Outsourcing. Can It Facilitate Savings on HR Costs

1. Can you guess from the service fee amount that the contractor is unreliable

2. What are the criteria to choose the outsourcing company

3. How can you control the employees that you do not employ

To reduce the costs, companies outsource non-core functions, for instance: accounting and HR record-keeping. Employers choose outsourcing as an alternative to full-time employees, as they believe that it will solve all problems and is affordable on top of that. Moreover, potential contractors will say the same thing, and yet affordability is not synonymous to good quality. This piece will help you understand whether outsourcing will work for you, when you should not save on outsourcing, where to find an ideal provider, and how to control it.

WHEN DO YOU NEED OUTSOURCING 

Outsourcing will be helpful when the company needs to find the resources unavailable thereto promptly. For instance, you need to check whether the HR records of a company that has just joined the holding are OK. In addition, outsourcing will help when the accounting department fails to handle the load resulting from a surge in the number of counterparties. Outsourcing the processes will help your company save time, effort, and money on the recruitment of highly competent staff. Furthermore, you will not have to deal with such processes as recruitment of full-time employees, calculation of taxes, payment of charges, etc. Another reason why outsourcing may be necessary — the company might need the expertise that it does not have. For instance, it needs know-how in state-of-the-art information technologies or competences in tax reporting. In this case, it is easier to engage external professionals who will share their knowledge and warn about the pitfalls. Besides, outsourcing will ensure better results in the area that is not a core business line for your company. A company needs outsourcing when it doesn’t want to do someone else’s job. The provider will let you focus on the development of your core business line and your full-time employees will have more time to address challenging and non-standard tasks. Outsourcing will not help unless the company has lean business processes. Outsourcing providers are well aware of the fact that everyone can be affected by force majeure. They are willing to accommodate their customers when the situation is difficult indeed. However, it is crucial that force majeure does not turn into your business style, when full-time employees underperform or are used to doing the job at the very last minute, send the documents the night before the deadline for presenting financial statements, or want to get the solution on the same day when the relevant task was set.

WHY IS OUTSOURCING NOT INVARIABLY CHEAP

As a rule, outsourcing proves less expensive than hiring a full-time employee: outsourcing companies have processing centres in the regions where the labour costs are lower than in big cities due to the economy of scale, automation and standardisation of the processes.

But this is not a magic wand that will ensure major savings on HR costs. If a provider offers services that are times as cheap as your company’s costs per one full-time employee, it should give you pause. 

1. A provider will attach a pile of addenda to the agreement that you have previously signed stipulating the things it will not do. It is the customer who will have to address these tasks. In the end, the corporate customer will get no benefit or will have to pay more for the provider’s extra services than for the recruitment of a full-time employee. 

2. A mala fide contractor may hire novices or incompetent employees who have low wage expectations. This affordability will convert into the risk of errors for the corporate customer. 

3. The contractor may use sketchy employment schemes. There are companies that evade taxes and refuse to make employment agreements with their employees. It is difficult to demand proper work from an employee that is not officially employed. This is why the tasks outsourced by the corporate customer may fail to be accomplished in a timely manner or may be accomplished with errors. Major providers value their reputation and do not use any illegal schemes in their work.

This is why when choosing the contractor, prioritising the affordability of its services is a bad outsourcing practice.

HOW TO CHOOSE THE OUTSOURCING PROVIDER

When choosing the provider, study the market and make up a list of potential vendors. For each of these vendors: 

1. Analyse the company’s market position. 2. Make a file on the company’s financial performance, its involvement in inspections and litigations. Exhaustive information about the counterparty based on 34 sources can be retrieved from the “Counterparty Check” service. 

2. Request the information about the relevant experience, review the references in public sources, talk with former and existing customers. 

3. Check whether the company is included in the industry rankings. 

4. Find out the provider’s response time, how soon can it accomplish the task assigned thereto. 

5. If you have special project management requirements, make sure that the vendor has the necessary resources. 

6. Find out whether the provider will be able to expand the team if the scope of work increases

7. Find out whether the company has a quality control system, has appointed the responsible officers that can be contacted in a situation when the service quality fails to meet your expectations. 

8. Check the responsible employees’ expertise and skills. Request the data on professional certificates, education, and foreign language skills as appropriate. Invite both the sales manager and the experts responsible for addressing the relevant tasks to the meeting. Meeting with the employees who are immediately responsible for the services will enable you to evaluate the contractor’s professionalism. In certain situations, it is critical that the provider shares the customer’s approaches and values. For instance, when outsourcing the recruitment of new employees, the outsourcing company should find the candidates that both are competent professionals and conform to the corporate customer’s company spirit to the fullest degree. Prior to signing the agreement, analyse whether you have reached an understanding or you feel like you are not speaking the same language. Ask questions about the challenges to expect from future cooperation. Ask for examples of the problems that the provider has encountered. Try to find out how the provider resolved them.

HOW TO CONTROL AN OUTSOURCING COMPANY 

In order to control operational risks, make an SLA with the provider to fix the requirements to the contractor’s performance: 

• expected scope of the tasks to be processed;

• requirements to work products; 

• acceptable number of errors / defects; 

• task accomplishment and response time; 

• promptness with responding to customers’ letters and phone calls; this is particularly important for providers from other regions in a different time zone; 

• reporting frequency: daily, weekly, or monthly. 

If you are unhappy with the provider’s performance, you can always find a new one, but this process involves certain difficulties. When choosing a new provider, you will invariably have to hold a new tender, brief a new team, etc. Keep the information on the other vendors that took part in the tender, but failed to win.