The choice between outstaffing and classic hiring is not just a matter of convenience, but a strategic decision that can significantly affect your business performance in total.
Many companies are familiar with the classic hiring problems: the long and expensive process of finding suitable specialists, high taxes rates and social benefits (personal income tax, insurance contributions), risks associated with labor legislation and personnel issues, as well as difficulties in managing seasonal or short-term projects. All these problems significantly slow down the whole development of your business and increase operating costs.
Therefore, many companies turn to outstaffing – a reliable solution that guarantees saving time and nerve cells for your managers. Outstaffing offers a flexible and cost-effective way to cope with any tasks. With its help, you can quickly scale your team, reduce administrative costs and minimize legal risks. So how do you make the right decision based on the unique needs of your business?
Let’s figure out what’s best for you: outstaffing or hiring developers on staff.
What is outstaffing?
Where does the word outstaffing come from and what it means?
The name “outstaffing” comes from the English words “out” and “staffing”. “Out” means “outside”. “Staffing” stands for “personnel selection”. Basically, outstaffing is translated as “attracting external personnel.”
Outstaffing arose as a response to the need for businesses to flexibly manage their human resources and optimize personnel costs. The first companies providing outstaffing services began to appear in the United States in the 1940s and 1950s. These companies offered their clients specialists for temporary work. Manpower Inc., Kelly Services, Adecco (formerly called Adia) started with office and administrative services, gradually expanding their activities into industrial and other sectors.
Nowadays, the term “outstaffing” is used to refer to the process when a company uses employees formally working for another company to perform its tasks. Over time, the approach has gained popularity in the business environment, especially in IT, due to its flexibility and the ability to quickly attract the right talent without complex hiring and personnel management procedures.
Outstaffing in IT is when a company hires developers and other IT specialists not directly into its staff, but through a special company that provides such employees. Outsourced developers work together with your team, performing all the necessary tasks, but are officially listed as employees of the outstaffing company. Essentially, you are renting labor from another company.
Learn which areas of business use outstaffing and outsourcing of IT specialists to implement their projects in the previous article. Highly recommend reading for those interested in the experience of other companies or practical problems that an external employee can solve on medtech, fintech, ecommerce and other projects.
Hiring employees: main stages and disadvantages
In the IT world, classic hiring is the main way companies hire employees. Hiring employees allows the company to create a stable and strong team united by a common goal and values. In addition, when people work in the same team for many years, it’s easier for them to interact and understand each other.
What is the hiring process like?
The employer determines the required skills, experience and professional qualities for the vacancy. Next, the company is faced with the task of creating a vacancy: specifying key responsibilities, requirements for candidates, working conditions and benefits.
Most often in IT companies, IT recruiters are involved in searching for specialists. They post vacancies on job boards and look for suitable developers on specialized platforms such as LinkedIn. Vacancies can also be filled through recommendations from colleagues or networking.
Candidates who meet all the requirements of the vacancy go through interview stages, which include HR interviews, technical interviews, discussion of projects, assessment of soft skills, etc.
The selected candidate then undergoes a final interview with senior management or the company’s HR director to finalize the terms of employment.
After making a hiring decision, the company offers the candidate a job, discusses the terms of the employment contract, wages, bonuses, and work schedule. After accepting a formal job offer and signing the necessary documentation, the new employee goes through an onboarding process, including familiarization with the company, its structure, processes and team.
What are the disadvantages of the classic IT hiring model?
- High competition for talents;
- A limited number of specialists with a narrowly focused specification, a lack of experienced specialists in a certain field (artificial intelligence, cybersecurity, big data);
- High staff turnover due to the large number of offers on the IT labor market;
- High and unpredictable financial costs (salaries, social contributions, office space rental and other overhead costs);
- Depending on the location of the company, access to qualified specialists may be limited. For example, in small cities or regions with low concentrations of IT specialists, it may be difficult to find and retain talented employees;
- Temporary or seasonal team load;
- Prospective growth and career development is important for employees. If internal capabilities are limited, the company may face the problem of retaining highly qualified specialists who strive for professional and personal growth;
- Forming and managing corporate culture requires significant effort on the part of the HR department;
- Constantly managing employee performance and motivation also requires effort and money.
Outstaffing as a model of cooperation – in what cases does a business use outstaffing?
Pay attention to your project’s needs and goals
If you are planning a short-term or long-term project with clear deadlines, outstaffing or outsourcing is the ideal solution. You can quickly attract the right specialists without having to provide them with a job after the end of the project.
If you are faced with a long-term task of several years, or your business constantly needs one category of specialists, classic hiring is more suitable. A permanent team better understands the features of your business (or a specific project/product) and corporate culture.
By entering into cooperation with an outstaff company, even after the completion of a specific project, you will be able to contact the necessary employee at any time in order to resolve the problem that has arisen as soon as possible.
How does outstaffing help you save money?
We should not forget that outstaffing as a model of cooperation arose in response to the urgent need to reduce costs. So, in financial matters he occupies a leading position.
Outstaffing is especially beneficial at the start, as it reduces the cost of taxes and social benefits. As well as administrative ones: personnel management and document flow require resources that can be reduced by choosing outstaffing.
The importance of a specialist’s quick start on a project
Dynamically developing projects or startups value flexibility and speed. Outstaffing allows you to quickly scale your team depending on current needs, without losing reliability, as can happen when hiring a freelance developer.
The process of hiring and onboarding employees is taken over by an outstaffing company, which saves your time. At the same time, classic hiring takes much longer, but provides greater control over the selection and adaptation process.
Level of expertise and availability of IT specialists
Access to highly qualified specialists with a rare technology stack is another argument in favor of outstaffing. Specialists with a narrow specialization or rare skills may not be available in your local market, but an outstaffing company can easily find them.
On the other hand, classic hiring allows you to carefully select candidates and develop them within the company, which can improve the quality of work and the stability of the team. However, even a careful choice often does not guarantee the adequacy and expertise of the employee. Moreover, now outstaffing companies take a responsible approach to hiring specialists, paying attention not only to expertise, but also to the specialist’s soft skills, selecting reliable and loyal employees.
Risks and responsibilities when dismissing and replacing a specialist
Legal and personnel risks are an integral part of personnel management. Responsibility for compliance with legal regulations lies with the outstaffing company. What does this mean for the customer? Preparation of documentation, recording of working hours, resolution of disagreements on the project, payment of labor and payment of social contributions – all these processes are undertaken by the outstaff representative.
Your strategic priorities
If your goal is to focus on core business processes, outstaffing will help you transfer non-core tasks to external specialists. If you want to invest in the development of your team, build a strong corporate culture and strengthen your position in the market, you should hire developers and consider collaborating with an outstaff team to cover pressing deadlines or unforeseen situations. There is a high percentage of staff turnover in the IT industry, which also involves some risk for the company. Another reason for business to pay attention to alternative approaches to cooperation (outstaffing, outsourcing).
The choice between outstaffing and classic hiring depends on the needs of your project, financial capabilities and strategic goals of the company. In some cases, the optimal solution may be a combined approach: use outstaffing for short-term tasks and specialized projects, and classic hiring to form a stable team and long-term projects. This balance will allow you to achieve your goals on time and minimize uncertainty.
Outstaffing in IT: How does it happen in practice?
The process of cooperation with an outstaffing company is much simpler and faster than hiring a full-time employee.
- Determining needs
The customer company determines what specialists it needs, for example, developers, testers or designers, and for what period. Then, he discusses with the service provider (outstaffing company) the requirements for specialists and the tasks that they have to perform (at this stage, the features of the project, unique requirements for a specialist, desired experience, etc. are discussed). - Selection of specialists
The outstaffing company selects several specialists who meet the customer’s requirements and provides their resumes for approval. After agreeing on candidates and passing an interview, specialists begin working on the customer’s project. - Project work
Specialists work remotely, fully integrating into the workflow on the client’s project, preliminary familiarization with the features is carried out by managers from the outstaffing company, and onboarding is carried out directly on the customer’s project. The management of specialists is carried out by the customer, and the outstaffing company ensures control and recording of hours worked, on the basis of which the amount of payment for services is calculated, and the fulfillment of legal obligations. - Payment
The customer pays for the services of the outstaffing company based on an agreed rate, which can be hourly, monthly or fixed per project (depending on the chosen model of outstaffing IT specialists). The outstaffing company pays salaries to specialists and resolves all issues related to taxes and social benefits. - Productive cooperation
Let’s assume that a customer urgently needs to develop new functionality for their mobile application. There are no available developers on staff, and hiring new employees on a permanent basis is impractical, since the project is temporary.
Step 1. The customer contacts the outstaffing company and explains that they need experienced mobile developers for a period of six months, preferably with experience in fintech.
Step 2. The company selects 3 developers, whose resumes are sent to the customer for approval. After interviews and test tasks, the customer confirms the selection of candidates.
Step 3. Developers begin work on the project, connecting to the customer’s team. They work remotely, participate in daily stand-up meetings, use internal company tools and systems, and keep track of hours worked.
Step 4. Every month the customer pays for the services as agreed. The company resolves all issues related to the payment of salaries, taxes and other obligations for its employees.
Step 5. After completing the project, the developer returns to the staff of the outstaffing company. The customer and the outstaffing company can continue long-term cooperation in order to cover spontaneously arising business needs on a regular basis.
Why is it convenient and useful?
- The client quickly gained access to the necessary specialists, avoiding a lengthy hiring process;
- There is no need to hire employees on a permanent basis and incur costs for wages, workspace, equipment and other operating expenses;
- The customer can focus on developing their product rather than maintaining documentation;
Outstaffing is a convenient and effective way to attract specialists to perform specific tasks.
The choice between outstaffing and classic hiring is not just a decision about personnel strategy, it is a choice that can determine the success of your project and the competitiveness of your business. Outstaffing offers flexibility, speed and access to highly specialized knowledge, making it an ideal solution for short-term or non-standard projects. On the other hand, classic hiring provides long-term stability, deep integration of employees into the corporate culture and a high level of control, which is important for strategic and confidential tasks.
Before making a decision, ask yourself key questions: How important is the speed of launching the project to you? What are your data security requirements? Do you need flexibility in scaling your team?
Regardless of the approach you choose, the main thing is to assemble a team that will work as efficiently as possible for the benefit of your business.