What is outsourcing? – advantages, and more
Outsourcing is the agreement between two employers. One of them (contractor or subcontractor) provides services to the other (principal or principal) at its own risk and with its workers. The contractor or subcontractor exercises command, control and supervision of their workers.
Advantages of Outsourcing
The main advantages of outsourcing are:
An outsourced company could offer lower prices than what it would cost the company requesting their services if they did it independently. This type of advantage appears for various reasons, such as having developed economies of scale or specialization in a particular production process (experience effect).
At certain times, there are variations in the market and the demand for a product or service increases. Companies choose between facing this demand, taking charge of satisfying this increase in orders themselves or resorting to subcontracting.
Carrying out outsourcing allows companies to choose between several options. Therefore, outsourced companies seek to improve their processes and resources to distinguish themselves from the rest and grow by improving their production factors.
Technical or Financial Capacity
Subcontracted companies often have the opportunity to carry out certain types of work that others cannot. It is either by knowing the production process or having the necessary resources to face the activity. We see daily, for example, in the goods we consume that many of them are produce in d
Legal and Tax Advantages
Companies can be located in areas where there is another type of legislation that makes the growth of specific activities more attractive. We see daily, for example, in the products we consume that many of them are form in distant states. Brands outsource production facilities to points where they get tax advantages and, therefore, complex profit margins.
Disadvantages of Outsourcing
The Main Drawbacks of Outsourcing are:
Risk of choosing a lousy company: If the service provider company is not chosen well, it can deteriorate the image of the contracting firm.
The risk that the supplier becomes a competitor of the contractor: The subcontracted company could take advantage of its client’s know-how to become its competition.
The reduced cost may be minimal: The expected benefit from outsourcing, considering what it would cost the company to carry out this activity, may not be as high as expected.
Jobs are lost: If we eliminate a company sector to subcontract, those jobs are lost unless the subcontract company hires them.
Characteristics of Outsourcing
The main characteristics of subcontracting or outsourcing are the following:
- The contracts between both organizations usually last between 5 and 10 years.
- It is carried out by two entities: the organization that contracts and the subcontracted organization.
- saves costs and accelerates the growth of the organization.
- It is used to contract activities that are not the organization’s main activities.
- Good communication among both parties is important.
Who Participates in a Subcontracting?
Several agents are involve in subcontracting a project: the leading company, the contractor and the subcontractor. On the one hand, the leading company is the one who hires the service. For example, some warehouses subcontract to another company to clean the facilities.
On the other hand, there is the contractor’s figure, which is the company contract to execute part of a work or provide a service. In the example above, the contractor would be the cleaning company.
Labour Obligations in the Subcontracting of Workers
The subcontracting of companies is subject to a series of rules that regulate the actions of the parties involved in it. Below we see what the obligations of the leading company and contractor are.
In the first place, the principal employer who resorts to labor subcontracting must verify that the contracting company has paid all its contributions with Social Security. In case of not being up to date with payments, the principal employer must request a negative certificate from the General Treasury of the Social Security (TGSS). For its part, the contractor company must settle the debt within a maximum period of 30 days.
In case of not requesting a said certificate, the agreement between both parties may continue. However, in this case, the principal employer must know that he must be jointly and severally liable for the salary obligations or payments to Social Security that the contractor has failed to complete with.
Article 42.4 of the Workers’ Statute also indicates that the leading company must inform the workers’ representatives about:
- Company name, address, and NIF of the contracted or subcontracted company.
- Duration of the hiring or subcontracting.
- Place of execution of the work or provision of the service.
- The number of workers of the subcontract will be employe in the performance of the work or provision of the service.
- Measures to be adopt for the prevention of occupational risks.
In this sense, and to facilitate access to this information by the workers’ representatives, the leading company must make a Registry Book in which the data relating to the contract companies is reflect.
Contractor or subcontractor
For its part, the contractor or subcontractor must inform the General Treasury of Social Security. About the identity of the leading company for which they are providing their services. It must be done in writing and before starting the work or project.
Likewise, you must also communicate the same information mentioned above to the workers’ representatives about the leading company.
- Name, registered office, and Tax Documentation Number.
- Duration of the work or service.
- Place of execution.
- Several workers were employed.
- Coordinated risk prevention measures.
Outsourcing is an contract in which one company hires another company to be answerable for a plan or existing activity that is or could be done internally and sometimes involves moving employees and assets from one firm to another.