In past decade in Ukraine such terms as outstaffing, outsourcing and leasing came into common use in HR community. In this article we will consider in details HR function of outstaffing, its advantages and disadvantages for company and its market trends of development in Ukraine. But before we delve in the peculiarities of national outstaffing lets distinguish such notions as outstaffing, outsourcing and leasing of staff.

Outstaffing, outsourcing and leasing of staff.

Outstaffing is transferring of employee from the staff of customer company to the staff of contracting company. Therewith the employee continues to work on the previous position and perform the same duties but obligations of employer toward the employee are carried out by contracting company.

The typical case of outstaffing is the following: as the business is branching out, large FMCG companies face the need of increasing quantity of employees, primarily by specialists of entry and middle level.  With that the need of additional employees may exceed planned acceptable staff number for year. In this case new employees on a constant basis perform their duties in FMCG company, work in company’s main office, absolutely feel themselves as a part of a team, but in fact they are employed by outstaffing company, not FMCG company. Likewise this will work for involving personnel for seasonal works with help of outsourcing company. For example, companies – producers of soft drinks for big promotional activity in summer need promoters and consultants who will work on beaches, in parks and other places of meeting of target audience. The number of such promotion team workers may run up to several hundreds of people in case of national coverage of promotion activity. The optimal solution for registration of work relationships with such personnel is also outstaffing.

Schematically relationships between company, outstaffing personnel and outstaffing contractor are shown in Table 1.

Table 1.

Outsourcing of personnel means involving specialists out of staff in performing non-core functions of company. Typically outsourcing is used for the most basic works that don’t need high qualification. The most popular examples of outsourcing are IT support, call-centers, security, courier services, cleaning.

When leasing of personnel employees of one company are working in other company for the duration of particular project. To put it in crude terms leasing is kind of ‘rent’ of personnel by one company from another. Leasing objects are most often highly skilled employees with narrow specialization - for example, software developers, project-managers and designers.

Advantages of outstaffing

Key advantages of outstaffing for company are the following:

-          Reducing expenses for personnel;

-          Passing legal responsibility for personnel to outstaffing company;

-          Increasing motivation and efficiency of outstaffing personnel;

-          Increasing of company value by increasing index of company’s income per 1 employee in staff.

Of course, most of all with outstaffing any company wins from reducing costs for personnel maintenance and increasing of motivation of outstaffing personnel. Let us see in details how exactly it happens.

Reducing expenses for personnel maintenance

Let’s review the main expenditure items for personnel that could be optimized using outstaffing.

• Down to -16% - united social tax for obligatory state social insurance;
• Down to -8% - compensation in money for not used vacation to outstaffing personnel in case of termination of employment relations;
• Down to -8% - redundancy payments to outstaffing personnel in case of termination of employment relations;
• Down to -4% - obligatory fees to fund of social security of disabled people.

In addition to reducing the direct costs on employees to a maximum of 36%, there is also possible a reduction of indirect costs. For example,

• Expenses for on-site staff personnel of customer in accounting, HR and legal departments due to reducing the number of people needed for personnel maintenance.

Further, when using outstaffing services the company is almost completely secured from expenses that appear in case of termination of employment relationships with outstaffing personnel and other risks ensuing. For example,

• Opportunity of no-problem quick termination of employment relationships  with outstaffing personnel (technically it is like this – outstaffing company makes civil law agreements with outstaffing personnel);
• No restrictions on types of works and categories of outstaffing personnel;
• No obligations towards outstaffing personnel prescribed by employment law code (as legal responsibility for personnel according to labor, tax and civil law is laid on outstaffing company).

Increasing of motivation and work efficiency of outstaffing personnel

Opportunity to be employed in staff is a very strong motivation itself for outstaffing personnel.

• If to speak about specialists of middle and entry level, than for them employment in staff is the same as full integration in company and becoming equal in status with other colleagues.  Often this category of employees works really hard and with high quality to use their best projects and key results as argument for their employment in staff.
• For low-skilled employees employment in staff of company is regarded as significant career growth. Consequently the opportunity to be employed in staff of company is equal to promotion to them and this is a very strong incentive for achievement of stated goals. In case of employment in staff the motivation of such employee stays on pretty high level for a long time, because now there is a task for him to justify the confidence reposed by manager who made a decision of employee’s promotion.

Besides the positive motivation and incentive for development (employment in staff = promotion, employment in staff = recognition), outstaffing personnel is also exposed to the control function of outstaffing  as it is clear that termination of employment relationships is easier if compared to staff personnel and more likely in case of serious mistake or unsatisfactory performance of duties.

            The advantages of outstaffing are obvious even without detailed analysis, though outstaffing may have some disadvantages too. The main minuses that clients of outstaffing companies name most often are the following:

• Unavailability of one coordinator of outstaffing personnel from outstaffing agency, frequent changes of coordinators. As a result the lack of accurate control;
• Professional and personal qualities of outstaffing personnel (especially when it comes to mass recruitment) do not always meet the expectation of the customer.
• Employment by outstaffing model out of company’s staff may be a barrier for new employees while recruitment process. As a result the loss of valuable potential employees is possible and decreasing of time of vacancies filling.

First two drawbacks is 100 % responsibility of outstaffing company and could be reduced to zero by assigning separate account manager for every client and its personnel and by improving the standards of quality during recruitment process. These points should be written in the agreement of providing personnel from the very beginning.

Dealing with third problem the most effective objection handling in this case is explaining to candidate that this procedure is standard for the company, that employment in staff is possible in the future and so on.

Outstaffing services demand dynamics

According to the outstaffing services demand analysis made by Promotion Staff Group of companies, 60% of large international and national companies in Ukraine are using or used in the past outstaffing services, 30% of companies have never used outstaffing and have no intention to use it in future and 10% have never used but have intention to employ personnel by outstaffing model in future. 

Traditionally most often outstaffing approach is implemented in business-processes by FMCG, pharmaceutical and banking sectors.

Also interest in outstaffing is always growing in periods of crisis and economic recession when companies face the problem of staff reduction without reducing the volume of duties. Now Ukraine once again experiences the boom of outstaffing services.

How to choose outstaffing contractor

Trend applicable to any branch of business is that as soon as the demand for a service or product begins to grow, the number of players in the market is increasing dramatically. Exactly this period the market of outstaffing is now experiencing. To choose the most optimal outstaffing contractor that won’t bring risks and will minimize possible drawbacks of outstaffing   it is recommended to follow several simple rules:

1. Explore the clients of the company. If there are no large national and international companies this should be a warning for you.
2. Learn which exactly large clients have been working with outstaffing company for the last two years. If there is no, then search for another contractor.
3. Ask for contacts of several current clients of outstaffer and get recommendations.
4. Check for how long the company has been operating on the market. Of course, it isn’t a guarantee itself but in combination with the above it is an indication of business stability.
5. Ask what additional service outstaffing company is ready to provide you in order to minimize the drawbacks of the model. For example, personal account manager, possibility to pay for services in relation to the specific aims and so on.
6. Make sure that outstaffing company have lawyers in staff. This is a fundamental point that will help to prevent tax and legal risks. The big plus in this sphere is also other employees having legal experience, their participation in developing the Ukrainian legal acts of labor, tax and civil law.

            If to summarize outstaffing is effective tool for optimization of business processes by reducing the regular staff, direct and indirect personnel costs, increasing of motivation of employees. The point of outstaffing is in keeping employees out of staff of the company and passing them to the staff of outstaffing contractor. Therewith the personnel continue to perform duties and physically stay on the territory of the customer company.