Outstaffing: what it is, pros and cons of IT outstaffing?

Today’s labor market is experiencing a real famine for qualified it-specialists. This trend has existed for many years and will not lose its relevance in 2022. Companies are forced to look for new ways of closing their needs. One of them is developer outstaffing.

What is outstaffing?

In one form or another, the outstaff model has existed on the Russian IT market for about 15 years, although the term itself is still unfamiliar to many. In the last couple of years the demand for IT outstaffing has increased because of the pandemic, which has made it clear that the representation of business on the Internet is a necessity these days and the general course towards digitalization of companies. Most often it is large retailers, financial sector, in particular banks, and insurance companies who turn to outstaffing programmers.

Briefly, the essence of this concept can be described as staff outsourcing. There are three parties involved in this process: the client, the outstaffer providing the personnel, and the hired workers themselves. Legally, it is the outstaffer company that is the employer of the specialists, and with it the labor relations are formalized. When an outstaffing contract is signed, the specialists will perform certain work for the client, while continuing to be listed with the company-provider. The latter solves all the issues related to recruitment, salary and registration of people, it also maintains all the documentation.

In this way, the outstaffer company is loaning some of its employees to another company, a kind of leasing of personnel.

The legal side

In Russia the activity of providing labor to employees is strictly regulated by law. Companies that have undergone special accreditation have the right to hire out staff on a temporary basis. A contract for the provision of personnel is drawn up between the outstaffer and the client, who needs employees. Personnel and accounting records are kept strictly within the framework of Russian legislation. An employment contract is concluded between the outstaffer firm and each employee. It can be fixed-term – only for the duration of the contract or open-ended – this is how the developers are employed at us, in Garpix, due to their constant demand.

Main advantages of IT outstaffing

Abroad, this model of cooperation has long gained wide popularity, while in Russia, many are still unclear why this procedure is needed. Traditionally, firms hired people to perform the necessary tasks in their staff, so why change anything? All the more reason to pay for the services of an intermediary.

The answer is simple, outstaffing helps the company optimize its operations.

Reducing the cost of maintaining full-time employees. First of all it is the cost of accounting and HR-department, which removes a significant part of the functions. It also reduces costs for office supplies, equipment, software, organization of corporate events, payment of various bonuses and bonuses, corporate training, etc.

Flexibility in personnel management. The company hires exactly as many people as the current volume of work requires. Specialists are not idle if they are not busy, and if the number of tasks increases, you can quickly strengthen the team, even if corporate policy does not allow further staff expansion. If an employee is not suitable for any reason, he will be replaced free of charge.

Guarantees and stability. The client is insured against a situation where a person can leave unexpectedly: first, they are bound by contract with an outstaffer company, and secondly, the provider of such services always has worthy candidates, even in case of any force majeure. The problem of finding rare staff is solved. The outstaffer company usually already has them. There are very few such personnel on the labor market, their search takes time, and if there is a need for a specific list of skills, you can wait for months. Outstaffing allows you to solve the problem of attracting a specialist in a few days.

Increase in expenses shown in the balance sheet, and therefore decrease in income taxes. Lack of administrative and financial burden on the company with the actual management of employees.

Reduced risk of insurance and other unforeseen personnel incidents. No obligation for the company to deal with labor disputes with employees.

No need to interact with regulatory agencies. All responsibility for the provided employees is borne by the intermediary. All the possible sanctions and penalties connected with the timely payment of wages, tax deductions, visits from the labour inspection and so on fall on the shoulders of the company provider.

Increasing the investment attractiveness of the company and improving its business model. Optimizing the staffing schedule ensures that fixed costs are reallocated to variable cost items. This improves the balance sheet reduces liabilities, and makes the business more attractive to investors, creditors.

Thus, the outstaffer company passes some of its employees to another company for temporary use, a kind of staff leasing.

What are the disadvantages of IT outstaffing

Financial risks when cooperating with an unscrupulous contractor. For example, the contractor may unexpectedly raise the rates for the workers involved or demand payment for the extension of the “lease” agreement. That is why it is important to turn to proven companies that have been in the market for a long time. Such players value their reputation and are willing to provide reviews and recommendations from real clients.

Managing the actions of a hired employee rests on the shoulders of the client. Hiring developers for outstaff is about attracting people to your team, under your management.

Onboarding and monitoring the execution of tasks in this case is entirely in the hands of the client. You must have a sufficient understanding of your own IT processes and tasks for such a choice to be effective. In the case where the customer’s IT department is not competent enough 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 give the desired result, because they actually 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 into the company’s culture, getting to know its principles and values. Take advantage of it to show the strengths of your HR-brand.

Danger of specialist burnout. The company often offers various rewards and bonuses for its permanent personnel, while freelancers have no such motivation, which leads to burnout. In order to level out this risk when choosing an outsourcing provider, look for employee reviews, check the information in counterparty review services, find out what motivation methods, other than financial, exist in the company. We are very concerned about a healthy emotional background for all employees, regardless of whether they work on our own projects or on an outsource company.

The risk of incomplete application closure and the inability to influence the selection of personnel in mass recruitment. To protect yourself, pay attention to the date the outstaffer company was founded, the number of branches or partners in different cities. The more widely the company is represented, the greater the chance that 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, he needs more time to get into the project. All outstaff specialists communicate directly with the customer’s team, so that the client doesn’t have these problems.

Who is suitable for IT outstaffing?

This model of cooperation is gaining momentum in our country and can even move outsourcing to the background. What kind of companies is it most suitable for?

It-companies that need to strengthen their team or test hypotheses, e.g. develop a new feature and see how users react. companies that lack the know-how to develop digital products in a small IT department companies that want to implement highly specialized infomation technologies, but lack the expertise of in-house specialists companies that don’t have time to launch a project by their own efforts, or want to speed up work processes to quickly recoup investments or fix “lame” business processes when they need to implement a project urgently.

In practice, there are ambiguous cases where it is not obvious what is the best solution – IT outstaffing, outsourcing, expanding your own staff or hiring a subcontractor. If the choice is not clear to you, please contact OutsourceIT.PRO for advice. We are always happy to share our experience and accumulated expertise.