Outsourcing Data Labeling Tasks – How to Go About?

July 3, 2023 8 min read By Cogito Tech. 980 views

A data labeling process is the process of tagging or marking up data in order to identify the outcome that your model is expected to predict. This technique comprises the following steps: Tagging, Annotating, Classifying, Moderating, Transcribing, and Processing the Data.

There is often a correlation between the process of labeling data and the process of annotating it. It is common to use data annotation and data labeling in conjunction with each other.

By labeling the data, we are able to gain insight into how it is structured, such as its characteristics, traits, or classifications, which can be used to analyze trends in order to improve the model’s predictive ability.
An automotive image processing tool that uses data labeling can be used to identify street signs, people, or other vehicles in a video format by taking frame-by-frame samples from the video.
Various businesses have sprung up worldwide in response to the growing demand for data labeling services.

What are the reasons why organizations should outsource data labeling?

  1. Cost-effective: For organizations, outsourcing data labeling tasks can be an economical option. Outsourcing can help reduce costs associated with hiring and training in-house staff to label data.
  2. Time-saving: By outsourcing the labeling of data, researchers may be able to spend more time on their core research activities. Outsourcing can provide an effective means of expediting the process of labeling large datasets.
  3. Expertise and quality: It is possible to ensure that data is labelled accurately and consistently by outsourcing data labeling to a professional labeling service provider. There is a trained staff at these service providers who ensure the labeling is performed correctly in accordance with quality control measures. The labeling of data has become a popular side business for many researchers and scholars.
  4. Scalability: Outsourcing data labeling may be beneficial for researchers who need to label large datasets. Service providers may scale up or down depending on the project’s needs and timeline.
  5. Access to diverse labeling options: Data labeling can be outsourced to provide a number of labeling options, such as multilingual labeling, sentiment analysis, or custom labeling. As a result, researchers may be able to gain a deeper understanding of their data.

In general, outsourcing data labeling can allow researchers to save time and money, improve the quality of their data, and provide them with more options for data labeling. To ensure the accuracy and quality of the labelled data, it is essential to choose a reputable and trustworthy provider of data labeling services.

What is the ethical status of outsourcing research data for labeling?

Outsourcing for data labeling may or may not be ethical depending on a number of factors. Several key considerations should be taken into account:

  1. Data Privacy: Data de-identification and the protection of individual privacy are two of the most critical ethical considerations in the process of labeling. It is important that before data is sent to a labeling service provider, sensitive or personally identifiable information is removed.
  2. Data Security: A researcher must ensure that the labeling service provider has implemented appropriate security measures in order to ensure the confidentiality of the data.
  3. Quality of labeling: Companies need to ensure that the labeling service provider is adequately trained and has quality control measures in place to ensure accurate and consistent labeling.
  4. Compliance with regulations: The General Data Protection Regulation (GDPR) in the European Union and the Health Insurance Portability and Accountability Act (HIPAA) in the United States are among the regulations that must be respected by companies when outsourcing data for labeling.
  5. Transparency: When using outsourcing for labeling of data, companies be transparent and obtain participants’ informed consent.

In summary, outsourcing data for labeling can be ethical if researchers take appropriate measures to protect the privacy and security of the data, ensure accurate and consistent labeling, comply with relevant regulations, and are transparent about the use of outsourcing.
Should an agreement be drafted between the Company to whom I have outsourced the research data for labeling and me?

To ensure that both parties understand the scope of work, quality requirements, and expectations, it is important to have a clear and detailed agreement with the company to which you outsource the labeling. The agreement should include the following key elements:

  1. Data security: Data breach prevention measures, unauthorized access prevention measures, and data loss prevention measures should all be clearly outlined in the agreement.
  2. Quality control: There should be detailed provisions in the agreement that outline the quality control measures that the company will follow in order to ensure the accuracy and consistency of the labeling.
  3. Scope of work:
  4. Timeline: Any milestones or deadlines should be specified in the agreement for the completion of the labeling work.
  5. Pricing and payment terms: Any deposit requirements, invoices, and payment schedule should be included in the agreement, along with detailed information about the labeling process and payment terms.
  6. Confidentiality: In order to ensure that confidential or proprietary information will not be disclosed to third parties, there should be a confidentiality clause included in the agreement.
  7. Liability and indemnification: An indemnification and liability clause should be included in the contract to clarify the responsibilities of each party.

To ensure that the agreement is comprehensive and meets all legal requirements, it is important to have a legal professional review it.

Data Labeling Agreement Template

It is becoming increasingly common for researchers to label data in order to make sense of the vast quantities of data available to them. They are using the labelled datasets to train machine learning models and gain new insights into complex phenomena.

To manage the labor-intensive and time-consuming process of labeling large datasets, researchers often turn to outsourcing providers. Researchers should approach the labeling of their data with thoughtfulness and care to ensure that the data being processed is handled securely and confidentially. Outsourcing can be an effective method for processing large amounts of data, but it is essential that they approach this process thoughtfully and carefully.

One critical step in this process is the creation of a data labeling agreement, which can help to define the scope of work, outline timelines and payment terms, specify confidentiality requirements, and establish liability and indemnification.

This discussion will address the key considerations when outsourcing data labeling for research purposes, as well as how to ensure a successful outsourcing partnership by drafting a data labeling agreement.

A Data Labeling agreement may contain the following key parameters:

A Data Labeling agreement may contain the following key parameters
  1. Scope of work: In the agreement, it should be specified what types of data are to be labeled, what criteria need to be applied to the labeling, and what number of labels are needed to accomplish the task.
  2. Quality control: In order to ensure the accuracy and consistency of the labeling, a quality control agreement should specify how the labeling service provider will ensure that multiple labelers are used, regular reviews of the labeled data will be conducted, and feedback mechanisms will be implemented.
  3. Data privacy and security: Data encryption, access controls, and data backup and recovery procedures should be specified in the labeling service provider agreement to protect the privacy and security of data.
  4. Timelines: In the labeling agreement, milestones and deadlines should be specified, as well as the consequences of failing to meet these deadlines.
  5. Pricing and payment terms: Detailed information regarding the labeling work and payment terms should be included in the agreement, including any deposit requirements, invoices, and payment schedule.
  6. Confidentiality: The agreement should contain a confidentiality clause to ensure that confidential or proprietary information will not be disclosed to a third party.
  7. Liability and indemnification: A liability and indemnification clause should be included in the contract so each party is aware of their responsibilities and the remedies available to them in the event of a breach.
  8. Termination: Termination conditions and consequences should be specified in the contract.
  9. Applicable law and jurisdiction: Any disputes that may arise under the agreement should be governed by the law and jurisdiction specified in the agreement.
    To ensure that your research data is adequately protected, it is essential to work with a legal professional. It is also important to consult a lawyer if you are experiencing any regulatory issues related to your research projects, such as that relating to data privacy or confidentiality.

Quality Control

Parameter Description
Multiple Labellers Mark out how many labelers are required at what point of time during the project
Quality Checks Random checks are good
Reviewer Qualifications Prefix the qualifications and experience required labelers
Reviewer Training Define training requirements for the labelers acarry out accurate quality checks
Quality Metrics Define quality metrics to be used to gauge accuracy & consistency of labelled data
Quality Reporting Mark out frequency and the format in which reports would be shared (e.g. daily, weekly, monthly, etc.)

Data Privacy and Security

Parameter Description
Data Privacy Privacy rules and applicable state laws. (e.g. GDPR, CCPA, HIPAA, etc.)
Data Retention People who will have access to company data & for how long
Ownership Mention who is going to take responsibility for communication and reporting.
Parameter Description
Project Duration Specify total duration of the project
Milestones Specify the timely milestones to be achieved.
Labelled Data Delivery Schedule Specify the deadline when all the output needs to be achieved and shared.
Consequences for Missing Deadlines Define penalties and consequences when deadlines are not meet.
Force Majeure Define force majeure events which might take a tool on the timeline and create the procedure for addressing them

Pricing and Payment Options

Parameter Description
Pricing Specify pricing for labelling work. This may include fees, rates, or other charges involved in the completion of the project.
Payment Terms Specify the payment conditions for/like advance, mid-payment, and final payments.
Payment Method Specify the methods via which the payment would be made like wire transfer, or credit card.
Late Payments Define impact of late payments. This might include interests or penalties for payments made after the mutually decided time.
Disputed Invoices Mark out a plan via which deputes can be tackled.
Taxes Mention any additional taxes that the client might need to incur.


Parameter Description
Definition of Confidential Information Specify what data or documents or information would be termed as confidential.
Obligations of Labelling Service Provider Define what all obligations the service providing company will be liable to follow.
Exceptions to Confidentiality Specify exception keeping in mind the law of the state.
Duration of Confidentiality There must be a term or time period to maintain confidentiality.
Remedies for Breach Specify the way out in case of any breach in confidentiality.
Return or Destruction of Confidential Information How should the service provider return confidential matters at the end of the project.


Parameter Description
Termination for Convenience Mention in which cases both the party’s may go ahead and terminate the order. There must be an option of advance notice and termination changes.
Termination for Cause Mention which actions may result in termination of tasks or job and the consequences that come along.
Consequences of Termination Define the matter of confidentiality in case there is a termination of agreement.
Return of Data In case of termination, by either of the party, mention what documents or data needs to be returned.
Final Payment Mention how the payment for the tasks completed before termination are to be paid.

Applicable Law and Jurisdiction

Parameter Description
Governing Law Mention the state or land law body that will be held as the governing factor for all tasks and decisions.
Jurisdiction Mention the jurisdiction for any disputes (state, country etc.)
Dispute Resolution Mention the steps to be taken in case of a despute (like negotiation, mediation, or arbitration)
Language Choose, specify, and stick to a language of communication which is fine for both the party’s.
Service of Process Mention how to go about in case there is a legal matter involved.

Also Read: Cogito Announces the Five Major Trends Shaping Enterprise Data Labeling for LLM Development

Final Thoughts

The key prerequisite for the data laberers is to successfully complete their task of providing top-notch and accurately annotated data. The accuracy of data annotation directly affects the efficiency of AI & ML models. The need for outsourcing data labeling tasks is no more a luxury but a much needed requisite.
Data labeling companies help organizations and industries by employing the best methods to ensure the final output as training data sets is error-free.

Outsourcing data labeling is rightly touted to be one of the most effective ways for data labelers to process, analyze, and utilize large amounts of data. However, it is important to contact a reputable and reliable data labeling service provider. The service provider should be experience and hold domain related expertise. Also, the service provider should be trustable to ensure no confidential information or data is leaked out.

If you wish to learn more about Cogito’s data annotation services,
please contact our expert.