Insourcing and outsourcing are two distinct approaches that businesses use to manage tasks, projects, or continuous operations. Outsourcing involves hiring external third-party service providers, such as payroll firms, to complete specific functions. Conversely, insourcing involves delegating all tasks, projects, or continuous processes to internal employees, including hiring new talent or creating new departments if necessary.

One of the most common applications of outsourcing is for payroll processing. For example, smaller businesses without the resources to create a payroll department or staff with payroll expertise may choose to outsource this task to a specialized payroll firm.

Businesses may opt for outsourcing over insourcing for several reasons, including reducing the costs associated with hiring new employees, minimizing workloads on internal teams to avoid burnout, allowing employees to focus on core business functions while external parties manage less critical operations, and accommodating new needs that arise due to scaling.

However, businesses may choose insourcing over outsourcing as outsourcing may require handing over internal systems and processes to a third party, which can pose significant risks when dealing with sensitive information. Additionally, communication can sometimes be challenging to navigate when working with external providers.

If you’re planning to undertake new projects or scaling requires you to develop new processes, insourcing can be an effective solution if your goal is to have everything done in-house. Your internal teams or newly hired talent can take ownership of new tasks, bring them to fruition, and contribute to your business’s overall success.