Why Outstaffing is Important for a Company's success

Outstaffing allows you to solve the problem of attracting a specialist in a few days. Reduce the company’s administrative and financial burden while maintaining direct employee management. Reduce the risks of insurance and other unforeseen events with personnel. Remove from the company obligations in labor disputes with employees.

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What is outstaffing?

Often, at some stage in the development of a business of any size, its owners and participants face a new problem for themselves. You need to solve various tasks or perform types of work for which you need to involve a third-party contractor or even a whole team. But it is impossible to hire such personnel in the company’s staff, or it is simply unprofitable for several reasons. For example, we are talking exclusively about project work, so it makes no sense to hire employees.

The best solution is to contact specialized companies and order an outstaffing service.

The essence of this service is the involvement of employees without registering them in the state to perform various work for the customer, carried out within certain types or functions of his entrepreneurial activity. Specialized outstaffing firms provide selection and employment of appropriate employees.

Outstaffing appeared in the USA in the 70-the 80s of the last century. However, it is believed that Japanese business people became its progenitor. Be that as it may, there is only one reason for the appearance of outstaffing – the desire to save money. The prerequisite for its formation was the economic downturn, which did not allow companies to maintain large staffs. And the fact that 30% of the working time of an average American company was spent on processing personnel records made us invent such a service as outstaffing.

The service concept is a symbiosis of personnel leasing and outsourcing. Outstaffing involves the removal of an employee from the client company’s staff and his registration in the contractor company. Despite these formalities, the employee works and performs the duties of the client company. Moreover, depending on the agreements, the employee can work on the territory of the customer company. With the help of outstaffing, companies have increased the number of their employees without the undue burden of formal procedures and loss of productivity.

When is outstaffing required?

Outstaffing of personnel is relevant in several cases:

The customer does not intend to burden himself with the additional burden of extra payments to selected employees and the responsibility of deductions to funds and the amount of taxes in this regard;
The customer needs to release the personnel department and account for part of the load. Accounting services and outstaffing personnel records are assigned to the provider company. Such a move also reduces labor disputes among employees;
The customer, who turned to a specialized outstaffing company, intends to minimize the risks of possible consequences of inspections by various authorities and regulatory authorities;
The customer does not want to “inflate the staff” at the expense of employees or temporary workers on probation;
The customer would like to remotely involve a specialist located in another region to solve problems, but at the same time, it is not advisable to open a representative office in it for any reason;
The client intends to use the services of foreign citizens.

It should be noted that representatives of various businesses order such services. Often people turn to outstaffing companies in search of accountants, designers, CEOs, IT specialists, engineers of multiple profiles, security specialists, and many others.

Differences between outstaffing, outsourcing, and leasing

The concepts of “personnel leasing,” “outsourcing,” and “outstaffing” are often confused, since all of them, to one degree or another, describe technologies for attracting third-party workers to solve the company’s problems.

However, outstaffing, in a certain sense, is the opposite procedure of outsourcing since, in this case, the employee continues to work in his place but is removed from the enterprise’s staff and registered in another organization. At the same time, he regularly receives a salary and counts on official registration and social guarantees. With outsourcing, the specialist performs his duties, remaining on the territory and subordinate to the contractor, solves a specific problem, and receives remuneration by the amount of work performed. Thus, the client transfers to the outsourcer, not an employee, but non-core functions for the company.

Unlike outsourcing, personnel outstaffing services are documented differently. If, in the first case, the basis for the provision of labor is the contract concluded between the customer and the outsourcer, then in the second case, the outstaffer formally registers employees at his place. Thus, when outstaffing, the employee officially has no legal relationship with the client: all obligations to him are fulfilled by the agency that sent him.

Finally, the critical difference between leasing and outstaffing personnel is the mechanism for selecting and providing labor. When leasing, the agency independently searches for employees with the required qualifications, concludes contracts with them, and transfers them to the customer; The client can even keep the most experienced specialists from among them through official re-registration. In outstaffing, on the contrary, we are talking about operations with personnel already at the customer’s disposal: the company outsources its employees.

Therefore, an entrepreneur who wants to use new personnel management technologies should clearly understand what outsourcing and outstaffing of personnel are, what are their advantages and main differences, and why mixing these concepts can lead to an erroneous interpretation of the terms of the contract, and, as a result, to labor conflicts, fines and other undesirable consequences.

Relationship between the outstaffer and the customer

The relationship between the outstaffer and the customer firm that needs employees is formalized through a staffing agreement.

All conditions under which an employee is accepted come from the customer. He sets their wages and appoints the number of possible bonuses and compensations. The task of the outstaffer is to find good personell who could constantly be ready to solve the different needs of clients. For employees, personnel and accounting records are maintained strictly within the framework of Russian legislation. An employment contract is concluded between the outstaffing company and each employee. It can be urgent (only for the duration of the agreement for the provision of personnel to the customer) or indefinite – if the specialist is precious, and it is assumed that he will be constantly provided with work.

Outstaffing is not a tax evasion scheme but a legal mechanism for optimizing company expenses. Taxes on employees are paid by the one who is supposed to: the organization in which the employee is employed (that is, the outstaff provider). The amount of taxes is included in the customer company’s costs when agreeing with the provider.

What are the general benefits of outstaffing

The use of this service provides the company with many advantages:

Decrease in the number of employees in the organization. The official staff of the company is significantly reduced because, formally, the team works for another employer;
Simplifies the HR process. The document flow of the company is reduced, and the load on the accounting department is noticeably reduced because the business partner is responsible for the design and financial support of the personnel;
The category of the taxpayer is preserved. By reducing the staff, the enterprise retains the status of a small enterprise by limiting the maximum number of employees. This allows you to use the most profitable system of tax deductions;
Optimization of the company’s costs. Firstly, the dismissal of several employees leads to a decrease in the payroll. Also, the prices of social and tax deductions are reduced. Secondly, the customer periodically transfers payment for services to the agency instead of multiple prices for each employee;
Simplifies the registration of foreign personnel. Employment of a migrant is associated with the need to collect many documents. This causes downtime. The services of a professional contractor allow you to quickly solve this problem because the outstaffer promptly generates a package of necessary certificates and permits;
The burden on the accounting department is reduced since it is not necessary to calculate and accrue wages to rented workers to pay taxes for them;
Outstaffing of recruitment services allows you to reduce the cost of finding and retaining valuable specialists;
Thanks to the rental of labor, unpopular vacancies can be quickly filled;
The company does not need to resolve labor disputes since the outstaffer is involved in scheduling, payroll, and other potential conflict situations;

Reduces the likelihood of problems as a result of checking the company by migration or other third-party services;
The enterprise can implement resource-intensive or third-party projects without expanding the staff by searching for and registering new employees;
As a result of the optimization of personnel and staffing, the profitability of the company as a whole increases;
Legal and administrative responsibility for the leased personnel passes from the enterprise to the outstaffer.

General flaws of outstaffing

The customer cannot influence the quality of work;
Non-staff employees are not required to comply with internal labor regulations;
The customer cannot apply disciplinary sanctions to such employees;
If the employees do not meet the qualification requirements, the problem can be solved only through the outstaffer. Since it is considered his duty to provide an employee with the required qualifications and not be responsible for the quality of work, the requirements for their capabilities should be specified in the contract for the provision of employees.
The loyalty of workers to an enterprise that is not their official employer may be less than acceptable;
In the labor collective, conflicts and contradictions between the company’s own and rented employees are possible;
The overall security of the company is reduced, and the risk of information leakage due to the actions of employees who are not obliged to keep commercial secrets increases;
Difficulties arise in quality control of work since rented employees are formally subordinate to the outstaffer;
If different outstaffers are engaged in other areas of activity, the company’s management may lose control over the situation;
The company’s personnel costs are increasing, as it must pay not only the salary of the hired workers but also the remuneration of the outstaffer.

Pros of outstaffing for the employer

Increase the expenses shown in the balance sheet (and, as a result, reduce taxes on profits).
Reduce staffing costs for stationery, equipment, software, and consumables. Prices are significantly reduced in the accounting and personnel departments, which lose some of their functions. In our practice, small companies often wholly get rid of HR. The outstaffer still has a comprehensive enough staff to meet any needs.
Provide flexibility in personnel management. The amount of labor corresponds to the actual amount of work. Employees are not idle if they are not busy. At the same time, the possibility of rapid expansion is also preserved, mainly if an IT department is recruited.
Facilitate the task of finding valuable personnel. Outstaffers usually already have them; they value them. Rubrain, for example, specializes in senior programmers and top IT professionals with an extensive knowledge base. In the free labor market, such experts cannot be found, and if there is a need for a specific list of skills, you can wait months. Outstaff allows you to solve the problem of attracting a specialist in a few days. With this service, the search for developers is much faster.
Reduce the company’s administrative and financial burden while maintaining direct employee management. This is especially true for startups with small IT products that have little experience yet and large firms that want to cut some of their managers.
Reduce the risks of insurance and other unforeseen events with personnel.
Remove from the company obligations in labor disputes with employees.

Reducing the cost (including time) for attracting and servicing personnel leads to a decrease in the price of each person-hour of work of the company’s employees. This leads to a decrease in the cost of manufactured products and, as a result, an increase in the organization’s actual (non-accounting) profit. That is why the outstaffing of IT personnel and office workers has been successfully practiced in Japan and the USA for over 50 years.

Cons of outstaffing for the employer

Skilled workers have low interest and are not motivated, as they understand that the work is temporary.
The impact on staff is reduced as workers rarely hold on to temporary jobs.

Pros of outstaffing for the staff

Official employment, complete social package.
Receipt of wages in the amount that a full-time employee receives when performing the same work.
There is no need to look for a job independently; a recruitment agency does this.

Cons of outstaffing for the staff

The work is temporary, which means there is no confidence in the future.
Career growth is minimal.

Conclusion

It is obvious that other things being equal, additional competitive advantages are obtained by enterprises that actively use modern personnel technologies, which include outsourcing and outstaffing in personnel management. Thanks to such simple and effective solutions, you can save the company’s money and resources, optimize business processes, reduce the number of non-core employees, simplify accounting operations, and simultaneously ensure you get the workforce necessary to solve current production problems. Therefore, such tools must be in the arsenal of an entrepreneur who will build a successful business.

Why Outstaffing is Important for a Company’s success