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Outstaffing in Ukrainian Conditions

The year 2018 is marked by increased attention to such services as outstaffing by regulatory authorities, particularly the SFS and the State Labor Service. At the same time, during the twenty years of its existence in Ukraine, outstaffing is still not fully understood by the general public or causes distrust about its absolute legality.

However, it would be a mistake to assume that Ukrainian business ignores outstaffing. The analysis of the register of court decisions shows that both private individuals and giant corporations use the services of intermediaries in this area.

What is outstaffing in general?

Source: skywell.software

It should start with the fact that when it comes to outstaffing, other terms are often used interchangeably, e.g., “Outsourcing,” “staff leasing,” or “employee hiring,” which actually mean similar but somewhat different processes. This is due to insufficient regulation of these relations in Ukraine.

The term “outstaffing” is not currently enshrined in law in Ukraine. However, Article 39 of the Law “On Employment” provides for such activities as “the activities of economic entities that hire employees to continue their work in Ukraine with another employer”, – which includes the content of outstaffing.

In addition, the Tax Code of Ukraine contains a definition of personnel services – business or civil law agreement, according to which the person providing the service (resident or non-resident) sends to another person (resident or non-resident) one or more individuals to perform certain agreement functions.

In fact, both of the above definitions are broader in meaning and refer to the provision of debt services. At the same time, labor relations within the meaning of the Labor Code of Ukraine exist only at the employee-agency level. The ties between the agency and the customer are regulated by a staffing agreement (outstaffing agreement). By its legal nature, this contract is a so-called unnamed civil contract, the content of which is very close to the contract for the provision of services.

In world practice, it is common to distinguish the following types of lending services:

  • Short-term staff hiring is about selecting and providing temporary and seasonal staff to the client at once or for a short period. Employees are often young people or other categories of workers without work experience, unskilled or low-skilled jobs.
  • Leasing (rent) of personnel – selection by order of the client among the employees in the recruitment agency’s staff, and making them available to the client for a relatively long period – from several months to several years. After the expiration of the contractual lease term, employees return to the recruitment agency. They can be sent to work for another customer.
  • Outstaffing removes employees from the customer’s staff and their subsequent transfer to a staffing agency, which formally employs them and makes them available to the customer. In fact, employees continue to work in their company, workplaces and do the same job.

Thus, the subtle difference between leasing (renting) staff and outstaffing is that employees were not previously in the customer’s staff in the first case. The recruitment agency searches for and selects staff according to the client’s order.

About outsourcing, the subject of providing such services is not the team member’s work but the performance of another company of specific business processes, functions, or tasks in a particular area. In this way, outsourcing is closer in content to a contract or service relationship. Still, it is broader because it is not aimed at a specific result in a single order but at a longer process.

Under an outsourcing contract, employees usually perform work at the contractor’s workplace. Remuneration is paid upon the work performed or services provided. Under the contract terms for quality, compliance with deadlines, and other essential conditions, the contractor is liable.

In this case, the relationship remains bilateral (customer – contractor), so the term “staff outsourcing” is incorrect. A typical and widespread example of outsourcing in Ukraine is providing IT services to the customer regularly. In this case, as a rule, the contractor can independently determine the staff required to fulfill the order.

What Are The Benefits Of Outstaffing For The Company?

Source: onlyremoteworkers.com

For the customer company there are several advantages of using outstaffing services, among which the main ones are:

  • release of administrative resources (there is no need to keep the staff of the personnel and accounting department for the needs of staffing, timely calculation of wages and SSC, granting leave, other social security for employees);
  • reduction of expenses for the salary fund (as well as removal of the tax base at the payment of costs for the services of a staffing agency);
  • Avoidance of additional grounds for inspections of the SFS and the State Labor Service on the issues of actual labor relations.

Unfortunately, the benefits for one party are achieved through the losses for the other party. Outstaffing agency in Ukraine is often associated with significant negative consequences for employees.

Employees laid off from customer companies’ staff with subsequent registration in the recruitment agency lose most of their social guarantees due to the emergence of disputes related to special working conditions, compensation, leave, sick leave, work in hazardous conditions, etc.

Suppose outstaffing is profitable and convenient for enterprises. In that case, benefits for the team member can exist only with an alternative in informal employment or unemployment. It is no coincidence that trade unions are the most active opponents of outstaffing schemes and conditions of borrowing in general. Know more on by visiting https://codify.io/

Is Outstaffing Completely Legal?

Source: zwarttech.com

Despite insufficient legal regulation, the practice of outstaffing is legal – subject to certain conditions:

The team member must be in an employment relationship with a staffing agency

Source: flexsource.ie

The subject of the trial was situations when the staffing agency made available to the customer employees who were issued to a third party. This fact alone proved sufficient to admit that the recruitment agency had no grounds to transfer employees to the customer on an outstaffing basis.

There are cases when dishonest recruitment agencies mislead the team member and do not inform him that under the terms of the contract concluded between them, the team member is employed by a non-resident company.

This means that the income received from such a non-resident is foreign. In this case, the individual is obliged to file a declaration and pay taxes. Such a team member is not paid a single social contribution, which does not entitle him to receive social insurance: sick leave, unemployment benefits, and such a work period under an outstaffing contract is not included in the length of service does not entitle to a pension.

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