Why Do Companies Outsource Workers to Third-Party Payrolls, and What Are the Benefits?

I am working as an HR executive with a manufacturing company. Around 300 employees are outsourced on the payroll of a third party. Can you please let me know why workers are outsourced to a third party and what the advantages of it are?

Regards,
Veena

Hi Veena,

Usually, companies keep some of the workers on the payrolls of third parties to reduce the costs incurred by the company. If the worker is on the payroll of the company, they will be eligible for all the welfare activities that the company provides, which in turn will cost the company. They can even pay a lesser amount in terms of salaries to the workers if they are on the payrolls of third parties. Outsourcing the workers is a great advantage to the company. Usually, companies make a worker permanent if they do great work, and this permanent employment would encourage them to stay with the company for a longer period.

Regards,
Gowtam

It is a wrong perception that workmen outsource on third-party payroll cost less or benefits are given less. You have to provide all the minimum required benefits to the outsourced staff governed by the statutory requirements. Although contract employment is legal, you can only hire contract staff for activities that are incidental to your main business and have no direct relation to the main business.

Here the company benefits because if at any point in time that activity is stopped or becomes redundant, then you can reduce that staff at a lower cost as they are not directly linked to the company. Therefore, we have to be very cautious about how we use this provision of the law.

Thanks & Regards,
Amal Shere

Can anyone tell me what is the normal service charge charged by the entity providing these outsourcing services and what are their obligations?

Regards,
Nehal Ganatra

Dear Friends,

This is Raghu. Can you suggest how to develop a new startup business, i.e., manpower consultants?

It is a wrong perception that workmen outsource on third-party payroll cost less or benefits are given less. You have to provide all the minimum required benefits to the outsourced staff governed by the statutory regulations. Although contract employment is legal, in reality, you can only hire contract staff for activities that are incidental to your main business and have no direct relation to the main business.

In this scenario, the company benefits because if at any point that activity is stopped or becomes redundant, then you can reduce that staff at a lower cost as they are not directly linked to the company. Therefore, we have to be very cautious about how we utilize this provision of the law.