Outsourcing and staff augmentation: choosing the best solutions for business

YEAR 2023
Technology partner

Every year more and more employers resort to outsourcing and staff augmentation. Despite their widespread use, these concepts are often confused. It is time to understand the terminology, highlight the similarities, differences, pros and cons of each of the management models.

1. Outsourcing and staff augmentation – concepts, pros and cons

Both of these terms imply work with a third-party contractor, as evidenced by their common root “out” – “outside”. However, there are significant differences between these models.

Outsourcing (from the outside resourcing – “external source”) is the practice of transferring tasks and functions by a company to a contractor specializing in a particular field of activity.

You resort to outsourcing the personnel of another company, delegate certain tasks to them, concluding a contract for the provision of services, thereby getting rid of the problem of equipping workplaces, paying taxes and insurance. Moreover, the salary for personnel outsourcing services is often lower than the salary of full-time employees.

Main advantages of outsourcing:

Reduced efforts to find, hire and manage staff.
Reducing the cost of equipping workplaces.
Unloading payroll, tax cuts.
Replacing existing staff during vacations and decrees.
Attraction of additional resources for seasonal work.
Quick start of tasks.

The disadvantages of outsourcing can be problems with communication when working remotely, the difference in time zones, the risk of corporate data leakage. That is why it is important to seek services from reliable and trusted performers.

Staff augmentation, or Outstaffing (from the out – “outside”, staff – “personnel”) – a form of relationship between an employee and an employer which allows the employer to legally attract labor without registering employees to the staff.

In other words, the staff augmentation service implies the removal of personnel from the state and the transfer of authority for personnel administration to the contractor. At the same time, in fact, employees continue to work at their workplace and perform their previous functions, but the obligations of the employer are officially transferred to a third-party outstaffing company.

This tool is one of the most effective in the field of management. It allows you to flexibly adjust the number of employees depending on current tasks without changing the official staff of the company.

Advantages of staff augmentation:

Simplified personnel management system, elimination of legal problems when working with employees from other countries
Elimination of the need to deal with financial issues
Reduced payroll and tax costs
Accomplishment of large tasks with a small staff

The disadvantages of staff augmentation, as with outsourcing, can be problems with communication and staff motivation, so it is important to choose contractors with extensive experience who can foresee these situations and avoid them during cooperation.

With proper use of outstaffing, you can solve much more tasks than you planned.

Outsourcing or staff augmentation

2. Comparison of outsourcing and staff augmentation

Outsourcing:

Convenience. The client simply submits an application and pays for the services actually rendered. All other tasks are taken over by the performer.
Focus on the essentials. The customer gets the opportunity to concentrate on his core business, leaving to qualified contractor non-major issues related to employee management. Often, by focusing on key processes, you can see the efficiency increase in the client’s company.
Saving. In some cases, a company specializing in outsourcing services is able to recruit workers at lower wages than its customers.
Cost reduction. The client gets the opportunity to reduce the costs of maintaining additional specialists in the selection and management of personnel, maintaining personnel records management, payroll calculation and payroll tax allocations. When outsourcing is involved, you do not need to keep records of vacations or sick leave payments – all personnel issues are handled by the outsourcing company.
Increasing efficiency. Staff outsourcing companies recruit, adapt, and manage effectively, resulting in an overall increase in the quality and efficiency of work.
Risk reduction. Due to the lack of labor relations with the staff, the customer is relieved of the responsibility and obligations of the employer to the employees involved in the project. It also significantly reduces the risks associated with accidents and injuries at the work site.
Flexibility. The client gets the opportunity to quickly change the number of employees involved in the project, without the cost of reducing and termination of staff.
Transparency. Working with an outsourcing company, the client, in most cases, receives a fixed price for services.

Staff augmentation:

Convenience. Staff augmentation allows you to reduce the number of employees while maintaining the actual one. This is relevant for clients using the simplified taxation system.
Focus on the essentials. Concentrate on the core business and increase the competitiveness of the company.
Cost-effectiveness. Allows you to reduce the cost of personnel service and accounting, and unload these units at the height of the season or with an increase in the volume of work performed.
Legal registration of employees. Ensure legality and legal support when working with personnel.
Cost reduction. Make one transfer of funds to the agency instead of multiple transfers to employees.

It can be seen that the difference between outsourcing and staff augmentation is significant. The choice in favor of one of the models should be formed depending on the goals pursued, but the advantages of any of the practices are undeniable.

3. The most demanded industries for outsourcing and staff augmentation

Contrary to the common stereotype that outsourcing and staff augmentation are used exclusively by IT companies, the market for industries using these services is growing day by day.

According to the latest data, the leading sectors in the field of outsourcing and staff augmentation are IT, accounting, logistics, management and personnel search.

Outsourcing and staff augmentation of personnel are actively used not only by large corporations, but also by small businesses.