal. But consider this—there’s been an unprecedented labor shortage in virtually every industry for the past few years. Why? Because employees have fled the full-time workforce en masse.
So where was their company loyalty? And where did they all go? Many ran to the gig economy, i.e., the freelance workforce. An Upwork survey found that “a staggering 39% of the U.S. workforce, or 60 million Americans, performed freelance work in the past year.”
Why outsourcing may be better
A freelancer worker might not sit at a desk in your office space, but there’s no evidence to suggest they’re any more or less loyal than an employee. As long as you take time to find and hire the right people—team players who believe in your business purpose—you’ll be set up for a trusting, successful relationship.
Besides, if you hire someone you shouldn’t have, an untrustworthy employee working at your place of business can do a lot more damage (and can be harder to get rid of) than a remote-working freelancer!
Should your small business hire or outsource?
So…to hire or to outsource? The answer depends on your business needs and goals. In general, we suggest that businesses absolutely consider contractors first, especially solopreneurs and small companies.
Contractors are an affordable way to round out your team. They help you stay light, lean, and agile while saving a ton of money you can use elsewhere. And if growth is your goal, it’s easier to bring on more contractors as you scale.
That’s why countless businesses choose the flexibility and affordability of Ruby’s live virtual receptionists. Instead of hiring a full-time worker, you’ll only pay for what you need!
If you need a little (or a lot) of help with customer engagement and are having a hard time finding employees or freelancers that meet your needs, Ruby’s here to help. Our virtual teams are trained and ready to provide your business with expert support, 24/7, 365 days a year.
Bottom line: Outsourcing really should be the default solution these days. Only consider hiring an employee if you can truly justify it and are ready to accept the burdens that come with it! Otherwise, give Ruby a call today to find out how we can serve your needs!
