If you’re like many SME owners who has employees, you probably look at your direct employment costs every year or month-end with horror, promising yourself that you’ll need to do something about it. Alternatively, you might be a very small business owner who’s thinking of taking on an employee for the first time. Either way, it’s worth bearing in mind that there is normally more than one way to (excuse the expression) ‘skin a cat’.
The real cost of employment
Even if you separate out your direct employment costs on your management accounts, the figure that scares you every month or year isn’t the full picture of horror that employment represents. Although those figures will take into account salary or wage costs and Employers’ National Insurance Contributions, they mightn’t necessarily include any fringe benefits you extend to your employee and almost certainly won’t take into account productivity and the cost of providing a roof over your employee’s head.
When you employ someone to do a job and they come into the workplace to carry out the tasks you ask them to do, it’s only reasonable to understand that there are indirect costs of so doing. The fact that employees have a tendency to muster around the water fountain or coffee machine; they (understandably) need training and they make visits to the little boys’ or little girls’ room is all part of the unwritten or unspoken deal, but the impact of this down time is often underestimated by employers.
Add to this, the fact that you pay a rent or a loan for a property that is capable of housing your whole ‘family’ of employees as well as being safe and up to standard and you start to see that the real costs of employing drill way deeperthan salary or wage alone. To add insult to injury, you even have to employ someone to pay their salary and make sure your Human Resources policy is in tact and that’s when you start to pull your hair out.
Agreed, there are certain tasks that you simply must employ people to do, but where you don’t really need someone under your roof to do tasks, there’s a huge argument for outsourcing when it comes to taking care of your bottom line.
Outsourcing your way to a better bottom line
Irrespective of whether you need someone to do specific, relatively highly skilled tasks, or mundane, day-to-day stuff, outsourcing allows you to get the job done (normally) at a fraction of the cost of employing someone. How can this be the case? This is the case because you identify clearly the job you want done; you track down an outside expert to do it (preferably with some sort of guarantee and certainly with a track record); you negotiate, negotiate, negotiate and then agree the cost of them doing the job and ‘hey presto!’ you’ve got your job done for a fixed price, with no surprises and no hidden costs.
It can’t be that simple!
For many people considering outsourcing for the first time, their response is “It can’t be that simple”, but it is. If you need your bookkeeping, your payroll; your accounting or your HR sorted out, there really is a great argument for outsourcing these roles. Not only will a remote outsourcing option give you a low, fixed price solution, you’ll get guarantees and you’ll have your own personal contact which makes you feel almost as if you have your ownemployee, but without the costs! It really is win:win.
If you’d like to find out more about outsourcing, why not bookmark this page? Over the next few weeks, I’ll be submitting more articles about outsourcing, including interviews with business owners who use outsourcing to help improve their bottom line.
About the author: This article was written and submitted by Paul Marsden, who looks after the Payplus payroll bureau, which also runs School and Academy payrolls. By qualification Paul is a Tax Accountant, but these days does little in the way of tax accounting. In his role as accountant he has worked with small and medium sized businesses for over 25 years; a period that has seen many changes, particularly regarding the accessibility and implementation of technology.
Paul has an exceptionally strong personal and professional interest in technology and gets a real buzz from helping business owners use technology to become more efficient so they have more time to focus on business growth.
He’s spent the last 5 years running an outsourcing business that provides bookkeeping, payroll and accounting software services to SMBs. Paul is a member of the IAAITC (International Association of Accountants Innovation and Technology Consultants), a group of UK accountants who combine to promote forward thinking in IT across the accountancy profession. Currently the IAAITC is developing a framework for SMB’s to deal effectively with InformationSecurity.
Paul, what do you think about the popular "English-saying" on:
If you want a thing done well, do it yourself.
I could agree with you on this just if you know what you want outsourcing company to do. The difficult part here is the negotiation. If you don't negotiate clear clauses, be sure something cheap can become expensive. And normally in order to negotiate clear clauses you should have identified what outsourcing has to do clearly. This is not easy.
Probably, outsourcing is the cheapest choice in employee-costs. That's not imply this is the best profitable choice.
Conclusion. From my point of view, outsourcing is not always the best choice. As always it depends.