If you’re running a UK startup somewhere between 5 and 20 people, chances are you’ve already had this conversation with yourself late on a Tuesday night: do we hire another person, or do we outsource this?
It isn’t a small question anymore. Employment costs in the UK have shifted sharply over the past two years, and the maths that used to make in-house hiring the obvious default doesn’t hold up the way it once did. As a result, many founders are now exploring business process outsourcing (BPO) as a practical way to reduce overheads while accessing specialist support.
This guide walks through what outsourcing genuinely costs a startup at your stage, what an equivalent in-house hire costs once every line item is counted properly, and how to work out which route makes sense for which task.
Why This Question Matters More at 5-20 Employees Than at Any Other Stage
Under 5 employees, founders tend to do everything themselves, there’s rarely a real hiring decision to make yet. Past 20 or so, most businesses have some HR infrastructure, a finance function, and enough headcount to absorb one bad hire without derailing the quarter.
The 5-20 range sits in an awkward middle. There’s enough revenue and operational complexity to need dedicated support, customer service, bookkeeping, order processing, admin, but not enough margin to carry a full in-house team for every function, and not enough HR bandwidth to manage recruitment, onboarding, and performance for each new role. Every hiring decision at this stage has an outsized effect on the runway.
This is exactly the stage where the outsourcing-versus-hiring maths needs to be worked out properly, rather than guessed at.
What an In-House Hire Actually Costs in the UK Right Now?
Founders tend to weigh outsourcing quotes against a salary figure, “that’s more than I’d pay someone £24k a year.” That comparison is misleading, because a salary is only part of what an employee actually costs a business.
From April 2026, the National Living Wage for workers aged 21 and over rose to £12.71 an hour. A full-time employee on that rate earns roughly £24,785 a year in gross salary. But the employer’s real cost sits higher once you add:
- Employer National Insurance, currently 15% on earnings above the £5,000 secondary threshold, working out to roughly £2,967 a year on a salary at this level
- Minimum workplace pension contributions, at least 3% on qualifying earnings, around £556 a year
- Statutory costs baked into ongoing pay, sick pay, holiday pay, and other statutory add-ons
Add those together and a single full-time employee on the National Living Wage costs an employer somewhere around £28,300 a year, before a laptop, software licences, office space, management time, or recruitment spend ever enter the picture.
Analysis from UK accountancy firms puts the typical gap between “salary offered” and “true cost to the business” at 14-17% across most pay bands, and that gap has widened noticeably since employer NI rose from 13.8% to 15% and the NI threshold was cut from £9,100 to £5,000.
It isn’t only a minimum-wage problem, either. The Federation of Small Businesses found that a small firm with nine staff on the National Living Wage has seen its annual employment bill climb by more than £25,000 in a little over a year, close to a 13% increase. Separate ONS research found that a third of SMEs with 10 or more staff now name the cost of labour as their single biggest barrier to growth.
None of this is an argument against hiring. It’s simply the real baseline any outsourcing decision should be measured against.
What Outsourcing Actually Costs by Comparison
Outsourced BPO and back-office support is usually priced per task, per seat, or against an agreed service level, not as a fixed annual headcount cost, which is a large part of why the comparison tends to favor outsourcing at this business size.
The right outsourcing partner will usually recommend a pricing model based on your workload, growth plans, and operational needs rather than offering a one-size-fits-all package.
A few patterns are worth knowing before you request a quote.
Shared team models cost less than dedicated agents, but with less brand-specific depth.
A shared pool of agents split across multiple clients is the cheapest entry point, useful for overflow support, basic data entry, or seasonal spikes. A dedicated agent who learns your brand, tone, and workflows costs more, but behaves closer to an in-house hire without the in-house overhead.
You’re not paying for downtime
An in-house customer service hire is paid for 37.5 hours a week whether ticket volume is high or low that particular week. Outsourced pricing models are generally built around output, calls handled, tickets closed, listings managed, so quiet weeks don’t cost what busy weeks cost.
There’s no recruitment, onboarding, or turnover cost sitting underneath the number.
Recruitment fees, job ad spend, interview time, and the productivity dip while a new hire ramps up rarely make it into a founder’s mental maths, but they’re a large part of why the in-house £28,300 figure still understates the true cost of a slow or unsuccessful hire.
Reported savings from moving a function from in-house to outsourced typically land in the 20-30% range against an equivalent fully loaded in-house cost, according to global outsourcing research. Smaller businesses tend to land at the higher end of that range, simply because they don’t have the scale to make an in-house function efficient in the way a larger company can.
Where the Cost Comparison Is Clearest for Startups This Size?
Not every function makes sense to outsource at 5-20 employees. Here’s where the math tends to work most clearly:
| Function | Typical In-house Cost Driver | Why Outsourcing tends to win at this stage |
|---|---|---|
| Customer Support / Live Chat | Full Time Salary + NI + Pension even during quiet periods. | Pay for coverage and volume, not idle hours; easy to scale up before peak season. |
| Bookkeeping & VAT | Part-time hire or costly accountant hours for routine entry. | Fixed monthly fee, HRMC-ready Reporting, no recruitment risk. |
| Data Entry and Admin | Distracts founders or senior staff from revenue generating work. | Frees up existing team without adding headcount. |
| E-Commerce Store management | Requires a specialist skillset most startups can’t justify hiring full-time for. | Access to platform expertise (Amazon, Shopify, Ebay) without a specialist salary. |
| Payroll & HR Admin | Compliance Risk if handled part time by a generalist. | Reduces errors and late-payment risk with dedicated processes. |
Functions that are harder to justify outsourcing at this stage tend to be the ones tied directly to product, culture, or core strategic decisions. Those usually still belong in-house, even at 5 employees.
How Outsourcing Pricing Actually Works
One reason founders struggle to compare outsourcing quotes against in-house costs is that outsourcing isn’t priced like a salary. Providers typically use one of a few models, and knowing which one you’re being quoted changes what the number actually means. Comparing outsourcing vs virtual assistants can help startups choose the right option based on workload, budget and long-term growth needs.
Per-seat or per-agent pricing
Works closest to a salary comparison, you’re paying for a set amount of dedicated capacity, usually billed monthly. This is the right model when you need consistent, predictable coverage, such as a dedicated customer support agent who learns your brand and handles the same account every day.
Shared-pool pricing
Spreads a team of agents across several clients, with your business paying only for the volume you actually use. Significantly cheaper per hour than a dedicated agent, but response times and brand familiarity are lower, it suits overflow support, after-hours cover, or tasks that don’t require deep product knowledge.
Project or task-based pricing
Applies to defined pieces of work with a clear start and end point, a Shopify migration, a bookkeeping catch-up, a one-off SEO audit. There’s no ongoing monthly commitment, which makes it an easy way to test a provider before moving to a retainer.
Retainer pricing sits between the two, a fixed monthly fee for an agreed scope of ongoing work, common for bookkeeping, payroll, and social media management, where the workload is fairly predictable from month to month.
Most startups end up mixing models rather than picking one: a dedicated agent for customer support, a retainer for bookkeeping, and shared-pool or project pricing for anything seasonal or one-off. Asking a provider which model they’re quoting, and why it fits your workload, is one of the fastest ways to tell whether a quote is genuinely competitive or just cheap on paper.
The Hidden Cost of Not Outsourcing
It’s worth naming the costs that don’t show up on a payroll spreadsheet but tend to hit startups at this size hardest.
Founder time spent on non-revenue tasks
Every hour a founder or senior team member spends on bookkeeping, ticket triage, or order chasing is an hour not spent on the parts of the business only they can do.
Missed coverage during growth spikes
A single in-house hire can’t absorb a Black Friday surge or a viral TikTok Shop moment without either burning out or letting service quality slip.
The cost of a slow or wrong hire
At 5-20 employees, one bad hire in a support or admin role can quietly cost months of productivity and thousands in recruitment and severance, a risk outsourcing largely removes, since the provider carries responsibility for staffing and performance.
Common Mistakes UK Startups Make When Comparing Costs
Even founders who do the maths carefully tend to fall into a few predictable traps when weighing outsourcing against hiring. Knowing these in advance makes the comparison far more accurate.
First
The first is comparing a monthly outsourcing quote against a monthly salary figure, rather than against the fully loaded cost. A £2,000-a-month outsourcing package can look expensive next to a £2,000-a-month salary, until you remember the salary figure doesn’t include employer NI, pension, equipment, management time, or the six weeks it typically takes to find, interview, and onboard someone.
Second
The second is assuming outsourced support is lower quality by default. That was a fair concern a decade ago, when much of the market was unmanaged and inconsistent. It’s less true today, particularly with providers that run structured onboarding, dedicated agents, and regular quality reporting rather than treating outsourcing as an unsupervised cost-cutting exercise.
Third
The third is treating outsourcing as all-or-nothing. Founders sometimes assume the choice is between outsourcing an entire function or keeping it fully in-house, when in practice most successful setups blend the two, an in-house lead who sets direction and standards, supported by an outsourced team that handles execution and volume.
Fourth
The fourth is underestimating how much founder time is worth. Time spent on bookkeeping or ticket triage doesn’t show up as a cost anywhere, but it’s time not spent on sales, product, or fundraising, which, at a startup’s growth stage, is usually the most expensive time in the business.
Avoiding these four mistakes tends to make the outsourcing-versus-hiring decision considerably clearer, and considerably less likely to be revisited six months later once the real costs become apparent.
How to Actually Decide
Before comparing quotes, it’s worth asking three questions honestly.
- Is this task core to what makes your product or service different? If not, it’s a strong outsourcing candidate.
- Does the workload fluctuate seasonally or with growth? If yes, a fixed in-house hire is likely to be either underused or overwhelmed, outsourcing flexes with you.
- Would this function benefit from specialist expertise you can’t currently afford to hire full-time? SEO, Amazon account management, and payroll compliance are common examples where a specialist’s part-time attention beats a generalist’s full-time attempt.
If the answer to any of these is yes, it’s worth getting a proper quote before defaulting to another in-house hire.
What This Looks Like in Practice
At this stage, most UK startups don’t need a single, all-or-nothing decision. A common structure looks like this: core product and strategy staff stay in-house, customer support and admin are handled by a shared or dedicated outsourced team with clear KPIs and quality checks, and specialist functions like bookkeeping or Shopify store management are brought in as needed rather than hired outright.
This is broadly the model most outsourcing partners are built around, including the structure we run at Nixxie Solutions, with dedicated quality oversight and a specialised team assigned to each account, precisely because it maps to how startups at this size actually operate: lean, fast-moving, and unwilling to carry cost they don’t need yet.
Conclusion
At 5 to 20 employees, outsourcing usually isn’t about cutting costs for the sake of it, it’s about matching support to how your business actually operates at this stage. An in-house hire now costs upwards of £28,000 a year once National Insurance, pension contributions, and overheads are properly counted, and that figure only grows once recruitment time and the risk of a slow hire are added in. Outsourcing, by comparison, lets you pay for coverage, output, and specialist skills, customer support, bookkeeping, e-commerce management, without committing to a full salary for each one.
The businesses that get the most out of this decision don’t pick one option and apply it everywhere. They keep core, brand-defining work in-house and hand off high-volume or specialist tasks to a structured outsourcing partner, reviewing that split every few months as headcount and revenue grow.