outsourcing costs
Definition
Outsourcing costs are the expenses your business pays when you hire outside companies or contractors to handle tasks that your own employees could theoretically do in-house. These costs cover things like paying a third-party firm to manage your payroll, handle customer service, or run your IT systems. Courts and accountants track these costs carefully because they affect your taxes, your contracts, and sometimes your liability if something goes wrong with the outside vendor.
Example
If you pay a bookkeeping service $500 a month to handle your accounts instead of hiring a part-time employee, that $500 is your outsourcing cost and you would record it as a business expense.
Watch Out
Make sure any contract with an outside vendor clearly spells out who is responsible if they make a costly mistake, because without that protection you could end up paying twice for the same problem.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.