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 a number of different benefits. One of the most well-known is its ability to reduce the number of employees needed, and therefore reducing a company’s employment costs.
Some examples of the additional 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.
The Business Benefits of Outsourcing:
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 a number of different costs. Some of these include:
- Worker’s compensation;
- Payroll tax;
- Fringe benefits tax;
- Costs of training;
- Leave (personal and annual) and any coverage associated with this;
- Computer and/or phone expenses; and
- 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.
Worker’s 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 state of employment). Employers are required to pay payroll tax on their employees’ wages and salaries as well as on the superannuation contributions the employer is required to make.
Fringe benefits tax: You may not realise that employers must also pay a tax on the fringe benefits they pay their employees. 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 costs of employment. While 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.
“Payroll tax on superannuation contributions”, https://www.business.qld.gov.au/running-business/employing/payroll-tax/taxable-wages/superannuation
“Your superannuation basics”, https://www.ato.gov.au/General/Other-languages/In-detail/Information-in-other-languages/Your-superannuation-basics
“Workers compensation”, https://www.fairwork.gov.au/leave/workers-compensation
“Fringe benefits”, https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)
“Offshoring, Nearshoring, Onshoring, and Outsourcing”, https://www.interventure.info/offshoring-nearshoring-onshoring-outsourcing-characteristics-differences