OUTSTAFFING:

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OUTSTAFFING a panacea for HR departments OR a
wastage of resources?
Alexey V. Mironov BD Manager Coleman Services Inc.
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In today's complex business world specialization
is the key!
They say ...

• If you need something to grow your business that
  you don't have expertise in, you look outside to
  develop a strategic alliance with a company that
  does!

• What better way is there to manage your exposure
  than making it someone elses problem!

• Outstaffing specializes in supporting your
  business, leaving you to specialize in growing
  your business!

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AGENDA

• What is it?
• Wording
• Some history
• History in RF
• Current situation
• How is it used?
• Types of services
• Key schemes
• Legal matters
• When is it used?
• Reasons for using
• Why is it used?
• Pros Cons

• Who uses it?
• Demand in the market
• Main customers
• Where to buy it?
• Key providers
• Legislation issues
• How much?
• Ways of calculating
• Cost scheme
• Tax matters
• What next?
• Predictions for the future

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What is it? (WORDING)

• Staff leasing - selection and further secondment
  of Company-provider staffers to the Client
  company, with the possibility of future transfer
  to the Clients stafflist
• Staff outsourcing - transfer of personnel from
  the Clients stafflist to Company-providers
  payroll, with following secondment of this
  personnel back to the Client
• Temporary staffing - secondment of
  Company-providers employees to the Client for an
  established short-term period
• Outstaffing - secondment of the Clients
  employees to Company-providers stafflist, in
  other words a way to regulate the workforce
  without increasing actual headcount

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What is it? World History

• 1960s physicians discovered a leasing scheme as
  a good tax-shelter
• 1970s IRS questioned the legality of employee
  leasing, which led to numerous disputes in court
  and providers bankruptcies
• 1980s popularization of Professional Employer
  Organizations (PEOs), treatment of PEOs as a
  benefit to companys overall business
• 1994 - National Association of Professional
  Employer Organizations (NAPEO) started to promote
  the PEO concept
• Currently in the USA there are
• more than 3000 PEOs
• more than 4 mln. payrolled employees
• Market revenues - 6.5 bln. in 1993, 45.4 bln.
  in 2002
• Annual market growth 25-30 PEOs is the
  fastest growing segment of the staffing industry
• Widely consumed by Fortune 500 companies across
  the world
• Is currently used in strategic ways to obtain
  fluidity and meet fluctuating business needs

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Demand for outstaffing in the west
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What is it? History in RF

• outstaffing is in fact quite new for the Russian
  market
• boisterous development starting from 1998
• economic crisis forced companies to partially
  reduce the head-count, so they preferred
  outstaffing to redistribute HR-expenses
• growing demand lead to gradual development of
  outstaffing practices
• many recruitment services providers have
  introduced outstaffing as an additional services
  to key customers
• Russian companies have started to actively
  consider outstaffing and temping as a highly
  beneficial service
• TODAY a working group within the State Duma,
  having developed a concept of outstaffing
  legislation, is working hard on a Federal Law on
  Protection of rights of employees, employed by
  private staffing agencies to be further seconded
  to third parties!

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Current situationDemand for leasing
outsourcing services

• According to providers data demand for
  outstaffing services increased by 45-50 in 2003
  in comparison with 2002
• Demand for outstaffing services from Russian
  companies grew thrice during 2003
• Demand for temporary personnel during 2003
  increased by 55 in comparison with 2002
• In 2003 leading agencies provided their Clients
  with 1000-2000 temporary employees in average

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Current Situation

types of services offered
temporary staffing
outstaffing
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How is it used?Outstaffing scheme, regulated by
staff outsourcing and labor agreements

Physical work
Client
Services cost (salary, taxes, administrative
expenses)
Employee
Civil-law relations, (outsourcing agreement)
Labor relations
Reporting, observing the rules of labor contract
Legal responsibility, taxation, reporting to tax
and other authorities
Payroll, HR filing and document workflow
Provider
State
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How is it used?Typical Provider-Company
interaction structure under an outstaffing
agreement
Legal responsibility for the employees , staff
hiring dismissal etc.
Company
Payroll calculation, salary payment, bonuses,
compensations taxation, reporting to taxother
state authorities
provider
HR filing handling personal labor record
books, tracking orders, sick and regular leaves.
Administrative work social package (medical
life insurance, cell phone expenses), business
trips
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When is it used? a few Reasons

• willingness to concentrate on core business
• headcount restrictions, limitations on hiring
  permanent staff
• hiring in regions without opening an office
• working on special short-term projects (e.g.
  construction)
• regular and sick leaves of permanent staff
  members
• participating in exhibitions, advertising
  campaigns
• willingness to extend probation period
• seasonality of manufacturing and sales activities

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Why is it used PROS CONS

• Outstaffing affords to
• re-allocate budget items (salary - services)
• pass a major part of legal responsibility towards
  Provider
• eliminate or diminish costs for staff reduction
• diminish costs for trainings and social benefits
• reduce costs incurred on HR filing and document
  workflow
• eliminate costs for staff recruitment (leasing)
• cut accounting/taxation and administrative
  workload
• manage employees without having labor liabilities
  
• evaluate new personnel during trial period
  without employment
• prevent stoppages in work
• maintain company's image by outsourcing people,
  working on civil-law contracts
• increase actual amount of employees, preserving
  the status of "small enterprise"

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Why is it used PROS CONS

• Unclear legislation
• Seeming expensiveness in comparison with direct
  employment
• Moral aspects of staff outsourcing
• Possible decrease in employees loyalty to the
  Company

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• Who uses it?

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Demand for Outstaffing by Industry and companies
origin - 2004
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Demand for outstaffing by specialists categories
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Demand for Temporary Personnel by Staff
Categories administrative staff
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Demand for Temporary Personnel by Staff
Categories commercial staff
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Demand for Temporary Personnel by Staff
Categories financial specialities
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Legislation on Leasing

• Obstacles on RF Labor Code
• Article 15 - Labor relations
• Based on the employer employee agreement
• Agreement stipulates
• Personal performing of labor functions (not
  definite work or services)
• Employee following the rules of internal labor
  regulations, established by the employer
• Employer providing with work conditions
  according to labor legislation, collective
  agreement, labor agreement
• Labor function work on definite specialties,
  qualification or position

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Legislation on Leasing

• Obstacles on RF Labor Code
• Article 16 Labor relations arise as a result of
  employees allowance to start working for the
  employer upon its request or with its consent
• Article 61 Labor agreement comes into force from
  the employees factual working start date in
  full accordance with employers request or with
  its consent
• Article 67 Labor agreement, not arranged in a
  proper way, is considered to be executed, if the
  employee starts working for the employer upon its
  request or with its consent

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Legislation on Leasing

• Legal risks in light of RF Labor Code
• Leased employee can be de jure recognized an
  employee of the Company-user
• Consequences
• Employee lodges a complaint to the State Labor
  Inspection, Office of Public Prosecutor
• Employee goes to Court
• Regular checking by State Labor Inspection or Tax
  Authorities

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Legislation on Leasing

• Some conclusions
• Employees secondment to the Client-company from
  the company-provider within RF Labor Code
  (article 166) can be treated as a business trip
• While outstaffing services have been existing on
  the Russian market for more than 6 years there is
  no appropriate Labor Legislation on it
• Factual Employers, employees Companies
  services providers have to use their own
  documents, regulating these relationships
  therefore to endure definite risks, interacting
  on these agreements

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Where to buy it?
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How much does it cost?Ways of calculating

• Prices for these services include the following
  parts
• Direct payment to the employee (total payroll and
  incurred taxes)
• Providers administrative expenses. Normally, it
  can be a fixed amount or a fixed but negotiable
  percentage of total payroll.
• VAT

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Structure of Outstaffing Costs












VAT


18 of




monthly cost








Total
monthly services cost













Providers


Administrative

Fee



of total payroll


(including vacation leaves)









Monthly cost











Unified

Social

Tax

35, 8 of gross


salary







Total payroll






SALARY INCOME Net TAX
(direct monthly 13
payment to the employee)


Gross salary
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What next?Predictions for the future

• Changing labour market conditions lead to the
  expansion of outstaffing and hiring temporary
  personnel.
• Global competition has forced large businesses to
  keep their core workforce at a minimum.
• As a result many companies are turning to
  alternative solutions such a contingent staffing
  to meet their short- and long-term staffing
  needs.
• A few years ago the temporary personnel service
  was just knocking at the door of the marketplace.
  
• Today, companies have discovered new
  opportunities and new ways of doing business more
  profitably and more efficiently. Outstaffing is
  expected to play an important role in today
  business.

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Its your choice
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Thank you!
ALEXEY V. MIRONOV Business Development Manager
?oleman Services Inc. mironov_at_coleman.ru