The concept of HR outsourcing, very popular in most Western countries, is still relatively little used in Russia: domestic organisations prefer to use this service only for recruitment. According to a number of analysts, companies are simply afraid to entrust HR processes connected with legal regulation to outside firms. The company's lead compensation and benefits specialist explains why HR outsourcing should not be feared and why it can be beneficial.
The company's extensive expansion on the Russian market began in 2000, and initially it was decided to outsource HR processes, primarily payroll. At first alternative options were not even considered, because the enterprise's operation on the domestic market had to be established as quickly and promptly as possible. Organising in-house payroll would inevitably have forced the company to look for specialists and fine-tune business processes, and therefore to incur additional financial and time costs.
Lead compensation and benefits specialist of the company: "As part of preparing to enter the Russian market, serious work was done to choose a provider that would handle the calculations for the next three years. However, in 2003, as the company's presence in Russia expanded, the quality of the services provided stopped satisfying us, and we decided to move to another outsourcer, UCMS Group, which still calculates our salaries today. At first we used the outsourcing service for objective reasons, and then we simply had no reason to abandon this model. At present it is in place in all the subsidiary organisations of the group (7 legal entities), which employ around 5 thousand people."
When choosing an outsourcer, the company's specialists pursued two main goals. First, a service company with high growth potential was required, one ready to meet the client's growing needs. And second, the company was interested in a partner it could trust. Since HR management processes in Russia are strictly regulated by the Labor Code, any delays and mistakes by the outsourcer can lead to very negative consequences.
Lead compensation and benefits specialist of the company: "At the same time our company always approaches budgeting very carefully, and so we needed a provider ready to calculate salaries at a price acceptable to us. On the other hand, experience with our current outsourcer shows that the cost of these services is actually not so high that one should think about performing these functions in-house. If a decision were taken now to do the calculations ourselves, we would have to hire new employees, supervise them and pay them. Having moved to outsourcing once, clients rarely abandon this model later on."
The company probably found it easier to use payroll outsourcing because it had never done it in-house. However, the experience of changing provider in 2003 shows what pitfalls can be encountered in the early stages of an outsourcing project.
Lead compensation and benefits specialist of the company: "Once the decision to change the service provider had been taken, a new outsourcer had to be found. The search process is fairly clear and transparent, but it is precisely the right choice at this stage that becomes the key to the success of the whole outsourcing project."
Indeed, if the wrong decision is taken at the provider selection stage, all the remaining efforts may be in vain. That did not happen in our company's case, and the transition to the new provider turned out smooth and seamless.
Lead compensation and benefits specialist of the company: "The further work on the project can be divided into two parts: on the one hand, agreeing the legal and financial terms of cooperation, and on the other, agreeing the technical part of the business processes, developing the most effective format of interaction and exchanging data. In our case all those actions were completed within a few months."
When delivering any outsourcing project it is important to understand that it does not end once the processes handed "to the outside" have been fine-tuned and started. It would be naive to think that everything can be agreed at the preliminary stage and relied upon for many years. In practice the situation changes quickly, new requirements often arise, and the outsourcer must be ready to meet them. That is precisely why the company constantly strives to improve the interaction.
Lead compensation and benefits specialist of the company: "Over several years of cooperation with our current provider a great deal has indeed changed. The number of employees for whom salaries are calculated has grown several times over, and the organisational structure of our group has become substantially more complex. In addition, the company's HR policy has its own specifics: employees often move from one division of the company to another, and that requires flexibility and prompt decision-making from the outsourcer."
To understand exactly how outsourcing works in the company, you need to know the structure of that company in Russia. Seven subsidiary enterprises (separate legal entities) of the group operate in our country, in different regions. So calculating employees' salaries requires preliminary consolidation (combining) of the data of all seven organisations.
Lead compensation and benefits specialist of the company: "At present the calculation works as follows. Each manager passes data to the outsourcer once a month. Information about days off, vacations, sickness and dismissals is entered during that period into our internal HR management system and then exported from it to the provider through secure channels, and the outsourcing company's specialists process it. I would note that we ourselves defined the data transfer format from the outset, and our partners adapted to our requirements."
The company then receives all the necessary reports in the established form, as well as payslips for each employee. In addition, the HR service constantly needs urgent and additional calculations, which have to be carried out extremely promptly. For example, under the provisions of the Labor Code of the Russian Federation, the employer must provide the employee with a calculation on the day of their dismissal.
Let us add that all the processes of the company's interaction with the outsourcer are set out in the project documentation. Before each calculation period all operations are planned and the time for submitting reports is specified to within an hour.
There is often an opinion that outsourcing is unsafe: when personal data is handed to an outside company, there is a risk of breaching its confidentiality. In the worst case that information could reach competitors, who would start poaching employees by offering them a higher salary.
Lead compensation and benefits specialist of the company: "I am often asked questions about the security of outsourcing. Three main points can be highlighted here. First, information security is an important component of the contracts we conclude with the provider. They clearly state what financial liability the outsourcing company bears in the event of a data leak. Second, allowing one is extremely unprofitable for the provider itself, since every incident of this kind leaves a black mark on its reputation. That is precisely why our outsourcer, UCMS Group, independently implements various protection systems and quality control methodologies such as ISO 9001:2000, and actively trains its employees. And third, even if we set aside the first two arguments, I see no reason why in-house payroll could be called a safer process than having this function performed by an outsourcer."
Indeed, in both cases certain employees have access to confidential information, but in the provider's case they sit in a different office. Both groups can make mistakes or leak data with roughly the same probability. In-house specialists are of course "closer to home", but it is not certain that they will prove more ethical and professional.
Lead compensation and benefits specialist of the company: "On the whole, I am convinced that concerns about data confidentiality in outsourcing are far from always justified. Often a competent choice of partner leads to a higher level of security than delivering business processes in-house."
The company has never done its own payroll, so it has nothing to compare its current costs with. And, as noted above, they are not so large as to warrant thinking about moving to another model.
Lead compensation and benefits specialist of the company: "At the moment we pay an average of 225 roubles a month for calculating one employee's salary, and even simple arithmetic shows that the total sum would most likely not even cover the payroll fund of the specialists we could hire for in-house calculations."
To move to outsourcing you need, above all, courage: new business models and technologies are created to be used, not feared. As competition grows, companies will have to concentrate on their core processes and actively apply outsourcing in all areas of their activity. Including in HR management.
