Outsourcing VS Outstaffing – 2020 Guide

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What business process does not need qualified employees? All companies need good specialists, but not all have the ability to maintain a huge staff. For this reason, many Ukrainian business representatives use the services of freelancers and transfer business processes to the service of contracting companies. Detailed instruction on how to use outsourcing you can find in SpdLoad blog.

Today we’ll talk about the outstaffing service, its pros and cons. We will figure out how to implement it in Ukraine, and how personnel outstaffing differs from outsourcing.

Outstaffing Definition

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Outstaffing – renting a specialist working in a contracting company (outstaffer) to work on a project in a client company. The specialist is part of the client’s team along with other team members, his work is regulated by the managerial staff. At the same time, the client pays the contracting company for outstaffing services under the contract, and he, in turn, pays the salary to the specialist.
Outstaffing example: in a large company, in connection with the expansion of the business, it is necessary to increase staff. This need for new employees exceeds the staff plan for the year. What to do? Take advantage of outstaffing service. New employees are hired, they perform their duties in the company, working along with other employees, but in fact belong to the staff of an outstaffing agency.

The reason for this attitude is usually a lack of understanding of what outstaffing really is, ignorance of the laws or unwillingness to lose control of the processes.
Outstaffing is often provided by enterprises of various forms of ownership, except state. Clients are usually private entrepreneurs, as well as various legal entities.

Outstaffing Pros

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According to the legislation of Ukraine, the following benefits can be distinguished within the framework of outstaffing:

1. Excludes labor disputes

When an employee enters into an employment contract with an outstaffer company, and not with the customer, this excludes the participation of the customer in labor disputes relating to this employee and liability for violation of the law to him.

2. Simplifies personnel management and personnel management

Holidays and sick leave are issued by the outstaffer company. As a result, this reduces the burden on client bookkeeping and eliminates the need for separate social guarantees. Outstaffer also manages personnel documentation, administers business trips, prepares advance reports, and provides the necessary information to employees.

3. Deals with financial matters.

Outstaffer calculates, accrues and pays salaries and compensations. Engaged in the payment of taxes and various fees, such as a fee to a social insurance fund; optimizes taxation, forms a customer tax credit.

Outstaffing Cons

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The advantages of outstaffing for the company are obvious, but this service also has disadvantages.

1. Financial losses due to cooperation with an unscrupulous agency

This can be avoided if the customer selects a reliable contractor with legal rights to provide such services.

2. Outstaffing may reduce the speed of closing vacancies

Not all new employees are willing to work on an outstaff. This can slow down the employment of new employees in the company. Candidates with the potential may “get out of the way,” and the speed at which a job will close may decrease.

In order to minimize risks for the customer and the outstaffer company, and to avoid legal liability, you should pay attention to the execution of contracts:

draw up primary documentation;
focus on drafting contracts between the customer and the outstaffer company;
ensure that the contracts display real services or work;
correctly draw up internal documents of the counterparty;

Explain outstaffing processes to staff
take into account and comply with the requirements of Ukrainian legislation on outstaffing restrictions.

Outstaffing vs Outsourcing

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To understand the main differences between outstaffing and outsourcing, let’s define what outsourcing is.

Outsourcing is the transfer of entrepreneurial functions, responsibilities and business processes to another company working in this area, on the basis of an agreement.

This service increases the efficiency of the enterprise and allows you to use the released resources to develop new directions.

An example of outsourcing can be observed in the work of IKEA. The company organizes a retail business, and all other services and business processes are outsourced. IKEA practically does not have its own production, while collaborating with more than 2000 trusted suppliers. As for logistics, here the company delegated these functions to a third-party company.

Outsourcing Pros

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The main advantages of outsourcing for a customer company:

1. Increases the effectiveness of core activities

When a company gets rid of non-core functions, it gets the opportunity to focus on the main direction of its activities.

2. Allows you to not have an official labor relationship with specialists

Accounting and the legal department and others still serve the customer company, but officially they are employed by the contracting company.

3. Labor relations are prescribed in the contract

Partnership between the contractor and the customer company is regulated by the contract. All obligations and responsibility of the parties for their non-fulfillment are registered there.

4. Universality of service

Any non-core functions are transferred to outsourcing. Logistics, accounting, legal activities, cleaning services, HR management – these areas of activity of the enterprise are effectively solved by outsourcing.

Cons Outsourcing

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What are the negative aspects of outsourcing service?

1. Data leakage risk

Yes, the terms of confidentiality are officially prescribed by the parties in the contract. But, if important data leaks, it is very difficult to find out and prove that the contractor did it. Look for bona fide reputable contractors who won’t let you down.

2. Dependence on external performers

Not always the quality of outsourced partner services satisfies the customer company. And if such cooperation does not bring the desired result, the company will incur losses.

3. The contractor may become bankrupt

Like any organization, an agency can go broke. This can temporarily reduce the performance of the customer company and lead to the failure of delegated tasks.

Outstaffing and outsourcing: the difference

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A common feature of these services is their task: to minimize risks, reduce financial and resource costs for non-core activities of companies and optimize performance.

1. Type of employment relationship

Outstaffing involves providing staff with the right qualifications on a temporary or permanent basis. When outsourcing, any work or service is performed in full with the guaranteed desired result and process control.

2. Functions

Outstaffing is used when they perform complex intellectual tasks (IT services, analytics, software development and implementation, blockchain technology, Big Data analytics), in the legal or accounting field. Outsourcing involves hiring an experienced specialist (or team) who offer turnkey solutions.

3. Remuneration

Outstaffing staff benefits are no different from staff payments in the state. Outsourcing, depending on the contract, implies that employees receive piece-rate or monthly wages.

In general, the main difference between outstaffing and outsourcing is that in the first case, the contractor company temporarily transfers its employees to the customer company, and in the second case, the customer transfers certain, often non-core business functions to the contractor.