51. To Employ or Contract Out?

Recruiting and maintaining staff can be one of the most expensive costs for your business. It isn’t just the wages that you need to consider when hiring staff. Making the wrong hiring decision can be disastrous. Therefore, it is important that you consider the hidden or forgotten costs of employing new staff.

It is especially important to consider whether or not hiring permanent staff is more cost effective than to outsource the task to third parties.

Time To Acquire

The time it takes to acquire your new staff member can be costly for your business because of the work that is not being completed. Your business’ capacity to take on work can be lower. This can impact your revenue and the number of sales you make.

This restricts your business’ growth and can prevent you from taking opportunities.

In some cases, you’ll need the capacity immediately and therefore it would be best to buy services from third parties rather than look for new staff members. You may also need the additional capacity only for a short period of time; therefore in this case it would be best to look at third party solutions as well.


It can take about 6 months to fully train new staff so they reach full productivity levels. This has three costs:

  •          Cost to train the new member of staff.
  •          The lost investment when the new employee leaves.
  •          Lost production as the new member of staff is trained.

Even if the training is conducted in-house, these costs will still be there and with 22% of all staff leaving their positions within the first 45 days of their employment – this loss of investment can be particularly costly.

With hiring in support from suppliers, there are also costs associated here. Often you need to spend time in aligning the supplier with your processes and goals and you might have to pay an upfront fee. This can also be costly.

Support Costs

As well as the salary there are other costs associated with hiring in new staff. You might need to pay for a new uniform for the member of staff, identification, equipment, insurance and cover when a staff member is sick or on holiday.

While you may not need to pay for these directly when outsourcing your requirements, the cost to hire the support you need will often include these.

Hiring Costs

There are still costs associated with sourcing the new candidates. While using social media sites like LinkedIn can offer you a free way to advertise open positions, you might need to advertise on other mediums or use recruitment agencies to find highly qualified and experienced members of staff. These too can be expensive and should be included in your budget to hire and find new staff.

At the same time, and as a small business, the time it takes you to look through resumes / CVs, interview candidates and complete any necessary paperwork is also restricting your productivity and limiting revenue.

And when you need to remove staff from your business, it can be highly expensive and highly emotive and challenging for both you and the staff member. An outsourced business relationship is cheaper to terminate when the time comes or find a substitute supplier.


Staff are expensive. They will probably be the biggest expense of your business and there are many hidden costs in bringing on and maintaining your staff. By understanding these costs you can determine whether the investment is going to give you a good return.

The best advice is that when you have core tasks that you expect will be part of your long term business plans, you should hire in permanent staff. For other short term needs, find third party suppliers who can fill in the gaps in your business’ current capabilities.

Posted in FD Role, People and Leadership, Tectona Ten - Business Planning, Tectona Ten - Managing Cash, Tectona Ten - Strategic Leadership.

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