What is outsourcing – definition
When a task comes before an entrepreneur that he or she can’t accomplish or would take too much time and resources to complete, the natural step is often to get outside help. Hiring a third party to perform a specific task or set of tasks is a practice at least as old as business itself. A practice that captures the essence of outsourcing to this day. But how to describe outsourcing – especially since a specific, generally accepted legal definition is still lacking? In Poland, there is a rather general explanation of the term. In the standard understanding, outsourcing (derived from a combination of the English words outside-resource-using) is the assignment of a certain range of a company’s responsibilities to a third party (for example, a specialized company) on the basis of a contract between the entities.
Why choose outsourcing?
Companies use outsourcing for two main reasons. One is the desire to reduce company expenses. Hiring an outside entity for a specific purpose – especially on a one-time basis – is usually a much lower cost than the cost of hiring or training an employee. The second reason is often the desire to increase efficiency and improve the quality of tasks performed. Experts in a particular field will complete corresponding projects faster and better than employees who have not had to deal with such tasks before – at least in theory.
Outsourcing and Polish law
The brevity and lack of detail in the definition given earlier is due to a simple fact. Well, in Polish law the concept of outsourcing… does not exist. The term appears in court decisions (cf. ref. I PK 210/09, ref. II Ka 125.20, ref. II UK 103/18), but the definition cited in this context seems to be based on the description formulated by Michal Trocki. This researcher, in a publication with the much-talked-about title Outsourcing: a method of business restructuring, wrote that outsourcing is the separation from the organizational structure of a parent company of the functions it performs and the transfer of those functions to other business entities for performance.
A brief analysis of the two definitions shows that they are very similar and differ actually mainly in sound. However, both are missing important details. In order to know them, it is necessary to look at the types of outsourcing.
Outsourcing agreement – template
Agreements, the conclusion of which is one of the prerequisites for talking about outsourcing at all, belong to unnamed contracts. So it’s futile to look for an official template to fill out – especially since many elements of such a document will be individual, tailored to the arrangements between the parties.
However, outsourcing contracts are often created on the basis of named contracts, such as a work contract. What distinguishes a work contract from an outsourcing contract, therefore, will be the elements in the document that are typical of outsourcing. One of them is the specified issue of control – a company that outsources cannot control the employees who provide services to it. These employees remain employed by their original employers, and it is to them that they are accountable – including during the execution of an assignment performed outside the typical workplace.
This element is extremely important because it distinguishes outsourcing from temporary work, as we will say more about later in this article.
What should an outsourcing contract contain?
Here is a list of the most essential elements that must not be missing from any agreement:
Start with the standard identification of parties. This section should include the names of the entities, TIN/REGON numbers, addresses of business locations. For the sake of clarity of the message, it is a good idea to identify one party to the agreement as “Outsourcing Principal” and the other as “Outsourcing Provider.”
The core of such an agreement should be a detailed definition of what the outsourcing service actually is, as understood by the contracting parties. This includes the exact scope of tasks that the service provider undertakes to perform, issues of reporting, diligence, as well as the reservation of the right (or lack thereof) to outsource to other persons or entities.
The outsourcing contract must not lack a point devoted to confidentiality rules and responsibility for actions taken and possible omissions. Reporting of activities is also an important issue – a good practice is to specify the frequency and detail with which reports are prepared.
An equally important element of the contract is the definition of how the Outsourcing Provider will provide services.
The document should also include information on the duration of the contract (the date of commencement and completion of the performance of services) and the identification of possible consequences, resulting from delays and irregularities found.
A fixed point in the outsourcing contract is also a section on remuneration – its amount, terms and conditions of payment, etc.
The above elements will appear in the vast majority of outsourcing contracts. However, this does not mean that the list is complete. Depending on the needs of the parties involved in the transaction, many other points can be added to the document, such as specifying how disputes will be resolved or options for terminating the contract.
Types of outsourcing
Since we already know the basics, it’s time to go into more detail. At the most basic level, we divide outsourcing by the entity performing the outsourced tasks:
Internal (capital) outsourcing occurs when a company creates a special entity (for example, a subsidiary) in order to entrust it with certain responsibilities. In this way, the company ensures a clear division of tasks, lays the groundwork for expanding competencies in the future, while maintaining control over the new entity’s activities. This type of service can be very expensive, but it is a long-term solution, geared to reap profits in the future and over a long period of time.
External (contract) outsourcing is by far the more common. It’s a situation in which a company outsources part of a project or tasks within a project to an external entity. In this way, the entrepreneur optimizes costs, as well as saves time and can expect results much faster than in the case where one would choose to build competencies internally.
However, this is only one possible division. In order to have the full picture, it is necessary to dig a little deeper into the topic and learn the details of employee outsourcing and its variants.
Employee outsourcing in the company
In this category we can include (by similarity) temporary labor, bodyleasing and employee leasing.
Outsourcing vs. temporary work
One concept that is often confused with outsourcing is temporary work. We can easily distinguish it thanks to legal regulations. The Act of July 9, 2003 on the employment of temporary workers explicitly defines that temporary work is the performance of tasks by an employee employed by a temporary work agency for the benefit of a so-called user employer:
- of a seasonal, periodic, ad hoc or
- Which timely performance by employees employed by the user employer would not be possible or
- the performance of which is the responsibility of an absent employee employed by the user employer.
In theory, each of the conditions listed above also corresponds to employee outsourcing. However, there is a subtle difference. Under temporary labor, an employee who performs an assignment for a user employer comes under the direction and supervision of the user employer. In turn, this means that he is subordinate to the user employer.
Outsourcing, on the other hand, implies that the employee remains employed by his or her parent company. As such, he or she is subject to supervision and control by the original employer, rather than the user employer.
This demarcation is important from the point of view of the aforementioned Law on the Employment of Temporary Workers. This is because if the authorities consider that the action of the parties to the contract bears the hallmarks of organizing temporary labor, this will amount to certain restrictions.
What are these restrictions? One is the obligation to keep records of temporary workers. Another is the applicable time limits – a user employer cannot use temporary workers indefinitely.
Bodyleasing and employee leasing
We’re getting into the sinuous ground of concepts that are almost twinned. However, everything is determined by the aforementioned almost. The differences are minor, though – once you get to know them – distinct. Employee outsourcing itself is a concept that is encountered relatively rarely. Companies often operate with terms such as bodyleasing (employee leasing) or temporary work. Let’s try to distinguish between them.
This term is most often used in the IT industry. The service of bodyleasing involves “renting” an employee for a specific, often relatively short, period of time from one company to another. Bodyleasing often occurs in the context of the implementation of a single project, such as the implementation of a new system at the outsourcing client company, arranging training for employees, etc.
Example
ABC Company has a large staff of IT specialists. DEF Company needs an experienced person to carry out the implementation of the new system internally, as well as to train staff and provide support in the process. To this end, a DEF representative approaches Company ABC with an inquiry about bodyleasing. If the parties come to an agreement, the ABC employee will move to DEF for a few months to carry out tasks assigned by DEF management on site.
What about employee leasing? In principle, it is difficult to point out the difference between bodyleasing and employee leasing – especially since the terms are used interchangeably even in the courts. Certainly, however, employee leasing is a term we are more likely to encounter outside the IT industry.
Both forms of employee outsourcing – employee leasing and bodyleasing are permissible under Polish law. However, we can’t find relevant legislation that clearly closes the topic – but we do have examples of court rulings in which employee outsourcing was indicated as a legal form of optimization.
Important!
A third party should appear in the employee leasing(bodyleasing) agreement. In addition to the employer who “lends” the employee and the outsourcing company, the document must specify the employee who has been designated to carry out the project on behalf of his parent company.
Outsourcing vs. transition of workplace
The transition of the workplace is also an important issue. This is one of the potential legal consequences of entering into an outsourcing contract, which is detailed in Article231 of the Labor Code.
According to the content of the above-mentioned article, if there is a transfer of the workplace or part of it to another employer, this employer becomes a party to the existing labor relations (cf. Art. 231. § 1 OF THE LABOUR CODE). In such a situation, there is a change of employer – from insourcer to outsourcer while maintaining the continuity of the employee’s employment.
Previous court rulings confirm that the transfer of an establishment occurs in situations where a company moves from one company to another:
- tangible components of the business (machinery, vehicles, real estate),
- tasks concerning employees subject to transition.
It is this second point that clearly indicates that the conclusion of an employee outsourcing agreement can lead to the transition of the workplace (in whole or in part).
Important!
The transfer of the workplace does not have to be expressed by the will of the employers (parties to the outsourcing contract) – it occurs automatically when the relevant conditions are met.
It is therefore necessary – before concluding a contract – to carefully analyze the situation and assess the circumstances in order to avoid triggering the unwanted effect of the transition of the workplace.
How to make such an assessment? This is a complicated process, because it depends on many factors, including individual ones – concerning the parties to the contract and the arrangements between them. However, it is worthwhile to find answers to some key questions when doing this evaluation:
- Has there been a takeover of business assets – both tangible and intangible?
- Are the employees who are subject to the transition related to the tasks or processes that the other employer is taking over? To what extent?
- Does the business profile of the two employers (parties to the agreement) overlap or are there significant differences?
- Is there a transfer of customers from one employer to another?
- Will employees who transfer to the second employer be under the direction of the second employer or remain under the supervision of the original employer?
Effects of taking over a part of the workplace
If there has been a transfer of part or all of the workplace, this event will have specific consequences. These will be:
- Change of employer of transferred employees while maintaining continuity of employmentThe obligation to inform employees and/or union organizations operating at workplaces about the date, reasons and effects of the transition of the workplace on employees
- Obligation to inform employees of any changes in working conditions
- Obligation to report the acquisition of employees to the Social Security
- Obligation to include acquired employees in PPK
- Obligation to take over the personnel files of acquired employees from the original employer
The above-mentioned information obligations must be fulfilled within a minimum of 30 days before the date of transfer of the workplace or part of it to another employer.
Important!
In the situation of the transfer of an establishment or part of it, employees are given the right to terminate their employment. They can opt for this step unconditionally, with 7 days’ notice and within 2 months from the moment the workplace or part of it has been transferred to another employer.
Of course, nothing prevents an employer from encouraging employees to stay – for example, by offering a favorable change in terms and conditions of employment or a retention bonus.
In the context of restructuring activities, it should also be borne in mind that the mere transfer of an establishment or part thereof cannot be treated by the employer as a reason for termination of employment. The situation is different, however, if the transition of the plant will have organizational consequences (e.g., the need for job cuts). In such a case, the employer may terminate the contracts of some employees.
Employee outsourcing – summary
Outsourcing, while increasingly popular – especially in the IT industry – is a legally complicated activity. Court jurisprudence allows it, which many companies eagerly take advantage of, but before your company decides to make this move, it is worthwhile to analyze in detail all the planned movements, as well as to pay considerable attention to the correct formulation of the contract and to assess the circumstances under which it is to be concluded.
Negligence in this matter can lead to an organizational mess and the need to clarify many contentious issues with the Social Security Administration, trade unions and many other bodies.
