In-house or outsourcing – what is more cost-effective?
Every company has tasks that are not part of its core business. These activities are often taken over by employees who have to take care of them in addition to their main job. If employees have to take on too many tasks, the daily business suffers and the employees feel overwhelmed. This leads to a dissatisfied workforce that makes mistakes or has a high rate of absenteeism. Therefore, cost-conscious companies regularly check whether various tasks can be taken over by an external service provider. The important decision criteria for or against outsourcing certain processes include possible savings in time and money.
To make a decision about outsourcing, the management must compare its own costs with the monthly fees that an external provider charges for performing the work. It is important to think of all the expenses that an employee causes. If only the salary of an employee is taken into account in the calculation, in-house resource development usually looks cheaper than outsourcing. However, the calculation is not complete because it does not include all the internal costs incurred by each employee. Therefore, the full costs that a company has to pay for each employee per month should be calculated.
Correctly calculate the full costs for a job
How expensive is an employee per month or per hour? A full cost calculation shows that a large number of expenses must be included in order to obtain reliable figures. Here is an example calculation:
| Gross salary | EUR 4,000.00 |
| Pro rata holiday pay or Christmas bonus | EUR 375.00 |
| Social security contributions, approximately 21% | EUR 840.00 |
| Further training and education, approximately 4% | EUR 160.00 |
| Administrative costs (payroll accounting) | EUR 100.00 |
| Acquisition costs for the workplace | EUR 50.00 |
| License fees and software costs | EUR 150.00 |
| Pro rata office rent for approximately 15 m² workplace | EUR 300.00 |
| Additional costs for the workplace | EUR 120.00 |
| Office supplies | EUR 50.00 |
| Drinks and subsidy for the company canteen | EUR 100.00 |
| Full costs per month | EUR 6,245.00 |
As the example shows, the monthly expenses for an employee increase significantly when all costs are taken into account. In our calculation, the employer pays an additional EUR 2,245.00 per month for an employee in addition to the salary. Depending on the size of the company, this results in a high sum that must be taken into account in the event of possible resource development. An external provider who takes over part of the tasks often offers his services at a lower price. Therefore, an entrepreneur should always base his consideration of whether outsourcing is worthwhile on the full costs of his workforce.
Which departments can be outsourced?
For small and medium-sized companies, having their own HR department is often not worthwhile. If a salary statement only has to be created for a few employees, the clerks are not busy. Even if the creation of travel expense reports and other administrative tasks, such as vacation planning or the determination of sick leave, are added, the work is often not enough for a full-time position. Even if a part-time employee costs less salary, the fixed costs listed, such as office rent, software costs, license fees or the costs for further training and education, remain the same. This also applies to the employees in the financial accounting department, who often also do not have enough to do in a medium-sized company. If only a small number of invoices have to be paid to the suppliers every month and the number of debtors is also manageable, outsourcing to an external service provider is worthwhile.
Every entrepreneur should be aware that outsourcing provides greater cost control than when their own workforce has to familiarize themselves with processes that are not part of the company’s core tasks. Hiring new employees is also usually more expensive than commissioning an external service provider with accounting, dunning or travel expense reports. Therefore, the management should always base its decision on the full costs of the workforce.
Have you already considered outsourcing business processes? How did you proceed with your decision-making? We look forward to hearing about your experiences.
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