Outsourcing of employees is a common practice in many companies and agencies to adapt to complete work or take their services to the next level. With remote working on the rise, companies have started to outsource their services to agencies or contract workers. The aim behind outsourcing is to quickly achieve their business goals with great benefit and less loss. In the article, we will cover what outsourcing is, why companies outsource their workforce and the pros or cons of employee outsourcing.
What Is Outsourcing?
Outsourcing is a standard business practice in which companies outsource their services or functions to a third party. Outsourcing can involve a variety of operations like administrative services, HR services, Marketing services, etc.,
Companies can outsource these services in their country, to a neighboring country, or another foreign country. The main reason behind outsourcing services is to lessen their workload, finish their work quickly, and profit in less time. Sometimes, they outsource their services to get professional expertise from an expert who might not be available in-house. Whatever the case may be, outsourcing is always beneficial for both parties.
What Is Outsourcing of employees?
Employee outsourcing is defined as outsourcing employee services to third-party services. Many companies are now outsourcing employee services to reduce their HR workload, achieve flexibility, and reduce overheads. To cater to companies’ needs, the People’s Employee Outsourcing Division was formed. It’s a new and unique model to present a modern solution of employee outsourcing to companies. It acts as a “third-party service provider that recruits, hires, trains, employees as per client requirements within weeks.” It also takes care of the employee files, manages their benefits, promotions, increments, and salary, and manages other performance management issues.
It enables companies to focus on other essential tasks that increase revenue by outsourcing employee services.
The different services that are being offered as part of Outsourcing of employees are:
- Recruiting, hiring, and outplacement of employees.
- Completion of joining formalities, background checks, and verifications.
- Maintenance of personal files.
- Processing of salaries and pay packages.
- Income tax management for employees.
- Medical benefits/insurance management.
- Prerequisite handling.
- Terminal benefits management.
- Performance appraisal result coordination.
- Training needs analysis and facilitation.
- Subsidies and employees loan processing and custodial services.
- Staff surveys and motivational analysis.
- Satisfying EOBI, social security, and other workplace regulations.
- Indemnifying the organization of all statutory legal obligations.
In all, PEO works as an external HR house that hires workers to complete your work. Often, these workers are specialists or experts in their field who can do the job quickly and efficiently. This, in turn, saves your time and money, which you can use in other resources.
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Why Do Companies Outsource Their Workforce?
There are many reasons why companies outsource their workforce.
The major reason is to save money and increase their work efficiency.
Companies outsource their workforce because they get better, cheaper, and faster work done for their particular task. They can hand over tedious and time-consuming tasks that often take lots of time and effort. Thus by outsourcing, they can focus on more critical work, turning to their advantage in the market.
Some companies outsource their work to third-party services as they cannot hire in-house employees who have specialized skills to perform specific tasks.
Sometimes companies don’t want to handle regulatory requirements or obligations, and that’s why they manage all these third-party services.
Michael Hamelburger, CEO of The Bottom Line Group, shared his views on employee outsourcing. He mentioned that outsourcing different services is a cost-effective solution. As it lets companies focus on what they excel at. Outsourced IT management services have also become a trend for various SMBs as they focus on growing their business by cutting down on maintaining an in-house IT management team.
Pros and Cons of Employee Outsourcing
Some of the pros and cons of employee outsourcing are:
Pros of Outsourcing Employees:
Reduces operating costs:
Outsourcing often saves money and time rather than hiring a full-time employee, and you also get to know beforehand how much this costs and what services you will get. This will mean that you will know ahead how much you will spend and what services you’re going to get. This also makes sure that you don’t spend before your budget and get quality services simultaneously.
It helps you to focus on more critical areas:
By outsourcing small, unimportant tasks, you can focus on more important tasks that need your attention rather than working on less important ones. You can outsource small tasks or tasks that need lots of time or repeat work. This will give you more time, energy, and attention to spend on more important work.
It gives you access to a richer, wider talent pool:
Outsourcing allows you to work with specialized, experienced people in their field. Sometimes, you might not get the same specialized talent in-house that you can get by outsourcing. By outsourcing, you can get quality work from experts to help you achieve your business goals faster.
Cons of Outsourcing Employees:
Dealing with legal issues and security:
Sometimes PEO finds it hard to deal with different legal issues. They do not know all the local laws or tax compliances necessary to fill out the paperwork for outsourcing. Hence, it’s essential to ensure that the PEO you’re dealing with knows all the work’s rules and regulations.
It takes quite a while to manage payroll. Managing payroll is not an easy task. It needs expertise which not all PEOs can do. And it can be quite a work if not done correctly.
Managing employee benefits is also another task which many might not know how to do. Experienced PEOs know how to do this task, but not all agencies know how to manage the benefits of employees from different countries. This can be troublesome if not done correctly.
Role of PEO in Employee Outsourcing
Companies outsource different services to PEO to manage various complex services. PEO signs up a contract with your company to perform other tasks and provide their expertise in the HR department. Some of the services that PEO handle are:
- Health benefits
- Payroll tax compliance
- Leaves of absence
- Paid time off practices
- Workers’ compensation claims
- Unemployment insurance claims
These are some of the few services that companies outsource. Other services can include sales and marketing, cold calls, customer support, etc. This shows how important the role of PEO is in any company’s success.
Need for Employee outsourcing
One of the top priorities of companies is to expand their business and grow their client base. To achieve these two goals, they would have to outsource those tasks that take a lot of time, money, and effort.
Your PEO can retain and manage top talent to perform all the outsourced work. This gives you more time to work on other tasks.
Companies outsource their work to run a successful business model. There’s not one major reason why companies outsource their workforce. Many factors are put in place, and they all are different depending upon circumstances. Some of the common issues they tackle are:
- Reduce and control costs of operation.
- Improve the company’s focus.
- Liberate inner sources for new purposes.
- Increase efficiency for some time-consuming functions that the company may lack resources for.
- Use external resources as much as possible.
Different companies have different reasons to outsource their sources, but the end goal is to achieve their goals and finish their work quickly and efficiently. This is not something all companies do, but most companies outsource their services. They do so because they find outsourcing a more accessible and more reliable way than just hiring in-house. The task takes a few weeks internally and can be done in a few days by outsourcing because they know what they are doing and are experts in their field.
How Multiplier helps
Employee outsourcing is something that many companies will adopt soon. There will be many third-party services that will offer PEO services to other companies. Hence, it’s essential to know which is the right one for you that meets your needs and demands.
Multiplier platform offers PEO as one of their services along with 100+ local entities and legal partners for you to hire and outsource your workforce without facing any issues. We offer payroll management, benefits management all in one place. And also, take care of all legal issues, so you don’t have to worry about legal assistance. You get the benefits of all these services in one place that complies with your needs and requirements.
Frequently Asked Questions
Q. What are the risks associated with outsourcing employees?
Some of the risks of outsourcing employees include the following:
- Loss of control over work quality and delivery
- Cultural differences
- Data Security
Q. What are the advantages of outsourcing employees?
Some of the advantages of outsourcing employees are the following:
- Cost-effective opportunities for labor costs
- Specialized skillset and expertise to improve operations and services
- Flexibility in staffing
- Opens opportunities for new market
Q. What are the legal considerations when outsourcing employees internationally?
When outsourcing international employees, companies must first look into the labor laws and regulations from where the worker is located. They must ensure that details on the region’s rules on minimum wage, contracts, employment taxes, social security, and work hours are met and complied with. From there, businesses can research other legal aspects such as intellectual property rights, data protection laws, or anti-corruption regulations. Companies must ensure that all their legal bases are covered. It is recommended to seek legal advice from experts to prevent violations when outsourcing foreign employees.