Day: August 8, 2023

Offshoring vs outsourcing, what’s the difference? Do you need to expand your business operations but don’t know which can serve your needs?

In this post, we are going to define these terms, discuss their differences, and go through the pros and cons. By the end, we hope that you will be encouraged by this knowledge and able to make an educated decision. 

What is Outsourcing?

Outsourcing refers to the process of hiring an entity outside of your own business to perform a business task or operation. This entity can be a separate company within your city, within the country, near the country, or even internationally. What is being outsourced can include core or non-core processes, front office or back office, and long-term or short-term operations. Outsourcing core business operations is referred to as BPO (business process outsourcing). Hiring remote workers to perform tasks within your company can also be called outsourcing. 

What is Offshoring?

If outsourcing is handing off a process to a different company, offshoring is changing the country in which a process is performed. Offshoring can be when a parent company moves a process overseas for a subsidiary to perform. In some instances, a company can move personnel out of the main company and station them in the offshore location. 

Knowing the difference between offshoring vs outsourcing can get a little tricky. That’s why a little later on in this article we will give you points that distinguish the two. 

What is Offshore Outsourcing?

What do we get when we combine both definitions of outsourcing vs offshoring? We get a business that hires individuals, teams, or entire companies from overseas to perform certain business operations. This is done through offshore product manufacturing or service providers. These entities operate similarly to outsourced third-party companies. However, they typically perform much more comprehensive roles and their scope of work is generally much larger. 

Differences Between Outsourcing vs. Offshoring

Workers

When you outsource, you hire freelancers or independent contractors to perform a task or process for a specified number of years. You then renew the contract as needed. These entities don’t receive worker benefits from you. 

When you offshore to a subsidiary or a smaller part of the company that you own, you are still working with your hires. These workers receive pay plus worker benefits, such as healthcare, vacation days, transport, etc. 

Control

With outsourcing, you give an external company the details and trust in its processes and procedures for the output. You can negotiate the number of times you receive updates, but your control over the quality is limited. 

With offshoring, you have more control because you are maintaining the same SOPs. The offshore branch can then perform the tasks the exact way you specify them to do. You can give your input at any time whereas that may not be possible always with outsourcing.

Now let’s compare outsourcing vs offshoring pros and cons.

Pros and Cons of Outsourcing

As stated in our outsourcing pros and cons article, there are three key pros to outsourcing.

Cost Savings 

With outsourcing, you can save on employment costs. You don’t have to pay employment tax or benefits. Not only that, but labor can be cheaper in other countries because of the lower cost of living. You can save by hiring only on a per-project or part-time basis. This way, you are only paying for the hours they are working. 

Larger Talent Pool

Your choices can be limited in your home country. There are a lot of skilled individuals in popular outsourcing countries like India, The Philippines, and China. A lot of the time you can get the same and even better quality for a generally lower rate. 

Able to Be Completely Remote 

You can outsource practically anything. Commonly outsourced tasks include marketing, customer service, SEO, and content writing. You could technically outsource any business process and be a completely remote business. 

Other pros include:

Flexibility

You can expand your business temporarily during high-volume sales periods and shrink it again during the rest of the year. You can hire per project, per hour, part-time, or full-time. In comparing offshoring vs outsourcing, we’d say outsourcing gives you more flexibility. 

Free Up Staff

Outsourcing allows you to focus on the core aspects of your business while handing over the busy work to a remote team. 

Though outsourcing has quite a few pros, it also has a few cons. 

Remote Communication Issues

Managing a virtual team can be difficult, especially in the area of communication. You might struggle to get used to online meetings and scheduling them can be even harder because of our next con.

Time Zones

While time zones can be beneficial, they can also be challenging. If you need emergency work done but your remote worker is asleep, it can put a pause on the process. 

Cultural Barriers

Sometimes it’s hard to communicate because of cultural differences. You need to train and onboard remote hires to get them used to your culture and practices.

Pros and Cons of Offshoring

A lot of the outsourcing vs offshoring pros and cons are similar.

Cost Savings 

With offshoring, you also benefit from lower labor costs. While it may not be as low as outsourcing, salaries for workers in other countries can be comparatively lower. Benefits packages and such are also much cheaper. Lower labor costs can mean lower production costs. Saving money is making money. 

Wide Talent Pool

Same with outsourcing, offshoring also gives you access to more individuals with a lot of quality abilities to offer your company. 

Country Benefits

Some countries have certain tax benefits and incentives to attract foreign companies. Popular offshoring locations also have less strict regulations, making it enticing to conduct business there. It’s a win-win for both the countries and companies.

Time Zones 

One of the offshoring vs outsourcing examples of the pros of time zones is how much more work you can do. Think about it, you can work on a project during your country’s work hours and then hand it off to the subsidiary to work on even after you clock out. 

What about the cons of offshoring? 

Communication and Cultural Barriers

Even if you hire from English-speaking countries, expressions, cultures, and customs can be different. Proficiency and usage of English in certain situations may also be different. Misunderstandings can occur if you are not aware of these. 

Quality Control

Sometimes, even when using the same ingredients, a product can taste different when manufactured in different countries and factories. Guidelines and SOPs help, but the same amount of quality control can be challenging to maintain. 

Potential for Layoffs

You can use offshoring to reduce the load of work in the main company. Sometimes, though, companies do it because they can’t afford in-house workers. Lower labor costs can be tempting, and unfortunately, this makes some employers want to switch over at the expense of their local team and local economy.  

Delayed Response

The cons of time zones also apply here. It may be hard to manage workflows when dealing with two sets of working hours. 

Tips for choosing between offshoring and outsourcing

Identify the time required for the service

Whatever avenue you go, you should consider your timelines. 

Consider:

• How long it will take reasonably take to accomplish the task
• Milestones and deadlines
• Time set aside for meetings, updates, and unexpected hiccups 

Determine the amount of preferred control

In terms of control when talking about outsourcing vs offshoring, the typical order of most to least control is offshoring, offshore outsourcing, and outsourcing.

It is worth noting that there are some outsourcing companies out there that do give you as much control as possible. However, most companies cannot give that guarantee if they are working with multiple companies at once. Having to check in every day or every other day would take time out of working on other projects. You can give them the rundown, but they typically work independently using internal processes and procedures.

Offshoring allows you to be more hands-on but with a remote team. You have more control and information on the process itself, meaning you have more control of the product’s quality. 

Offshore outsourcing services kind of work like a sanctioned third-party integration. They can serve you more comprehensively than your typical outsourced freelancer or team. They still have their processes in place, but it can be much easier to communicate with them.

Consider confidentiality

Every company considering outsourcing vs offshoring needs to ask themselves: “How much trust can I put in this third-party entity?”

Always outsource from entities who have experience working with other companies. That way you can check their work history, and reviews, and sometimes see the quality of the work for yourself. 

Do these companies have a good reputation? Do they have privacy guarantees in place? 

Offshoring to a subsidiary may be the most data-secure method of handing off a process. You can keep product and service information close. 

Decide how quickly you need the service

Every project has a deadline. Business is always moving and the less time you have to complete a task, the better. You need to consider:

“Are you able to deliver on your project on schedule?”

“Can a subsidiary, offshore service provider, or outsourced team do it better?”

“Which one can deliver it quicker without compromising on quality?”

With offshoring, you need to consider the time it takes to transfer the process. You need to contact your subsidiary, inform them of the process they will be handling, and equip them to accomplish it. This takes time. Quality output may not be immediately evident. 

You can hand the task over to a team or service provider with the personnel, experience, and equipment to perform the task much faster. Whether it is outsourced or offshore outsourced depends on the depth of the assignment.

Frequently Asked Questions

Does outsourcing or offshoring ever work?

Absolutely, Outsource School was built with the help of outsourced talent. Whether you outsource or offshore, it’s an excellent way to save money and scale your business. 

What is an example of offshore outsourcing?

When talking about offshoring vs outsourcing examples, customer service and manufacturing come to mind. As long as you do not operate a physical location, customer service can be purely remote. You can hire a CS offshore service provider. A lot of companies outsource to offshore white-label product manufacturers to cut down on costs and scale their production. 

What is nearshoring, and what are the pros and cons?

Nearshoring is hiring from countries near your own. Universal Cargo has a great post on the advantages and disadvantages of this method.

What Is Outsource School?

Outsource School helps you to unlock the potential of virtual assistants and accelerate your business growth.

This is the exact system Outsource School’s founders, Nathan Hirsch and Connor Gillivan, used to go from zero to 8 figures and 40+ virtual assistants with an exit in 2019.

Since being founded in 2020, Outsource School has helped 1,000+ business owners hire 2,000+ virtual assistants for their companies.

Schedule a free sales call to learn more

Free resources you might like: 

• Outsource School Case Study: How We Scaled to 45+ VAs and 8 Figures in Revenue
• Free VA Calculator | See How Many VAs You Can Afford
• Free Training on 5 Keys to Working With VAs
• Learn Outsourcing 101 | Guides, Downloads, and Checklists

Conclusion

Near, far, wherever you are, you can believe that a remote team can benefit your company. It’s not always easy, but if you want to cut down costs or access more talent, you can’t go wrong with either option. 

Offshoring vs outsourcing comes down to:

• The depth of the work
• Where you want to cut costs
• If you prefer in-house workers or contractual hires

 

How does outsourcing payroll work and is it worth it?

Payroll is the process of more than just giving your workers their wages on time. The process is much more complicated and includes tracking worker time, accounting for worker benefits, and setting up direct deposit and other automations. 

This is an essential process you can do yourself. But, have you thought about whether it might be better to hand this function off to someone else?

Let’s find out!

What Is Payroll Outsourcing?

Payroll outsourcing is the process of partially or fully handing off payroll processing duties to a third-party company or service provider. These entities usually make use of online payroll software to streamline the process. 

For partial outsourcing of this process, the provider takes care of most of the technical aspects. The rest of the more administrative tasks, like tracking time and updating worker information, fall to someone within the company. 

For full-service payroll outsourcing, the outsourced party handles pretty much everything. Full-service payroll often includes other added benefits, too, such as HR support, built-in project and time tracking, and reports.

How Payroll Outsourcing Works

Preparation Stage

This stage primarily consists of three parts:

• Establishing your needs – Determine whether you need a “from the ground up” solution, or just someone you can hand off the process to. This is where you figure out whether a partial or full-service payroll plan is for you. 
• Establishing your budget – Determine how much you can set aside to hire a service provider 
• Researching your options – Find the top-rated and reviewed providers out there. If you know people who have used payroll services in the past, ask them for advice.

Deliberation Stage

Following the research process, you have the vetting process. Most payroll service providers offer to schedule a call to discuss your needs and the services they provide. Since you’ve established your needs and budget in the first stage, you can use this stage to vet out some candidates. 

Once you’ve selected a payroll provider, you can begin the real onboarding process. Clarify the degree and depth of service you need, go through roles and responsibilities, and finalize payment terms.

Implementation Stage

You will work with the service providers to get them all the information they need to set up your payroll processing. This includes tax forms, job applications, worker information, payment amounts, benefits information, time sheets, and bank information for direct deposits. 

The process is then underway. During this, you can schedule check-ins and regular evaluations of the payroll company’s performance. This is how you determine how good of a job they are doing and stay accountable for the work you agreed on. 

Pros to Outsourcing Payroll

Time Savings

One of the main outsourcing advantages regardless of the task is time savings. This can especially be true with payroll. If you do payroll in-house, you have to consider all the time it takes to research and follow the correct process of setting it up. Think about managing it, too, and finding ways of automating different processes. You need to collate and enter worker information and learn about a whole lot of other things to do it accurately. 

With outsourcing, you’re handing that task over to someone who already knows how to get everything set up for you in a fraction of the time. This frees you and your team up to focus on more core functions like actually making sales and developing your products and services. 

Minimize Payroll Errors

Speaking of accuracy, that’s probably one of the most important benefits of outsourcing payroll. Dealing with errors in paying a particular worker can take a lot of time. What’s worse is it reflects poorly on you as a business owner and company. 

Improved Data Security

Payroll service providers typically have the infrastructure in place to handle crucial data securely. It’s important to hire a company that is well-known and has transparent security policies in place. Certain authorities hold these companies accountable to protect your information.

Stay Compliant

Tax compliance and compliance with state, federal, and other applicable regulations are a must. The thing is, it can be quite time-consuming to not only learn about these but to stay updated on them all. It can be quite confusing sometimes. Because you probably have other things on your plate to think about, it’s easy to make errors without even realizing it. A payroll outsourcing company solves that for you. Part of their job is to make sure they stay in the know about these regulations. They make sure that the withheld tax is calculated properly, and they can even handle things like wage garnishment.

Integrate Data

When moving to a payroll service provider, integrating all the previous systems you have in place can be very easy. If you have certain HR solutions, benefits packages, or time tracking, you can let them know and they’ll typically be able to accommodate you. 

Facilitate Worker Self-Service

Some payroll solutions include the addition of a worker portal. Through this portal, they can check when payday is coming, claim pay stubs, check their hours, request paid leave, and view important HR documents. 

They can also contact payroll support which is sometimes an included benefit. 

Cost Savings

One hesitation people have concerns about is the payroll outsourcing cost. Here are a few reasons why outsourcing payroll can actually save you money:

• By minimizing errors, you minimize the potential for audits and tax penalties 
• By saving time handling the payroll process, you can redirect your efforts into scaling your business
• Payroll software is also factored into the cost, which you would have probably needed to invest in any way

Cons to Outsourcing Payroll

Longer to Correct Mistakes

Mistakes made by a trained, experienced, payroll outsourcing company are far less likely to occur. That’s one of the reasons you hire one. However, they can happen and often take a much longer time to sort out. This can lead to upset workers, wasted time, and penalties, and the responsibility ultimately falls on you.

Not Getting the Best Value

The benefits of outsourcing payroll can sometimes be a bad thing. In an attempt to give the best service possible, some providers include benefits that may not apply to the average business. The cost of these services is already a concern. However, if you are not getting value out of these benefits, you’re spending extra. 

Data Concerns

When you choose a company, you have to consider its data security infrastructure, protocols, and policies. Not only that, but you also need to consider the portability of your data. That is, if you switch providers, will you be able to switch seamlessly? 

Ultimately, you are handing over sensitive information and control over what is done with it. This doesn’t sit well with a lot of people, and is certainly a major consideration.

How Much Does it Cost to Outsource Payroll?

The cost of outsourcing payroll depends on a few factors. Primarily, we look at how in-depth the service you need is and how many workers you have.

For instance, QuickBooks has payroll services, which is an add-on to any Quickbooks plan. This service can range from $45-$125 per month. On top of that, you pay at least $6-$10 per worker respectively on the plan you choose. 

In the case of Gusto, they have two monthly pricing plans priced at $40 + $6 per worker and $80 + $12 per worker. They also have a Premium plan with exclusive pricing. They they have add-on services like HR and support for $8.

Other companies such as Payoneer and ADP Global Payroll don’t have set pricing. Instead, they encourage clients to schedule a call to get a custom quotation. It isn’t much help when trying to give a concrete answer on how much payroll outsourcing costs. But, that’s just the way it is for some companies. This can be arguably better than having to pay for benefits you don’t use, though.

Best Practices for Outsourcing Payroll

Focus on Provider Reputation and Experience

When you research and vet a payroll company, ask yourself these questions:

• Have they worked with many companies before?
• Have they worked with companies in industries similar to mine?
• How many years have they been in the industry?
• Are they a recognized company?
• Is there a place I can go to read reviews of their services?

Remain Aware of Regulations and Tax Burdens

Some think, “Why outsource payroll if I have to know about taxes and regulations anyway?” These payroll service providers are indeed experts in this area. However, it is important to have some kind of idea of how it works so you can check their legitimacy. Not only that, but it’s also important to ensure the payroll company is familiar with local regulations and compliance so you don’t get into trouble.  

Take Your Time

Payroll is one of the most important aspects of your business. This is a decision you shouldn’t take lightly. It is important to get a payroll system set up ASAP. However, it’s worth investing in finding the right provider for that system. 

Frequently Asked Questions

Is outsourcing payroll cost-effective?

For a company with a large workforce, the per-worker costs may add up to a much greater cost than doing payroll in-house. For smaller businesses, outsourcing payroll can be a great long-term solution for saving time and money. 

Is it common to outsource payroll?

There are still people who are validly a little hesitant. However, there are more safeguards in place than ever that make outsourcing payroll a more secure, cost-friendly, and time-saving solution. (As long as you do your research to find the right provider, that is!)

When should you outsource payroll?

• When it takes too much time out of your day to process
• When you don’t have the resources to make your payroll process
• When you find yourself making errors
• If learning about payroll taxes and regulations is confusing or time-consuming 

How do I find a payroll company?

We have written an article detailing our picks for the 7 best payroll services out there.

What Is Outsource School?

Outsource School helps you to unlock the potential of virtual assistants and accelerate your business growth.

This is the exact system Outsource School’s founders, Nathan Hirsch and Connor Gillivan, used to go from zero to 8 figures and 40+ virtual assistants with an exit in 2019.

Since being founded in 2020, Outsource School has helped 1,000+ business owners hire 2,000+ virtual assistants for their companies.

Schedule a free sales call to learn more

Free resources you might like: 

• Outsource School Case Study: How We Scaled to 45+ VAs and 8 Figures in Revenue
• Free VA Calculator | See How Many VAs You Can Afford
• Free Training on 5 Keys to Working With VAs
• Learn Outsourcing 101 | Guides, Downloads, and Checklists

Conclusion

Payroll is an important business function that can be time-consuming, and costly, and keep you away from core processes. If you do your research, find trusted companies, and can justify the cost with the benefits, outsourcing payroll could very well be the answer for you.