The IT outstaffing model: an approach to hiring remote talent you'll want to try
In the late 90s, the business world faced a new fast-growing trend — outsourcing. The American tech industry pioneered in trying out the new approach to doing business with the help of third-party vendors. Since then, nearshore and offshore partnerships have been getting increasingly common for both big corporations and small startups.
Cost efficiency was the main reason to take the outsourcing route in the past. But as time went by, the classic outsourcing model as we know it today started to show flaws. Low code quality, poor motivation and understanding of business specifics among outsourcing vendors’ employees, missed deadlines, inflated budgets, and unpredictable end products were among the most common claims.
And then, the outstaffing model came to the scene as a new method of hiring remote talent. While still technically outsourcing, outstaffing gives the client more control over the product by allowing them to manage remote workers directly. Within the tech industry, the outstaffing model is commonly used by SAAS companies, tech startups, middle-sized businesses, and global corporations.
What does outstaffing mean and how does it work?
Outstaffing is a type of indirect employment in which TalentKeeper X provides the services of staffing, retaining and overseeing full-time talent for Company Y. TalentKeeper X also covers legal aspects of cooperation, provides work space and IT support to the outstaffed team members, pays their salaries, recruits new talent, and conducts HR processes.
In America, outstaffing typically goes under the name of "contracting," in Europe — "subcontracting," or "offshoring," in Australia — "talent outsourcing" or is described as "hiring a contract worker." The very word “outstaffing” comes from a combination of words "outsourcing" and "staff."
Let’s take a look at a hypothetical situation. The CEO of NorthDevTech, a Netherlands-based tech company, decides to hire a team of specialists located in an Eastern European country. After researching online and talking to fellow business owners, they decide to partner with TalentPro, a company specializing in staffing clients’ teams with local specialists. NorthDev sends TalenStaffingtPro detailed job descriptions and requirements for their open positions. TalentStaffingPro proceeds to find fitting candidates, who NorthDevTech interviews and then approves the ones they like best. The latter sign contracts with TalentStaffingPro, while TalentStaffingPro signs a contract with NorthDevTech. This way, NorthDevTech indirectly hires full-time talent that is technically employed by TalentStaffingPro. As a result, the Dutch company extends its team with subcontractors located abroad.
Alternatively, within classical outsourcing the client partners with an outsourcing vendor that takes full responsibility over managing talent and implementing the project. That’s why outsourcing rates include the cost of daily team management, overheads that the vendor uses to cover the salaries of other employees, and risk management. This explains why, on average, outstaffing rates are 20 to 30 percent lower than outsourcing rates.
Core outstaffing benefits — what companies find it most useful?
One of the main benefits of outstaffing is that it can cover the growing talent shortage haunting the tech industry. IT outstaffing best suits those tech companies that want to extend their existing tech team quickly and want to keep ultimate control over their talent and projects.
In the best-case scenario, the client company has tech expertise on its side to manage the extended IT team, while the outstaffing service provider facilitates everything else. However, it’s not uncommon for companies to hire project managers together with the remote team through an outstaffing vendor.
The crucial difference between the IT outstaffing model and the IT outsourcing model is that in outstaffing, the client directly manages the distributed team and has full responsibility for timely delivery of the product and its quality.
In outsourcing, the technical vendor takes care of managing the team as well as all the required planning and tracking activities that should lead to the successful delivery of the product. The vendor manages the tech team on a daily basis. In the majority of cases, the vendor will staff the team with their existing engineers.
What are the advantages and disadvantages of the outstaffing model?
| Advantages | Disadvantages |
|---|---|
| Advantages | Disadvantages |
| The client doesn’t need to look for remote tech specialists themselves. The vendor staffs the client's projects with their own tech talent on a subcontractor basis. The client doesn’t take care of payroll and employment taxes of the remote employees on their team. | Outstaffing typically requires tech expertise on the client’s side, although tech management can be outstaffed as well to assist non-tech companies in building and maintaining their products. |
| Rates are lower than within the outsourcing model as they exclude the cost of risk management and overheads. | The client has full control over the workload of the outstaffed team. Consequently, the responsibility for successful and timely delivery is the client's, not the vendor’s. |
| The outstaffing vendor covers administrative processes such as payroll, recruitment, etc. allowing the client to concentrate on managing the product delivery team. |
