Outsourcing versus in-house hiring

By Rolf Howard, Managing Partner, Owen Hodge Lawyers

In today’s small world, employers have the option of accessing thousands of possible employees from all over the globe. It is no longer imperative that the project needs of a business be fulfilled by the talent immediately available within close proximity to the employer. However, there are pros and cons to choosing to outsource business needs that can both enhance and harm the overall health of a business.

For the majority of businesses in-house hiring has been the norm. When employers hire employees to work within the confines of their physical business, the advantages are numerous including:

• The opportunity to meet the employee in person prior to hiring
• Maintaining supervisory control over the work produced
• Immediate remedying of questions and concerns over the direction of the work assigned
• An environment that promotes team building
• Creative solutions to obstacles and problems solved amongst the employees and management with expediency
• Overview of ethical and confidentiality issues
• Control over the quality of the work produced

However, there are costs associated with in-house employees that do not exist when contracting work to outside talent. These costs include;

• Consistent wages paid either via salary or hourly rates
• Health insurance/Disability Insurance/Workers’ Compensation Insurance
• Availability of retirement savings and matching plans
• Significant infrastructure to house all employees
• Support staff

As a result of cheaper labor overseas, many employers are turning to the idea of outsourcing some of their projects to contract employees for lesser wages. Currently, there are no national laws that prevent employers from taking steps to hire workers from other countries.

However, there are certain industries that do regulate their own with regard to outsourcing contracts. Those industries include the Australian Prudential Regulation Authority. The APRA oversees the rules and regulations pertaining to financial services and health insurance.

The positive aspects of outsourcing employment opportunities to workers around the world include;

1. Savings on the cost of wages due to lesser wage requirements in countries such as India, China, the Philippines and South Africa
2. Work can be produced twenty-four hours a day
3. Savings on the cost of health insurance/disability insurance and workers’ compensation insurance
4. No additional benefits need be provided
5. Labor law issues do not apply thereby eliminating the chance of such types of claims against the business
6. Business expansion with fewer associated costs

The negative impact of outsourcing can include;

1. Lack of control over the daily production of work
2. Loss of quality of work due to cultural or educational differences
3. Risk of confidential data/information being stolen via cyber breaches
4. Time differences which may affect the timely and smooth return of work product
5. Inability to immediately address questions or concerns affecting the quality and timely production of work

The decision to hire within or to outsource work can be a difficult one for employers to make. While it is true that work produced overseas can be obtained quickly and efficiently for a lesser cost to the business, the quality and control over the work product can be sacrificed.

With in-house hiring, the costs can cause a business to suffer. The ongoing cost of higher permanent salaries, benefits and the need for physical space to house all workers can cause a business to grow more slowly, or not at all. Yet, the ability for a business to maintain control over the work product, the supervision of its employees and any issues pertaining to ethics and confidentiality may outweigh the financial burdens.

In each scenario the facts and circumstances will vary and, as such, each employer will have to take the time to weigh the pros and cons.

About Rolf Howard

Rolf is Managing Partner of Owen Hodge Lawyers. He has been in the legal practice since 1986 and a partner of Owen Hodge Lawyers since 1992.