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Outsourcing tasks to your own employees?

I manage the engineering team for a small non-profit (4 full time guys doing software/electrical/mechanical work + the some co-op students or part timers).  We develop assistive technology for people with disabilities.

We are fully grant funded which is very feast or famine depending on our funding sources, so a huge challenge is always managing the size of our team so as to have sufficient capacity while not growing too big to support when times are tight.

We are based at a university, so work weeks are pretty easy (University standard 35 hour weeks and time off in lieu) and since we are a non-profit with somewhat unstable funding, we can't afford to pay industry-comparable salaries.  People generally work here because they like the work, the societal impact, or the time flexibility/setting. 

However most of our engineers have an entrepreneurial spirit, and one strategy I've been tossing around is outsourcing small projects (most of our projects are relatively small) to our own employees.

Possible advantages:
1.  We can increase capacity when we need it.
2.  We can get projects done at a discount or do projects we might otherwise be priced out of (e.x. funders that would find our standard loaded labour rate too expensive)
3.  Employees have the opportunity to earn some extra money if they feel like doing extra work.

Possible disadvantages
1.  Could sow discontent if some employees are making a lot of extra money with outsourcing and others aren't.
2.  Possibility that employees might neglect their normal jobs in favour of outsourcing work (as they are paid salary regardless)

Anyone ever tried this?  Is this a stupid idea?
Leo Spalteholz Send private email
Thursday, March 06, 2014
 
 
It just isn't done in the vast majority of companies for both reasons you cited. It can damage morale, and the arrangement can easily be abused.

It really sounds like the team members need to be on an hourly, not salaried basis. Additional workload results in overtime. That is how most businesses cope with such situations.

And the contracting needs to be to outsiders anyway. By definition you can't retain a contractor who is also an employee for the same type of services. (It looks to the IRS like you're trying to avoid withholding payroll taxes.)
Profit and Loss Send private email
Thursday, March 06, 2014
 
 
Good point about the tax implications.  We are in Canada but I assume there are similar laws on the books.
Leo Spalteholz Send private email
Thursday, March 06, 2014
 
 
In US tax law there is a doctrine in the tax laws about employees vs. contractors. An independent contractor is not supervised and works solely under his own control. It's assumed that if someone works on your premises with your equipment, they are really an employee because it appears that you are providing them with all of the means to do their work. The IRS really frowns on people changing between contractor and FTE roles.

Since the moonlighting is really an extension of the employee's day job, I don't think it will fly.
Profit and Loss Send private email
Thursday, March 06, 2014
 
 

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