What is the essence of outstaffing
Outstaffing is the re-registration of employees in the staff of another company. There is a company that needs specialists; an outstaffing organization is ready to provide such employees. And some people want to work under similar conditions.
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 enters into an agreement 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. Companies with at least 100 employees mainly use Outstaffing. The service is also popular among startups who want to quickly get the specific experts they need for development, which are difficult to find in any other way.
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).
IT outstaffing is the provision of technical specialists (IT direction) for temporary work at the client’s office. At the same time, the specialist himself remains registered in the staff of a specialized external organization, which in some cases is reported directly by the client company. The remuneration of labor and the necessary tax deductions are made by an external organization in whose staff the employee is listed.
Outstaffing of IT personnel is used when a company needs an employee for a specific project but cannot attract a specialist or there is no such staff unit. Also, the motive may be exceeding the limit on the number of staff (relevant for representative offices and branches); it is planned to reduce staff without reducing the number of staff, and a long-term replacement of one or more employees is required.
Some companies use this service to start doing business in another country without resorting to legal registration at the initial stage. And others, in this way, optimize the costs of personnel and accounting, other regular costs.
Who is IT outstaffing suitable for?
- For example, IT companies that need to strengthen the team or test hypotheses develop a new feature and look at user reactions.
- Those who do not have enough hands to develop digital products in small IT department companies that want to implement narrowly focused information technologies and full-time specialists do not have such experience.
- Companies that do not have time to launch a project on time or want to speed up work processes for a quick return on investment or fix “lame” business processes.
- When a project is urgently needed.
Benefits of IT outstaffing for business
Attracting high-level IT professionals
Regular employees do not always have the required qualification or are not universal specialists capable of solving any IT problem. Also, the employing company often does not have the opportunity to improve their capabilities, which takes time and money, or to search for personnel independently.
Reducing the burden on the HR department
Part of the scope of work is removed; it becomes possible to optimize and reorganize it on an organization-wide basis (especially relevant for enterprises with a geographically distributed structure).
Increasing the investment attractiveness of the company
The enterprise’s income in one staff unit increases after the withdrawal of specialized IT specialists to a separate organization. Staffing optimization ensures the redistribution of fixed costs into variable cost items. This improves the state of the balance sheet, reduces liabilities, and makes the business more attractive to investors and creditors.
Permanent availability of services
Unlike outsourcing, specialists involved under the terms of an outstaffing agreement are constantly at the workplace in the client’s company. This means that there are no acute problems with the maintenance of IT services, and business processes do not stop at the most inopportune moment.
Improving the efficiency of IT infrastructure
There is an opportunity to control and plan costs; there are no overpriced costs for launching new projects and implementing innovative solutions. Thanks to this, the productivity of the work of the information department and the entire enterprise increases.
The client is guaranteed to receive the services he needs and does not disrupt the schedule for launching new projects. The customer is insured against a situation where a person can leave suddenly: firstly, he is bound by an agreement from the outstaffing company, and secondly, the provider of such services always has worthy candidates, even in case of any force majeure. The problem with the search for rare frames has been solved.
Reducing the cost of maintaining staff
First of all, these are the costs of the accounting and HR departments, from which a significant part of the functions is removed. It also reduces the cost of stationery, equipment, software, organization of corporate events, payment of various bonuses and bonuses, corporate training, etc.
Flexibility in personnel management
The company hires as many people as the current volume of work require. Specialists do not stand idle if they are not loaded, and if the number of tasks increases, you can quickly strengthen the team, even if a corporate policy does not allow further staff expansion. If an employee, for some reason, does not fit, a replacement is selected for him free of charge.
An increase in expenses displayed in the balance sheet, which means a decrease in income taxes
Lack of administrative and financial burden on the company with the actual management of employees.
Reduced risks of insurance and other unforeseen events with personnel
Removal from the company of obligations in labor disputes with employees.
No need to interact with regulatory authorities
The intermediary bears all responsibility for the provided employees. All possible sanctions and fines related to the timely payment of salaries, tax deductions, visits of the labor inspectorate, and so on, fall on the shoulders of the provider company.
Synchronizing the leading development team and the outsourced part of the team is the most significant advantage of outstaffing. Given the importance of keeping everyone involved in the process on the same wavelength, synchronization is critical for long-term, multi-stage projects with ever-changing requirements and goals. The outstaffing model provides a more dynamic development process with increased scalability and consistency of effort. Another benefit of synchronization is the sense of shared responsibility between core developers and outstaffing developers.
Communication is probably the most challenging thing about outsourcing. All people sometimes misunderstand each other, especially when information is passed through several people in a chain. The involvement of outstaffing optimizes the interaction between all participants in the process, eliminating intermediaries because team members can communicate with each other directly.
Transparency and control
Clarity and transparency are also higher when using outstaffing because you, as a client or product owner, have more information about the project’s progress.
With the outstaffing approach, both external and internal developers have unified repositories that provide centralized bug tracking, allowing for a more frequent iteration cycle.
All this brings much more trust to the developers and eliminates the doubts that sometimes arise when outsourcing development.
Transparency creates productive team dynamics based on superior accountability. This can be critical in maintaining a healthy and skilled workflow across the entire team.
A consequence of increased accountability is that participants share responsibility for the overall quality of the development process and its subsequent outcomes. Shared responsibility promotes alignment between core and outsourcing teams. Everyone acts under the motto: “we are in this together,” contributing to more productive and well-coordinated teamwork. This creates a more hands-on collaborative approach that increases the team’s overall scalability.
Development process scalability
One of the essential elements of managing any development team is its ability to scale with the project’s current needs.
What does it mean? Sometimes you need to expand your team but don’t have the time or inclination to handle all the interviews and administrative work. In addition, you need specialists whose services are either expensive or difficult to find. This is where outstaffing is the most effective solution, allowing you to add members to your team by focusing on core business needs.
With team expansion through outstaffing, you don’t overwhelm your current developers with additional tasks to complete (which prevents the risk of burnout), but the work doesn’t stop either.
What are the disadvantages of IT outstaffing
Financial risks in cooperation with an unscrupulous contractor
For example, a contractor may unexpectedly raise rates for outsourced workers or demand payment for renewing a “lease.” Therefore, it is essential to contact proven companies that have been on the market for a long time. These players value their reputation and are ready to provide feedback and recommendations from genuine customers.
Managing a hired employee’s actions lies on the customer’s shoulders. Hiring developers for outstaff is attracting people to your team under your leadership.
Onboarding and task execution control, in this case, is entirely in the hands of the client.
It would be best if you had a sufficient understanding of your IT processes and tasks for such a choice to prove effective. When the IT department of the customer does not have enough competence, or there is a task to take off the entire scope of IT tasks, it is better to prefer outsourcing services.
Employees of the contracting agency are not loyal to the company.
As a result, they may be less involved and not produce the desired effect because they work for another firm. It is in the power of the company-customer of the outstaffing service to influence this. A temporary employee should also be immersed in the company’s culture and introduced to its principles and values. Take advantage of this to showcase the strengths of your HR brand.
Danger of burnout of specialists
For its permanent staff, the company often offers various incentives and bonuses, while freelancers lack such motivation, which leads to burnout. To mitigate this risk when choosing an outsourcing provider, look for employee reviews, look at the information in counterparty verification services, and find out what motivation methods, other than financial ones, exist in the company.
The risk of incomplete closing of the application and the inability to influence the selection of personnel in the mass selection
To protect yourself, pay attention to the foundation date of the outstaffing company and the number of branches or partners in different cities. The wider the company’s presence, the greater the chance it will be able to qualitatively close a large request for personnel or find a replacement if necessary.
Problems in communication with the employee
In cases where communication with the staff goes through an intermediary company, it takes him more time to delve into the project.
IT outstaffing as a service is provided on the terms of an agreement that describes the rights and obligations of the parties. The client receives officially registered employees, highly qualified and ready to start work immediately. Tax and social payments for them are made by the principal employer; he is also responsible for compliance with the norms of the current legislation and is engaged in quality control.