Outsourcing

What it means

Outsourcing hands part of the work to an external provider who performs it with their own people and tools, on their own responsibility. Most often it is the back office: bookkeeping, payroll, IT, legal.

Price is not the only reason. Just as important is that the provider carries the cover risk, tracks the legislation and holds professional indemnity insurance - things one internal person in a small company cannot supply.

Outsourcing is not temporary agency work. In outsourcing the client buys a result and the provider organises the work itself; in agency work the agency assigns people whose tasks are directed by the user employer. If a company sets an external contractor’s hours and tasks as it would an employee’s, the arrangement may amount to illegal dependent work.

How it works in practice

The relationship rests on a mandate contract with a defined scope, deadlines and price, sometimes with an SLA attached. Coming from a previous provider, a handover with agreed balances follows.

Operationally the client’s discipline decides: documents delivered by the agreed date in the agreed form. Most delays arise not at the provider but while waiting for a missing document.

A common split that works is for the accounting firm to keep the books, run payroll and make the filings, while the client keeps invoicing and payment approval. As the company grows, part of the work may come back in-house through insourcing, so the contract should allow the scope to be narrowed without terminating the whole relationship.

What to watch out for

Statutory responsibility for filings stays with the managing director - outsourcing moves the work, not the liability. So keep access to your own data throughout and put in the contract what is handed back at the end: the books are yours even when someone else keeps them.

Handing payroll or HR to an outside firm means handing over employees’ personal data. Without a data processing agreement it is the client as controller that breaches GDPR, not the provider, and in an inspection or a data leak that is the first thing to come to light.