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The article “Reorganizing through staff outsourcing” by Lyudmila Kazimirova, Head of Recruitment and Staff Leasing Services in SGS Vostok Limited, was published in latest edition of the annual guide of the Association of European Businesses ”How to invest in Russia”. The article treats the problems a foreign investor might face in the Russian market while outsourcing personnel and gives practical recommendations on how to minimize risks and take advantage of staff leasing in Russia.

Reorganizing through staff outsourcing

One of the first issues faced by an investor after an acquisition in Russia is personnel management. It is common practice for the investor to start reorganization, coupled with either a reduction or increase in staff. To reduce the risks arising as a result of such activities foreign investors would think of staff outsourcing in Russia as they do in the rest of the world. Below we shall focus on the pitfalls and recommendations with regard to staff outsourcing in Russia.

Lack of legal framework

The key characteristic of the current market situation is the absence of any law regulating the relations between the staff provider keeping the pay-roll, the company physically employing the person and the employee.

There have been a lot of talks and disputes about the draft of such a law that will hopefully be considered in the Russian State Duma in 2009. The draft is entitled as follows “Regarding protection of rights of the employees hired by private employment agencies with the objective to provide their labor to third parties”. Authors of the law propose to implement a licensing system for the agencies engaged in staff outsourcing so as to eliminate “gray” and not reliable providers from the market. There are also clauses determining the division of responsibilities between an employer and a staff provider, for example on HSE, financial responsibility and so on. Still, as long as this law is not enforced all the stakeholders are subject to the existing labour and civil law systems of the Russian Federation that do not take into account staff leasing particularities.

Therefore, when taking a decision on whether to use outsourcing in Russia, so far the investor should rely on his own and his partner’s ability and experience to judge the best scheme for his specific situation and make relevant provision in the agreement between the two parties for every potential handicap.

Escaping paperwork?

Staff outsourcing provides an opportunity to concentrate on an organization’s core business without being distracted by diverse and time-consuming paperwork and administrative issues in relation to personnel management. Indeed, you get rid of prikazy (orders), zayavleniya (applications), tables, pay-roll and other documentation necessary for the Russian kadrovoye deloproizvodstvo (paperwork related to HRM). Advantages are obvious when expatriates are concerned since staff outsourcing releases the organization from the need to go through the registration and work permitting procedure for foreign staff in Russia.

At the same time you should be prepared for assuming documentary logistics and communication concerning any changes in the employee’s activities. In the contract between a provider and the employer it is advisable to clearly define responsibilities and specify timeframes. For example, if an employee goes on a business trip (komandirovka), the employer should send notice to his provider a few days prior to the trip so that the latter is able to issue a komandirovochnoe udostovereniye (trip authorising document) to the employee and transfer an avans (advance payment) to the person sent on the trip. It is also necessary for an employer and his staff provider to come to an agreement with regard to how soon a provider should issue required documents to employees following their personal requests. Quite often employees need to obtain spravki (references) or copies of trudovyie knizhki (labor books) to provide to banks or other organizations and they might need to get these papers urgently. Ideally, the service provider should be able to cope with this.

Information needs protection

One should also pay attention to the security of the information passed to the agency concerning all HR matters of the outsourced personnel, especially concerning remuneration figures etc. Unless you stipulate confidentiality clause in your contract with the staff provider information security could be at risk.

Social risks

When opting for staff outsourcing, the social climate in the organization should not be neglected. In Russia, many people still have no scruples in sharing labour contract terms with colleagues, which creates serious barriers for practising unequal conditions of work. If office personnel is partly outsourced and partly kept on your pay-roll, large discrepancies between their salary levels and fringe benefits could be critical for staff productivity and loyalty.

What kind of personnel to outsource?

One of the key issues when considering an outsourcing scheme is to decide upon the right category of personnel to outsource. There are basically no problems for white-collar workers, but there can be difficulties when outsourcing blue-collars. The Russian social insurance system includes mandatory social insurance against accidents at work and occupational diseases with rates varying from 0.2% up to 8.5% from the total of labour remuneration depending on the organization’s occupational risks. A traditional recruitment agency would normally have a 0.2% tariff, whereas a manufacturing facility would be obliged to pay more. The legal solution for such a case could be partnering with a staff provider classified as an industrial facility itself and consequently paying the appropriate rate of the so called “traumatic tax”, otherwise the outsourcing scheme could be considered as illegal. The same ambiguity relates to pensions, which an industrial worker is entitled to receive earlier than other employees. If he is not on the pay-roll of the plant, what is he supposed to be classified as by the pension fund– an office employee?

The need for cooperation

When outsourcing staff, an investor considerably reduces his legal risks due to the fact that according to the relevant documentation his workforce is employed by another company (the staff provider). Indeed, it is the provider who deals with hiring, dismissal, etc. However, if something happens in relation to discipline or HSE there should be cooperation between the two organisations to solve the problem, including in cases involving court examination.

Apart from having everything stipulated in the contract and hopefully in the law in the near future, Russian business environment still depends a lot on relations. The key to success in outsourcing, like in other activities engaging more than one party, is to have a clear understanding what each side expects from the partnership, implementation of an effective interaction scheme and a trustworthy relationship.


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