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Outsourcing: Doling Out Duties, Bringing In Success

3 min read

There will come a time in every successful entrepreneurial endeavor when a business owner has to consider whether a job is best provided in-house or through a more contract-based role.

“Outsourcing is the practice of hiring other outside expertise as a 1099 contractor, typically, instead of bringing in an employee,” said Stuart McLendon, CEO and president of Flexion Point, a business support service. “There’s a lot of different ways outsourcing can happen and a lot of different things it can look like.”

Stuart McLendon

One of the first steps to understanding the process of outsourcing relates to taxes. In an outsourced role (also known as contract or freelance work), taxes are filed through 1099 forms rather than W2s.

“If you’re a W2 employee, then there are certain legal obligations that your employer has to you,” McLendon said. “There’s, generally speaking, a higher standard around both what their obligations are to you but also their expectations of how they control the work that’s being done.”

As for being a 1099 employee, the main difference is “instead of getting a paycheck, you’re just getting a check and then taxes all the other stuff, that’s all your problem to figure out,” he said.

When it comes to the work being done, a business owner has a bit more say in just how a project is completed. From the hours worked to the wages earned, a W2 employee has certain standards put forth by the company to meet. For an outsourced employee, projects are often completed on their own time, with any project specifications agreed upon during the initial contracting. For an outsourced worker, a business owner is only paying for the service, not the process.

Common Outsourced Roles

While different industries sometimes require different types of outsourcing, there are some common roles that transcend industry lines.

Legal work, human resources and payroll services are often outsourced roles.

Phil Brandon, owner of Rock Town Distillery in Little Rock, outsources another common role: accounting.

“We have a ton of bills to pay, and all those bills have to get entered into an accounting system and allocated to the proper areas of the business and taxes have to be paid,” Brandon said. “It’s cheaper than if I were to hire somebody full-time to be my accountant, and I feel like it’s much more accurate in that I’ve got people that do this stuff every single day doing [our] books.”

Brandon said that outsourcing his accounting needs costs around 50% less than hiring a full-time employee, plus the experience needed to do the job is already there — no training required.

“We’ve been in business 14 years, and the first five or so I did all the books myself. Outsourcing it just made all the sense in the world, and I wish I’d done it a lot sooner,” he said.

When to Outsource

Knowing when to switch a role to an outsourced task and when to bring it back in-house can sometimes be tricky.

“If the business feels unhealthy, in terms of overall results… that’s a really great reason [to outsource],” McLendon said. Another is if the cost of outsourcing a task will ultimately drive down overall costs for the company.

It’s also important to take into account where the strengths within the company lie.

“I would say [a company] should outsource everything that they’re not the best at,” Brandon said. “If you have a business, and you are particularly good at a certain thing… there are other companies that do other things, and you’re better off hiring them and focusing on what you should focus on to grow your business.”

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