Introduction – a little history
For the first time, outstaffing in its form began to be used in America and other developed countries in the 60s of the twentieth century. This service was most widespread only in the 90s, which happened due to the introduction of new laws relating to personnel management. Following the new requirements, American small and medium-sized businesses were forced to devote a lot of time to paperwork, which was unprofitable.
Other sources suggest that outstaffing originated in Japan. And this version also has the right to exist since objective data confirm it: in the Land of the Rising Sun, only a third of the total number of employees work in the state; the rest work outside it (at the same time, they are socially protected, they are accrued seniority, and so on).
The active introduction of these personnel laws began in the early 1980s and continued until the 2000s. Companies were faced with a choice: to spend a lot of time and resources to comply with all the new requirements and norms or to look for other solutions to the current problem. This led to the emergence of outstaffing as a recent personnel phenomenon.
Outstaffing – what is it in simple words?
Outstaffing is the re-registration of employees to the staff of another company, as a result of which the workers continue to work at the old workplace and perform their previous functions. Still, the role and responsibilities of the employer are officially transferred to a third-party outstaffing company.
In other words, being a high management technology, outstaffing is a form of relationship between the employer and his employees, in which the employer transfers, formally registering, his employees to the staff of another outstaffing company, concluding an outstaffing agreement with it. At the same time, employees continue to work in the territory of the former employer and perform all of their former functions as before.
However, the official employer on paper is now an outstaffing company that has registered employees with its company under an employment contract. Currently, it performs all the functions of an employer: maintains personnel records of employees, monitors workers’ documents, calculates taxes, pays wages, interacts with government agencies, etc.
The meaning of outstaffing is simple: a company (usually a large one) wants to focus on its core business and not be distracted by various HR issues and agrees with an intermediary organization that provides it with staff. The latter is legally their employer and resolves all matters related to the selection, salary, and registration of subordinates. She also maintains all documentation (accounting and personnel).
At the same time, employees entirely work in the customer’s company but are on the staff of the provider company. Outstaffing is mainly used by companies with at least 100 employees (such giants as Mail.ru, Yandex, and MTS also work with Rubrain). The service is also popular among Western startups who want to quickly get the specific experts they need for development, which are difficult to find in any other way. Most often, for the state, there are deduced:
- IT specialists.
The intermediary takes on the functions of paying wages, paying taxes, and enforcing labor laws (hiring, sick leave, dismissal, and so on). At the same time, employees are engaged in projects for the customer company during all their working hours. The staff is also under the direct control of its managers, which is one of the main differences between such a service and outsourcing.
People work in precisely the same way as full-time employees. They perform their usual duties, often even in the office of the client company. But without unnecessary legal complications and the risk of costs. If the employee does not fit, the outstaffer changes him for free, so there is no need to fire anyone.
When is outstaffing appropriate?
It would be advisable to apply the removal of employees from the state in situations where the legality of the employee’s employment and the impossibility of expanding the company’s staff come into conflict. Such problems may arise as a result of factors such as:
- The need to save the salary fund, tax spending, thoughtful provision of social packages;
- the employer cannot take full responsibility for the financial, accounting, and documentary services of their personnel;
- the desire to reduce the burden on office work and accounting;
- labor migrants are the main labor force, but there is no way to track the documentary side of their official registration;
- it is necessary to relieve oneself of responsibility to one’s personnel and inspection state bodies;
- unwillingness to staff registration of seasonal workers or those undergoing a probationary period;
- the desire to employ a specialist from another region without opening a particular representative office (branch);
- the need to increase the number of employees, but the impossibility of staff growth due to the limits of the simplified tax regime (STS).
Types of outstaffing
All outstaffing contracts are bound by validity periods. They can be:
- It is necessary, first of all, to reduce the number of people in the state. Legally, people get a job in another company; in fact, they remain in the same place. Or a company is looking for a rare specialist for a permanent position but finds him only through outstaffing employees and agrees.
- They are needed in companies with significant seasonal load changes and changing market conditions. The contract is temporary, usually for 1-3 months.
- They are needed to complete one specific project or task. After the project is closed, the specialists return to the outstaffing organization and are assigned other company tasks. The contract specifies the conditions for completion (documented final product or the moment of its launch)
Pros of outstaffing
Outstaffing allows you to save resources on staff search – the outstaffing company will do it instead of you. This service will also allow you, as a business owner, to extend the probationary period for new employees, which makes it possible to check their professional qualities in more detail.
Are you familiar with the situation when the labor inspectorate finds any violations? If you have experienced similar problems, then you probably know that the responsibility lies with the employee and the management. But even minor violations lead to significant fines imposed on the legal entity.
Using this service, you get absolute protection during inspections by regulatory authorities because you do not have employees who have fallen under the outstaffing procedure. Even communication with controlling assessments becomes the responsibility of the contracting company. You will no longer be bothered by various checks and can fully devote yourself to the main processes that bring you profit.
You ultimately get rid of obligations under labor relations with the personnel. If a conflict situation or a labor dispute with an employee arises, the outstaffing company deals with its solution. All risks associated with employees and proceedings for work-related injuries and accidents, including death, are shifted to the outstaffer as a legally registered employer.
Does your company employ foreign employees, and do you spend a lot of time on proceedings with the migration service? We will help you solve all these issues!
The outstaffing company takes care of all the problems with the migration service and the official registration of foreign citizens by the law. Your skilled workers from abroad will be able to work in the same place, and you, as a business owner, will forever get rid of communication with migration service inspectors.
Do you still maintain a large HR staff, and the accounting department often does not have time to cope with many personnel? We have a solution for you.
Reducing the number of employees in the state by order of magnitude will lessen the burden on your accounting department. After all, the outstaffing company assumes the following obligations:
- Selection, registration, accounting, and dismissal of employees.
- Calculation and payment of wages.
- Registration of benefits, travel and sick leave, and vacation planning.
You can also reduce the personnel department staff or transfer the entire department to the team of the outstaffing company.
Outstaffing will allow you to maintain the status of a small business and minimize taxes while increasing the number of employed employees several times. After all, the more employees officially registered in your company, the more taxes you do not need. In addition, with a formally small staff and low personnel costs, you will increase financial performance per worker, thereby increasing investor interest in your company.
Cons of outstaffing
Despite all its advantages, outstaffing still has some risks. Luckily, there aren’t many of them.
The most critical issue that needs to be resolved immediately after the outstaffing procedure is communication and coherence of interaction between the customer company and the provider. And suppose a communication system is not established between the management of the customer company and the outstaffer. In that case, the staff may not promptly receive instructions and recommendations on work. This can cause some delays, and as you know, time is money.
Another risk associated with employees outside the company’s staff is the negligent attitude of employees to the tasks performed. In addition, the division into full-time and outstaffing employees can negatively affect the quality of the work performed. Out-of-staff workers may lose motivation due to the lack of benefits and indulgences that permanent staff have.
Why do companies use outstaffing?
To begin with, let’s pay attention to what services are often taken out for outstaffing:
- Administrative Staff
- Finance specialist middle level
- IT specialist
Although, in general, outstaffing applies to any field of work, both physical and mental tasks.
And they turn to this method on the following grounds:
- Hiring new employees for some positions necessarily implies the passage of a probationary period to prove the declared level of professionalism in work. Not every leader wants to deal with this.
- When a firm plans to expand, it may need employees in other regions or countries before opening branches. A convenient solution is to use outstaffing.
- One of the main reasons is it’s profitable. The entrepreneur saves on wages (although not always), workplace arrangements, tax calculations, and other points.
- Outstaffing is used as an opportunity to reduce staff without losing the best professional team.
- If outstaffing is not regulated by the state, entrepreneurs avoid many difficulties with inspection services regarding the organization of personnel work.
How do outstaffing services affect the competitiveness of companies?
By transferring employees’ salaries under an outstaffing agreement as part of the remuneration for agency services, production costs are reduced, and the tax base is reduced.
The investment attractiveness of the business increases as the share of profits in terms of the number of own personnel of the company-consumer of outstaffing services grows.
The costs for the work of the personnel service are reduced because the employees of the outstaffing company are engaged in the selection, registration, and maintenance of personnel records management.
The ability to legally use the simplified taxation system with the disposal of the state exceeding the limits dictated by the tax laws.
Freelancers do not need time to adapt and learn because we are talking about the same people in the same workplaces.
If your company is tasked with increasing business profitability, reducing personnel costs, and increasing productivity, use professional outstaffing services. When choosing a provider, pay attention to the company’s experience in the market and the work experience of specific specialists assigned to the project for your organization; read the reviews of those who have already used outstaffing.
For companies ordering outstaffing services, this form of cooperation can be an effective solution to increase the attractiveness of companies to various investors. This is due to a significant reduction in costs associated with staff training, hiring, accounting, and paperwork.
Thanks to such savings, it is possible to significantly reduce costs, significantly improving the company’s financial performance. This will make it more likely to attract investments, allowing the company to stimulate its development and further growth.
Advantages and disadvantages of outstaffing for an employee
Pros for the employee
Official employment with all the issues accompanying this concept is assessed as a definite plus.
The service provider, by concluding an employment contract, legally becomes an employer that provides:
- labor and social guarantees;
- stable salary payment;
- payment of taxes and contributions to funds;
- order in the documentation (including tracking permits and migration documents).
Cons of outstaffing for an employee
- A bad outstaffer can develop a variety of schemes to get rich at employees’ expense: non-payment of taxes, withholding salaries for allegedly violated clauses of the contract, and so on.
- “Leased” employees are often deprived of certain benefits the former employer provides for established positions. Many people note the impossibility of career growth and a small salary.
- Frequent job changes and the need to get used to new conditions and changing functionality. In general, the lack of the notorious “confidence in the future” leads to a loss of motivation.
Outstaffing has become an excellent form of management that helps cope with difficulties during a crisis. Outstaffing helps reduce the company’s expenses and optimize its income, affecting the favorable formation of corporate relationships.