Pros & Cons of Employee Outsourcing 2023

July 23, 2023
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Employee outsourcing, i.e. hiring employees from foreign countries, has proven to be a powerful tool for businesses to tap into a vast talent pool and enhance their ability to facilitate seamless entry into new markets. 

Top-tier companies such as Google, IBM, Wipro, American Express, Microsoft etc. have been leveraging employee outsourcing, particularly in countries like India for its tech expertise and cost efficiency. 

In this blog post, we will address what is employment outsourcing and why businesses have been increasingly investing in outsourcing staff. 

What Is Employee Outsourcing?

Employee outsourcing is the business practice of hiring employees from a foreign country to save costs and optimise operations. For instance, many US companies hire tech talent from India or get data entry workers from the Philippines due to the availability of a skilled workforce at a cost-effective rate. 

But it isn’t as easy as getting a person to work remotely and making a wire transfer to pay their salary! 

Why Do Companies Outsource?

Why Do Companies Outsource?

Companies are increasingly opting for outsourced employees due to several compelling reasons:

  1. Cost savings: By outsourcing certain roles or functions, companies can avoid expenses associated with recruitment, training, employee benefits, office space, equipment and ongoing employee management. This cost-effective approach allows businesses to allocate their financial resources more strategically and maximise their return on investment.
  1. Flexibility and scalability: Companies can easily adjust the number of outsourced employees based on fluctuating workloads or project requirements without the need for extensive hiring or layoffs. This scalability enables businesses to optimise their workforce and maintain operational efficiency.
  1. Access to specialised skills and expertise: Outsourcing allows companies to tap into a pool of specialised skills and expertise that may not be available internally.  By outsourcing tasks to these experts, companies can ensure high-quality work and drive innovation.
  1. Focus on core competencies: By delegating secondary non-core tasks to external experts, companies can enhance operational efficiency, streamline processes and concentrate on strategic initiatives that directly contribute to their competitive advantage. 
  1. Faster time to market: By leveraging the expertise and resources of outsourced employees, businesses can accelerate development cycles, optimise production processes and meet project deadlines more efficiently. This speed-to-market advantage can enhance competitiveness and customer satisfaction.
  1. Access to a global talent pool: Companies are no longer limited to local talent.  They can engage with highly skilled professionals from around the world. This global access to talent provides businesses with a broader range of options and allows them to assemble diverse teams with varied perspectives and innovative ideas.
  1. Risk mitigation: External service providers often have established processes, best practices and expertise in their respective domains. Additionally, outsourcing can help companies diversify their operations and reduce dependence on a single location or workforce, enhancing overall risk management.

Now, even though employee outsourcing is beneficial, it can be a hectic and legally challenging strategy for companies. Especially if you are outsourcing employment to India, setting up a legal entity and managing the entire HR and payroll process can be a daunting task due to the 28 state-specific labour laws. 

Companies like Google or Apple have big legal and HR teams to manage all the intricacies. But…

How Can Companies Outsource Employment? 

How Can Companies Outsource Employment? 

Traditionally, employment outsourcing required businesses to set up a legal entity or office and go through a myriad of legal procedures to hire individuals globally. But the dynamic economies have made it easier for companies to hire globally without setting up any legal entity. 

Here are 4 alternatives to the traditional method of outsourcing employees:

  1. Outsourcing Agencies/Service Providers: Outsourcing agencies or service providers specialise in providing a range of outsourced employees across different functions and industries like customer service, IT support, administrative tasks, finance and accounting, human resources, marketing and manufacturing. These agencies handle the recruitment, onboarding and employment management processes on behalf of the client organisation. 
  1. Professional Employer Organisations (PEOs): PEOs are co-employers that manage payroll, benefits, compliance and employee support, enabling businesses to focus on core operations while offloading HR functions to experts. They serve as co-employers alongside the client organisation, streamlining administrative processes and ensuring compliance with legal requirements.
  1. Global Employment Outsourcing: Global outsourcing involves partnering with companies or service providers in other countries or regions that offer specialised expertise or cost advantages. It allows businesses to access a global talent pool and benefit from various outsourcing models. However, most of the global outsourcing models require setting up a legal entity or a subsidiary in a foreign country. 
  1. Employer of Record (EOR): EOR services act as the legal employer of outsourced employees. They handle employment contracts, payroll, benefits and compliance, while the client organisation retains control over the employees' tasks and performance. 

All the options mentioned above have their pros and cons.

For instance, companies face communication challenges with outsourcing agencies and get minimal control over employee selection. 

Similarly, PEO and global outsourcing lead to alignment and coordination issues. 

With EOR, companies experience increased dependency on the EOR platform with reduced authority. 

However, we recommend that companies wanting to outsource staff in India should opt for EOR services. 

Why Choose EOR For Employment Outsourcing?

Companies face issues with staff control and dependency on an EOR when outsourcing employment. What if we tell you that Rapid takes care of both?

Rapid, a trusted EOR platform, is designed specifically to assist tech founders in expanding their teams in India. 

  1. Compliance and legal support: Rapid helps you navigate through the complex landscape of Indian labour laws without the need to set up a legal entity. You can ensure compliance with local regulations while minimising legal risks.
  1. Global expansion and market entry: By partnering with Rapid, you can easily expand your business into the Indian market without the hassle of establishing a physical presence. Rapid enables you to leverage the vast talent pool in India and tap into a thriving market.
  1. Administrative efficiency: Rapid takes care of all the administrative tasks associated with employment, such as managing contracts, reporting, payroll, onboarding etc. This allows you to focus on your core business functions while Rapid handles the paperwork and administrative burden.
  1. Risk mitigation: Rapid provides you with peace of mind by taking care of legal and compliance matters. With their expertise in local regulations, Rapid ensures that you remain compliant, minimising the risk of penalties or legal disputes.
  1. Employee support and benefits: Rapid offers comprehensive employee support services, including benefits administration and HR assistance. Your employees in India will receive the necessary support and enjoy competitive benefits, boosting their job satisfaction and retention.
  1. Expertise and local knowledge: Rapid brings in-depth local knowledge and expertise to mitigate compliance issues. They understand the nuances of the Indian market and can guide about compensation packages, local labour practices and cultural considerations.
  1. Focus on core business functions: By partnering with Rapid, you can focus on your core business functions and strategic initiatives. Rapid takes care of the administrative and compliance aspects, allowing you to dedicate your resources to driving business growth.

With Rapid, you can enjoy the benefits of employee outsourcing without hidden charges or policies. But what sets it apart? 

  • Companies can easily integrate their company policies and without completely losing autonomy, will be able to manage their teams on their unique terms and policies. 
  • Moreover, while Rapid takes over the compliance regulations and HR management, it offers flexibility to the companies to decide the terms and conditions. 

Overall, Rapid assists the companies without overshadowing their control! 

Is Outsourcing Staff The Right Choice? 

While outsourcing offers numerous benefits, businesses must weigh the factors to determine the right approach. However, it ultimately boils down to one question: 

"Does it align with your business goals and strategic priorities?"

So when should you outsource? 

  • Need access to specialised skills and expertise
  • Want to achieve cost savings by avoiding recruitment, training and infrastructure expenses
  • Require flexibility and scalability to adapt to changing workloads or project demands
  • Want to focus on core competencies and strategic initiatives
  • Want to tap into a global talent pool and benefit from diverse perspectives and ideas
  • Want to free up internal resources to focus on high-value activities

On the flip side, if a function is a core competency, requires in-house expertise, involves sensitive information or aligns closely with your company culture, keeping it in-house might be the way to go. 

Ultimately, the key lies in assessing your unique needs, objectives and available resources. By carefully considering the pros and cons, you can make an informed decision about outsourcing or building an in-house team. 

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