Outsourcing – Human Resource Functions – Using Contractors – Domestic, Global

  • Transfer of a business function to an external service provider, often to obtain a cheaper and more superior service.
  • This third-party business will perform the business function that otherwise would have been undertaken internally.

Human resource functions

  • Human resource functions are often outsourced, particularly in areas such as recruitment, induction, training, payroll. It reduces the need for the business to employ full time staff.
  • This is increasing in small businesses as they have the same requirements in HR but lack the resources of large firms.

Using contractors – domestic, global

  • Contractors are independent and an external provider of services to a business. It may be an individual or a business.
  • Businesses may hire contractors:
    • To temporarily fill a position
    • As they are also cost effective as there are no “on costs” (e.g. workers compensation, holiday pay).
  • Risks include:
    • Lack of loyalty
    • Time lags
    • Cost overruns or increased costs
    • Loss pf quality control
    • Difficulty coordinating activities
  • Employee’s are subject to contract of service: they offer their services to a business on a regular basis and are subject to the lawful control/authority of the employer.
  • Independent contractors subject to contract for service: employment is not ongoing and an agreed fee is paid in return for their service, which they will provide usually for a fixed period.
  • Contractors are responsible for their own tax requirements whilst with employees, the business is responsible for PAYG tax deductions and superannuation.


  • Advantageous as expert knowledge is based on how Australian businesses operate and easy communication as same time zone.


  • Many firms are under pressure from global competition now contract foreign businesses to provide a readymade workforce.
  • It reduces costs and allows business to access labor without having to consider issues such as minimum labor requirements and WHS laws.
  • Risks include difficulty controlling quality and reliability of service. Cultural differences may impact on customer service.

Extract from Business Studies Stage 6 Syllabus. © 2010 Board of Studies NSW.