What is Outsourcing
Although not usually conceived in such a manner, for all practical and legal purposes, Outsourcing (or Externalization) is virtually identical in nature, setup, functioning and finalities as temporary staffing.
Outsourcing is often believed to be no different from temporary work, meaning in very broad terms, the exporting the payroll administration and managerial functions to a specialist third-party organization.
However, this oversimplification limits the scope and conceptual understanding of outsourcing, concealing its enormous potential as a vehicle to achieve goals in an effective and affordable manner.
Just like temporary staffing, outsourcing consists of a triangular relationship between three distinct parties and is usually applied when work organizations, for several reasons, prefer to outsource (or externalize) the management of an entire operational unit or group of activities instead of simply using temporary workers to respond to their manpower needs.
In short, outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company’s own employees and staff.
A – Employment agency worker
B – Employment agency (in the role of Employer/Contractor)
C – Client (Beneficiary of the service provided)
The employment agency worker (A) is employed by the temporary work agency (B) – the contractor, who is then responsible for accomplishing objectives that were agreed to with Client (C) – beneficiary of the service provided.
In this case, the legal employer (or employer of record) (B) is NOT ONLY responsible for paying salaries and all other employment related costs to the employment agency worker (A) BUT ALSO for directing, controlling, supervising his own workers in order to achieve whatever objectives were agreed to the with the Client (C) – the Beneficiary of the service being provided.
Benefits / Advantages of Outsourcing (or Externalization)
- Work organizations can benefit from manpower located abroad without having to hire them, deal with any red tape, take on any managerial role or take responsibility for performance or business outcomes
- Work organizations can benefit from manpower located abroad that will only consider accepting a job in another country if the Social Security and other employment related benefits and contributions are directed to their home country accounts
- Possibility to define a clear budget and establish limits to expenses
- No hassles or responsibilities, not only for with payments and other human resource administrative procedures, but also with management and supervision
- A solution for situations where manpower needs are more permanent in nature or for when it is not legal or feasible to contract staff on a temporary basis.
A large Dutch highway service station chain has a need for approximately 40 cooks to work at the canteen sectors at over a dozen service stations across the Netherlands.
They find themselves in a difficult position. Although the salary paid to a cook is quite attractive when compared to competitors, experienced cooks are extremely scarce in the Netherlands. The best cooks for this particular cuisine are Asian line cooks. However, these professionals are nearly impossible to find in the Netherlands.
There are a reasonable number of experienced Asian line cooks in Portugal with valid Residence Permits that would gladly accept the job positions in the Netherlands where wages are considerably higher. The representative of the Dutch firm would accept to sign a temporary staffing agreement with Work Supply Nederland B.V., which would allow the Asian line cooks to work as assigned workers. However, this solution does not comply with labour law regulations because the cook positions are long-term or permanent and direct management and supervision of the line cooks by highway service station is not feasible, nor really possible.
Thus, the only alternative is to use the outsourcing/externalization track since it allows for the Asian line cooks legally residing and working in Portugal to work in the Netherlands for at least 2 years. The highway service station chain benefits from having the cooks they need at their service stations, however these cooks would be managed by and under the supervision of Work Supply Nederland B.V. to whom the outsourced or externalized the services under a formal agreement.
The highway service station chain pays Work Supply Nederland to meet objectives and provide results – not simply to provide manpower.
Although the cooks are not EU or EEA citizens, EU directives clearly allow them to be posted, directives that have been supported by European Court of Justice rulings.
A large hypermarket chain established in Germany is unable to find cleaners for the more than 40 hypermarkets they own in the Northern part of the country.
They have asked Work Supply Nederland B.V. to recruit Portuguese nationals with experience working with industrial cleaning equipment. The German hypermarket chain´s intention is to hire the Portuguese cleaners directly – to place them on their payroll – that is, the Portuguese cleaners would sign German employment contracts.
During the recruitment process many of the cleaners displayed discomfort or an unwillingness in working under the employment of the German hypermarket chain. They wanted to sign an employment contract with Work Supply – Temporary Staffing Ltd (Portugal) believing it would be easier to defend their rights in a Portuguese court of law in case the employer failed on its contractual commitments and obligations. The cleaners also didn’t want to sign a contract with a German employer about which they knew nothing or make deductions to the German Social Security system believing it would make it harder or impossible to obtain unemployment benefits and fearing it could interfere with their retirement pension calculations.
The German hypermarket chain decided to acquiesce to Portuguese cleaners´ demands. Temporary staffing was out of the question because the Portuguese professionals were needed to respond to permanent manpower needs – it did not meet the requirements to be considered temporary work.
The German company and Work Supply Nederland B.V. agreed that outsourcing or externalization was the best solution.
Under this arrangement, the mother company, Work Supply – Trabalho Temporário Lda would deploy (or post) the cleaners its branch in the Netherlands – Work Supply Nederland B.V. who would then, under an outsourcing or externalization agreement distribute these workers to the different stores of the German hypermarket chain and take full responsibility, not only for all payroll and human resources administrative tasks, but also the management and supervision of the workers and supply of machines, materials, products and equipment for the cleaning activities to be carried out at the various stores.
As in the previous example, the German hypermarket chain pays Work Supply Nederland B.V. to supply the know-how and the means, machines, equipment, materials, products, etc, as well as, to meet objectives and provide results – not simply to provide manpower as would be the case of pure temporary work services.
As one can observe, Temporary Staffing and Outsourcing/Externalization share many common features – with the latter being far more extensive and all encompassing.
The share many similarities, are used for virtually the same purpose and are setup and function in much the same fashion, however, outsourcing involves far more than simply providing manpower for temporary needs.
Temporary Staffing – for specific temporary manpower needs
Outsourcing / Externalization – for long-term or potentially permanent manpower needs.