Hiring or outsourcing staff – which is best for your small business?

Direct cost comparison: Salaries vs. Freelance Rates

Average UK Salaries vs. Freelance Rates by Role 2024-2025

Sources: Yuno Juno Freelancer rates report 2024  Glassdoor 2025  Ipse  – Average Day Rates 2024

With rising employment costs, businesses must assess whether full-time hires are viable or if outsourcing is the smarter financial choice.

The cost of hiring in the current market

Rising employment costs

Hiring an employee at £55,000, such as a Marketing Manager, can cost businesses over £65,000 per year once National Insurance (15%), pension contributions (3%), and other benefits are accounted for. Even lower-paid roles, like Admin Assistants with a £29,500 salary, see substantial cost increases due to mandatory employer expenses. These additional costs make hiring a long-term financial commitment, adding pressure to businesses already struggling with rising operational expenses.

Economic uncertainty

Many small businesses in the UK face fluctuating demand, making it difficult to justify hiring full-time employees with fixed annual salaries and long-term obligations. In an economic downturn, layoffs become an expensive and often complicated process, further increasing financial instability. As businesses navigate unpredictable revenue streams, the rigidity of full-time employment may introduce risks that are harder to manage in uncertain market conditions.

While hiring in-house provides stability and a consistent workforce, the increasing financial burden and economic unpredictability make it a less viable option for businesses with variable demand. Companies must carefully evaluate whether long-term employment commitments align with their projected growth and financial resilience.

The cost of outsourcing in the current market

Higher day rates but lower long-term obligations

Freelancers and consultants typically charge premium daily rates, but businesses benefit from avoiding long-term obligations such as National Insurance, pensions, and holiday pay. For instance, a Chartered Accountant costs £589/day as a freelancer compared to £250/day for an employed counterpart. Although this means outsourcing is 2.35 times more expensive per day, it eliminates the need to cover annual employment costs, making it a financially flexible solution.

Similarly, Marketing Consultants charge £561/day – 2.45 times higher than an in-house Marketing Manager, yet businesses only pay for their services when needed, avoiding the overhead costs of full-time employment.

Outsourcing for business agility

More businesses are outsourcing to remain agile in response to economic uncertainty. IT Support freelancers, for example, charge £210/day, which is 58% higher than hiring a full-time IT employee. However, for small businesses that do not require daily IT support, outsourcing eliminates the need to pay an annual salary of £32,000.

Administrative outsourcing is only 22% more expensive than in-house hiring, making it a viable option for businesses that require occasional assistance but cannot justify a full-time role.

While outsourcing may have a higher per-hour cost, it provides businesses with greater flexibility, allowing them to scale services up or down as needed. This makes outsourcing an ideal choice for companies with project-based work or fluctuating workloads that do not justify full-time salaries.

Hidden costs of hiring vs. outsourcing

Hidden costs of hiring employees

• National Insurance (NI): 15% on earnings above £9,100.
• Pension Contributions: Minimum 3% employer contribution.
• Holiday & Sick Pay: 28 days statutory holiday + sick pay.
• Office Costs: Desk space, equipment, software licenses.

For example:

• A £35,000 employee actually costs £42,000 – £45,000 per year when including benefits.
• For a Marketing Manager earning £55,000, the total cost of hiring to the business may exceed £65,000 per year.

Hidden costs of outsourcing

Higher hourly rates

Freelancers and contractors often charge significantly more per hour than salaried employees. However, this is balanced by the fact that businesses are not responsible for providing benefits, office space, or long-term commitments. In some cases, the higher per-hour cost is justified by the ability to pay only for work completed rather than covering a fixed salary.

Lack of commitment

Unlike full-time employees who are dedicated to a company’s long-term goals, freelancers often juggle multiple clients. This means they may leave for other projects or become unavailable when needed, leading to disruptions and the added cost of recruiting and onboarding replacements.

Quality control

While outsourcing provides access to a global talent pool, the experience and reliability of freelancers can vary widely. Businesses must invest time in vetting candidates, setting clear expectations, and monitoring work quality to ensure consistency. In some cases, revisions or additional training may be required, which can offset initial cost savings.

For example:

• A full-time employee (1,800 hours/year) costs £45,000 (including benefits).
• A freelancer at £40/hr for 1,000 hours/year costs £40,000.

Maximising workforce productivity

Workforce productivity is a key factor in business success, influencing hiring and outsourcing decisions. Ensuring the right people are in place while avoiding common hiring mistakes can significantly impact efficiency and profitability. It’s widely reported there’s been a national decline in productivity since 2023, making it more important than ever for small businesses to optimise their workforce through strategic hiring, training, and the adoption of digital tools.

A productive workforce isn’t just about working harder but working smarter. Productivity can be measured by revenue generated per hour worked, and businesses that invest in efficient systems, clear processes, and the right support see the best results. The decision between hiring and outsourcing also plays a major role.

Freelancers offer fast, specialised support but may not always be available for long-term projects, while employees provide consistency but require onboarding, training, and retention strategies. Given the current economic uncertainty in the UK, many businesses are leveraging outsourcing to manage fluctuating workloads without the financial risks of full-time hires.

For roles that are essential and require long-term stability, hiring is often the best approach. However, if workloads are inconsistent or expertise is only needed temporarily, outsourcing can provide flexibility and cost savings. By finding the right balance between in-house employees and external support, businesses can boost productivity while staying agile in an evolving market.

UK businesses increasing outsourcing in 2024-2025

Percentage of Small Businesses Outsourcing (2024 & 2025 Projections)

Sources: Parseq-State-of-Back-Office-Outsourcing-2024-2025

Outsourcing continues to evolve as small businesses navigate economic pressures. While accounting and finance remain one of the most commonly outsourced functions, projections indicate a decline from 28% in 2024 to 21% in 2025, possibly due to businesses bringing these tasks in-house to reduce external costs. In contrast, administrative support outsourcing is set to rise significantly, from 4% to 12%, reflecting a growing trend of businesses seeking flexible, cost-effective assistance without hiring full-time staff.

Customer communications outsourcing is also expected to increase from 7% to 19%, highlighting the demand for external solutions in handling customer interactions efficiently. Data management remains a smaller but steadily growing outsourced function, projected to rise from 4% to 7%. Meanwhile, IT support is expected to see a notable drop from 19% to 9%, suggesting that more businesses may be investing in in-house technical support rather than relying on third-party providers.

These trends highlight how small businesses are strategically adjusting their outsourcing decisions to balance cost, efficiency, and expertise in a shifting economic landscape.

A hybrid model: The best of both worlds?

Many UK businesses are adopting a hybrid approach, hiring for core functions while outsourcing specialised or fluctuating tasks. For example, they may hire a full-time admin assistant but outsource high-level accounting, employ in-house IT support while contracting cybersecurity projects, or maintain a marketing team but bring in external consultants for campaign strategy.

In the current economic climate, small businesses must carefully decide between hiring and outsourcing. Hiring makes sense for roles essential to operations, long-term stability, and strong company culture, especially when demand justifies employment costs. Conversely, outsourcing is the smarter choice for inconsistent workloads, project-based needs, or accessing specialist skills without the commitment of a full-time salary, offering greater financial flexibility in an uncertain market.

The strategic choice in 2025

With rising employment costs and an unpredictable economy, outsourcing is becoming a strategic advantage for many businesses. While hiring ensures consistency, outsourcing provides flexibility and cost control. The best approach depends on the business model, financial outlook, and long-term goals.

Ultimately, businesses that remain adaptable, leveraging outsourcing where it makes sense while investing in core in-house talent, will be in the strongest position for success in the current UK market.

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Sources:
https://www.xero.com/uk/guides/increase-productivity/
https://www.ipse.co.uk/campaigns/the-self-employed-landscape/self-employed-landscape-2024
glassdoor.co.uk, payscale.com

*Disclaimer – This blog has been created as general information and should not be taken as advice. Make sure you have the correct level of insurance for your requirements and always review policy documentation. Information is factually accurate at the time of publishing but may have become out of date.