Outstaffing vs Outsourcing: Getting Others to Do the Work

The notions “outsourcing” and “outstaffing” are often confused. Let us see what is the difference between these tools, when a company needs outsourcing and when outstaffing, when these solutions are beneficial and vice versa. Galina Shablinskaya, Deputy General Director for Customer Relations, BDO Unicon Outsourcing, shares her insights.

Outsourcing is a modern tool to improve the efficiency of a company. With its help, entities delegate their non-core functions to a third-party contractor specializing in rendering such services. This allows the customer to focus on its key business processes. While outstaffing is the form of labour implying attraction of salaried employees from a third-party entity for a particular period. Also, owing to such a format of interaction, the employer can redeploy its employees to another company — the outstaffing one.

In the former case, the provider assumes responsibility for the performance of the overall scope of tasks set. In the latter case, the company gets a contractor who is not responsible for the quality or result of their work.

Let us say, under the outstaffing contract you are provided with an accountant who will do what they are told or stand still if your manager has not arranged their work. And under the outsourcing contract the provider will arrange the accounting department for you, which will maintain accounts, process advance reports, run payroll calculations in accordance with the Russian legislation.

Moreover, a company shifting to outsourcing may request “implants” — provider’s experts who will work at the client’s office. This option is typically used only out of the fear that:

• employees will not sit side by side and it will be impossible to control them or

• “outside” employees will steal the company’s data.

However, the providers having been in the market for many years treasure their reputation and tightly control all the processes related to the information security of their clients. For them, these are fundamental financial and reputational risks. For this reason, one can easily do without “implants” and save one’s budget.

But there are occasions where the customer has too many documents that need to be regularly processed. In this situation, periodic presence of the provider’s employee at the office can be reasonable.

WHEN SHOULD ONE CONSIDER OUTSOURCING AND WHEN — OUTSTAFFING?

Companies of virtually any industry or size can outsource their functions. An opportunity to focus on the development of the core business processes of the enterprise is relevant to all managers. However, the key reasons can differ.

For example, smaller businesses can barely afford hiring a highly-paid expert. It is easier for small companies to seek expertise from the external provider.

For medium-sized enterprises, the key issue is reliability as well as best practices in business process arrangement, regulations and procedures that can be implemented by the outsourcing company. Basically, when a small enterprise is transformed into a medium one, the medium one — into a large one, it needs help in forming its business processes correctly, setting up an efficient document flow and functioning of its information systems.

Large businesses are interested in scalability, the possibility to quickly hire or downsize the staff maintaining the non-core functions, such as accounting or HR record management, and scale economy. Any manager wants to be sure that all their documents are executed in accordance with the legal requirements, accounts are filed and taxes are paid in due time. Nobody wants to be suddenly fined or notified of the office tax audits. A large outsourcing company, insuring its risks to clients, is ready to provide such assurance.

Companies turn to the outstaffing services in order to transfer their responsibility for the labour relations with employees (legalization, HR record management, payroll payment) to another company. Outstaffing of overseas personnel is very common in Russia. Since to hire a foreigner and to keep their records, one should be familiar with the migration legislation peculiarities, the lack of experience in hiring foreigners may result in heavy fines for each employee, which includes suspension of the entity’s activities.

In addition, thanks to outstaffing the employer can increase the number of employees with reserving the company’s right to use the simplified tax system (STS). If multifunctional workers are hired in such a format, employers save themselves the trouble of paying any labour remuneration fees forever.

POTENTIAL PROBLEMS

As early as at the stage of making a decision to outsource their functions, companies fear that their business processes will be changed. Managers are simply not prepared for them.

Outsourcing is work to rules, that is, all processes have their descriptions and deadlines. However, far from every company has organized its internal procedures in accordance with some rules. When shifting to outsourcing, the provider takes a survey, detecting the incorrectly organized processes. The provider can offer an optimal architecture of the accounting system and updates to customize automated processes and reports. Any developments may entail changes of the related processes.

Communications are also changed: as the whole company is responsible for the process, rather than a colleague or a group of colleagues, the information transfer channel can be changed, a single task-setting tool can be used.

In view of this, outsourcing does not suit everyone. For those who consider outsourcing as a tool just to “cut down”their expenses fast, resorting to a provider will actually yield no major benefits as compared to a remote financial service. But those looking for ways to optimize and to improve the internal business processes, to enhance their transparency and manageability, to preserve information security and to mitigate financial risks in the long term still might be interested in engaging an outsourcing company.

Certainly, inconsistency of the quality of services rendered with the customer’s expectations might also be a problem. That is why it is recommended to choose a provider working in a publicly accessible system, who will be able to unload all data required for work and to transfer the same to you in case of a relationship breakdown. Provide for such an outcome when negotiating the contract terms. Otherwise, a company will have to spend time and money on transferring the entire database to the new accounting system.

In case of outstaffing, the situation is different. Since 1 January 2016, Federal Law No. 116-FZ has been in force, prohibiting the use of agency work in Russia. That law does not forbid outstaffing, but establishes strict requirements for the same. For instance, it is determined:

• who can use the provided personnel,

• from whom and for how long the personnel can be provided,

• when such personnel cannot be used,

• for what kinds of work it can be used,

• what should be specified in the contract between the company using such a service and the company providing its personnel.

Beginning from 2020, only affiliates or private employment agency can provide outstaffing services. So, the customer should make a point of checking its counterparty.

Dealing with a dishonest contractor is fraught with severe problems. If the outstaffing company, providing employees, does not maintain HR record management, retains wages, does not ensure that its employees have the necessary documents, then it appears that the customer’s enterprise has no record of some personnel.

Thus, we see that outsourcing and outstaffing are two widely different tools which serve to resolve different tasks and have their own peculiarities. Hopefully, this article helped the readers to go into the matter.

Source: HR-tv