What You Need to Know About Outsourcing

 What is Outsourcing?

A business is outsourcing when it delegates work to a third party.  When work is outsourced, the people performing it are not direct employees of the company.

Outsourcing can have several different benefits.  One of the most well-known is its ability to reduce the number of employees needed and reduce a company’s employment costs.  

Benefits that outsourcing can give to a business

• Access to a greater array of skills and resources
• Much lower expenses with regard to internal infrastructure investment
• An improved level of efficiency
• Better focus on core competencies and strategy
• Better access to thought leadership, innovation, and intellectual property
• More flexibility to allow the business to better meet changing commercial conditions.

Outsourcing provides your business with flexibility. You may be able to operate what has traditionally been a full-time or part-time role with a consultant for one or several days a week. As you can imagine, there are a range of benefits to outsourcing, including the fact that you can have true national coverage, scale up and down based on need/budget, be able to scale up resources in emergencies, minimise on-costs, eliminate the need to worry about retention, recruitment, etc. as well as have access to an escalation point and additional areas of expertise depending on what is required.

The Financial Benefits of Outsourcing

Never underestimate how much outsourcing can lower costs and benefit the profitability of your business.  One of the reasons it is so beneficial is the reality of employment costs in Australia.  These costs are discussed below:  

Costs of Employment

To understand how much of an advantage outsourcing can give you, you need to learn about the full cost of traditional employment. 

When you take on an employee, you are required to pay several different costs.  Some of these include:

• Superannuation
• Workers’ Compensation
• Payroll tax
• Fringe benefits tax
• Costs of training
• Allowances
• Leave (personal and annual) and any coverage associated with this
• Computer and/or phone expenses
• Other expenses such as staff amenities, uniforms (if any) and key personnel insurances

We will go over some of these expenses in detail below. 

Superannuation: Superannuation is generally 9.5% of gross wages.  Superannuation contributions fund financial support for worker retirement.  The employer pays superannuation for the employee.    

Workers’ compensation: Employers must pay 5% of gross wages plus superannuation to worker’s compensation.  This means that the worker’s compensation premium must be paid based on the total gross wages plus the amount employers pay for superannuation.    

Payroll tax: Payroll tax is 4.5% to 7% of gross wages plus superannuation (dependent on the state of employment).  Employers are required to pay payroll tax on their employees’ wages and salaries and the superannuation contributions the employer is required to make.

Fringe benefits tax: You may not realise that employers must also pay a tax on their employees’ fringe benefits.  This is set at 5% of the benefit value provided.

Outsourcing could be an excellent option for your business

Keep outsourcing in mind in your future business decisions.  It can provide many different benefits. The most significant is the ability to reduce the costs of employment. Simultaneously, there are advantages and disadvantages to each type of outsourcing; as long as you make an informed decision, you are certain to feel the benefit.      

Case Studies:

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