Outsourcing Employee 101

What Is Employee Outsourcing and How Does It Work?

Discover what employee outsourcing is and the three key outsourcing models that can help you reduce expenses and improve operations.

What Is Employee Outsourcing and How Does It Work?


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Employee outsourcing has been a staple practice in the business world for some time, but its popularity is on the rise as more organizations recognize its strategic value. By embracing outsourced employees, you can expand your teams without the burden of additional overhead costs.

Opting for outsourced talent can bring a wide array of benefits to your business, from creating a more diverse company culture to growing revenue.

This article delves into the mechanics of employee outsourcing, the different types of employee outsourcing, and the functions you can delegate to outsourced employees.

We’ll provide you with a clear overview of what this business practice entails and what to expect when you hire outsourced workers.

How Does Employee Outsourcing Work?

Employee outsourcing is a strategic approach where businesses hire external talent for specific tasks, gaining access to specialized skills without the overhead labor costs of full-time staff.

The process of employee outsourcing begins with selecting external service providers or freelancers. This process should involve the use of collaborative tools and common communication channels.

Additionally, legal guidance may be required to ensure adherence to international laws and regulations. You may also seek assistance from technical support for the initial setup of necessary tech tools and software, as well as talent management agencies that can help you hire remote employees.

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3 Benefits of Outsourcing Your Employees

Outsourcing your employees can bring several key benefits to your business, particularly when you’re striving to reach new business goals, gain a competitive advantage, or focus more on core operations. Let’s explore the three most notable benefits.

1. It can boost operational efficiency and increase productivity

Outsourcing can boost your business’s operational efficiency by bringing in experts for particular functions, resulting in more efficient, higher-quality work.

Furthermore, leveraging a global talent pool can enable continuous productivity across various time zones. For businesses needing to align with standard US working hours, nearshore outsourcing offers an effective solution.

2. It’s a cost-effective, easily scalable approach

Besides getting access to global talent pools and targeted expertise, companies outsource to avoid employee recruitment and infrastructure expenses.

The burden rate, or costs associated with an employee beyond their base compensation (such as training, benefits, and other overhead), adds up over time. Outsourcing of employees can lead to as much as six months’ worth of cost savings.

When you outsource employees, you can expect to cut costs associated with:

  • Salary expenses: Outsourcing can reduce the high costs associated with full-time employee salaries and taxes, especially if you outsource employees in regions with lower labor costs.
  • Benefits and insurance: You can potentially save on employee benefits like health insurance, retirement plans, and other perks typically offered to in-house staff.
  • Office space and equipment: Since workers won’t be on-site, there will be less of a need for physical office space and the associated costs like rent, utilities, and office equipment.
  • Technology and infrastructure: Outsourcing companies usually provide their own technology and infrastructure, reducing your investment in these areas.
  • Administrative overheads: Fewer in-house employees translates to lower administrative overheads in areas like HR and payroll management.

3. You can keep a strategic focus while mitigating risks

Outsourcing non-core functions allows you to concentrate on core competencies and strategic objectives. It also improves compliance and risk management, particularly in specialized areas such as legal and financial services.

For example, let’s assume that your company’s primary revenue comes from software development projects.

By outsourcing non-core business functions like legal services and financial accounting, your internal team could focus more on software development, ensuring products are innovative and competitive.

Then, for instance, during a market shift toward cloud computing, you could allocate more resources toward building an effective cloud migration strategy while your outsourced partners ensure compliance with legal tenders.

Types of Employee Outsourcing Models

Let’s dive into the three key models of employee outsourcing: onshoring, offshoring, and nearshoring. Each of these approaches comes with its own advantages and challenges and caters to different business needs, like physical proximity or language similarities.

1. Onshoring

Onshoring involves transferring business functions to external partners who are based in the same country as your company.

With this model, cultural, language, and legal differences are minimal, and the close proximity makes it easier to travel for in-person meetings. This means that there is less potential for issues related to collaboration and compliance.

For example, a tech company in New York might outsource software development to a team in Texas. While onshoring typically still offers cost savings, especially for businesses in high-cost urban areas, you can likely take advantage of even lower costs with the offshoring or nearshoring outsourcing models.

2. Offshoring

Offshoring means relocating business operations to a distant location, often in another continent. Key advantages of this approach include substantial cost savings and access to a broader talent pool.

For instance, a US company might outsource its customer service to India, benefiting from the country’s lower labor costs and 24-hour operational capabilities due to time zone differences.

However, offshoring may also present a few challenges, such as cultural and language barriers. These issues can potentially hinder collaboration, as communication styles vary with each foreign country.

To navigate these challenges, focus on extensive cross-cultural training, establish clear communication methods, and define exact key performance indicators (KPIs).

3. Nearshoring

Nearshoring is the practice of outsourcing to nearby countries. Companies opt for this approach to avoid traditional employment expenses and minimize cultural or time zone differences while still getting access to a broader range of specialized skills.

Nearshore outsourcing balances cost-effectiveness and proximity, reducing travel and communication difficulties. A classic example is a US company outsourcing IT services to Latin America, which has more cultural and time zone alignment with the US than many offshore countries.

This model appeals to many companies, as it helps them save money without having to adapt to significant time zone gaps or cultural discrepancies.

A manager pointing at the laptop thinking of assigning the task to the outsourced employee

What Tasks Can You Delegate to Outsourced Employees?

The US workforce is still short by approximately 1.7 million workers compared with its size in February 2020. This trend is pushing businesses to explore remote outsourcing options for a variety of jobs that don’t require on-site presence.

Companies outsource a wide range of roles to cut down on business expenses and keep their internal staff focused on critical areas. To make an informed decision about what functions to outsource, identify tasks that are labor-intensive, require specialized expertise not available in-house, or are outside your business’s primary focus. 

Depending on the industry and the location of their outsourced talent, companies outsource tasks such as:

  • Customer service operations, such as call center activities
  • Marketing activities, like copywriting or social media management
  • Human resource management tasks, such as hiring new staff or filling specialized positions
  • Technical functions, like IT support, administrative tasks related to system support, or software development

Final Thoughts

Whether you implement an onshoring, offshoring, or nearshoring model, employee outsourcing opens doors to global talent, cost savings, and operational efficiency. More than just a way to cut expenses, this approach can help you gain access to specialized skills and speed up delivery without compromising quality.

Like any organizational change, outsourcing employees comes with unique challenges. Don’t forget to consider the following:

  • Legal compliance
  • Protecting sensitive information
  • Ensuring effective communication
  • Proper integration of collaborators from new markets

Given all that’s involved in outsourcing, seeking expert support can help considerably. Near enables you to save substantially on sourcing and screening time by giving you access to our diverse talent pool of over 35,000 pre-vetted professionals. We make the hiring process simple and painless with a solution tailored to your organization.

Book a free consultation call to discover how you can start outsourcing employees successfully.

Frequently Asked Questions

What is an example of employee outsourcing?

Many companies, particularly those without a specialized IT department, outsource IT services to specialized firms. For instance, a retail organization might outsource the development and maintenance of its e-commerce platform to an offshoring entity. 

By doing so, it gains access to specialized tech expertise at a lower cost than if it had hired an in-house team. This business strategy also allows the company to focus more on core retail operations, like improving last-mile delivery, while still having its IT needs fulfilled.

What legal factors should you consider when outsourcing employees on a global scale?

When outsourcing globally, legal considerations include the labor laws of the host country, tax compliance, intellectual property rights, and data security in line with global data protection laws like GDPR. Additionally, you must be aware of any trade restrictions or tariffs that may apply.

How can you effectively onboard outsourced employees?

Successful onboarding of outsourced employees involves setting clear expectations, thorough training, and consistent communication. Aim to provide detailed guides on work processes, company culture, and project goals as part of your onboarding process. 

Using digital tools for training and regular interaction, such as Google Meet, Zoom, or task management platforms like ClickUp, can also help you integrate these employees into your team.

Frequently Asked Question

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