Employee outsourcing has become one of the major forms of recruiting and managing human capital in most organisations now. By outsourcing employees, organisations are able to focus on their core business while delegating the management of their human capital to other firms established mainly to manage human resources. While this model can be beneficial, there are several challenges that can arise when using this model. This article delves into the differences between outsourced employees and permanent employees, the benefits and detriments of each type of employee or model as well as the legal implications for organisations who opt to outsource their employees.
Historical Antecedents
Outsourcing employees emerged from a combination of economic, political and business pressures. It was driven by the need for flexibility, cost savings, specialization and the need to reduce liability. Its formal adoption began in the mid-20th Century. In Ghana, employee outsourcing began to take shape in response to economic reforms, labour market changes, and the needs of the private sector especially from the 1980s.
Understanding the basics: Outsourced Employees vs Permanent Employees
Outsourced employees are workers who are recruited and managed by a third party agency, usually an HR firm or an outsourcing firm and who work directly in another organisation usually referred to as the client company. Such employees are employed by the outsourcing company but work directly for the client company either on-site or remotely. Legally, outsourced employees are the responsibility of the outsourcing firm and not the client company.
Permanent employees on the other hand, are recruited and managed directly by a company and work directly for that company without any middle man playing any role in their recruitment or management. Permanent employees are entitled to full employment benefits and job security.
Differences between Outsourced Employees and Permanent Employees
For an outsourced employee, the HR firm is his or her employer and the firm bears the human resource management responsibility towards the outsourced employee. The company in which the outsourced employee works in is only responsible for the day to day tasks in the company. For a permanent employee on the other hand, the company in which he or she works in is the legal employer and is responsible for the payment of salaries, social security and other statutory entitlements.
Advantages of the Outsourcing model
One advantage of the outsourcing model is that it enables companies save money. It reduces the additional cost of recruiting and managing the human resource needs of employees. Another major advantage of the outsourcing model is that it enables companies focus on their core business while delegating the human resource management of outsourced employees to the HR or outsourcing firm. A company has the added advantage of sharing the risk of hiring, keeping, managing the human resource needs of the outsourced employee with the HR firm. Again, a company may have easy access to specialized skills, expertise and experience that may not be readily available by using a third party agency to engage an outsourced employee.
Disadvantages of the Outsourcing model
A key disadvantage of using the outsourcing model is the potential reduction in employee loyalty. Outsourced staff may feel excluded from the company’s culture, leading to low morale and high turnover which has a rippling effect on service quality and delivery. Another disadvantage of the outsourcing model is the risk of potential exploitation if outsourced staff are poorly paid as compared to the permanent staff. Some outsourced staff perform the same duties and functions as the permanent staff in the company. However, they are poorly paid as compared to the permanent staff which causes all sorts of confusion in the work place with outsourced staff feeling cheated and unappreciated. This situation can lead to a reputational risk for a company using outsourced workers under poor conditions.
Another key challenge is the lack of clarity regarding reporting lines and accountability for outsourced employees. Many become confused as to who they should report to and who bears responsibility for their welfare within the company they are assigned to. When issues arise, resolution is often delayed due to the lengthy and unclear reporting structures involved.
A recurrent issue for many outsourced employees is the uncertainty surrounding the identity of their actual employer. Outsourced employees often grapple with the question: who is responsible for my well-being while I am at work? Many face difficult situations where, although they are stationed at a particular workplace and report to supervisors there, matters relating to their salary, leave, and human resource management are referred to a different company.
Another issue that may arise is determining who bears responsibility when an outsourced employee is injured while performing his or her duties. Questions often emerge as to who is liable for medical expenses and overall care in such situations, especially where contracts between third-party agencies and client companies are not comprehensive enough to address these concerns. The lack of clarity in such agreements frequently leads to complications and disputes when such incidents occur.
Advantages of the Permanent employee model
A major advantage for a company relying on permanent employees is that permanent employees tend to be more loyal and stable in the organization over a longer period of time as compared to the outsourced employees. Permanent employees are more committed to the organization and to their work therefore leading to lower levels of turnover in the company. Lower turnover contributes to greater consistency and reliability in the workplace while also reducing costs associated with frequent training and onboarding of new employees.
Disadvantages of Permanent employee model
A company with permanent employees solely bears the cost of paying salaries, SSNIT, severance pay, leave entitlements among others. It may be harder for companies with permanent workers to downsize in response to changing market conditions since the termination process for permanent staff are more complex and regulated. There may be a risk of complacency among some permanent employees since they may become less motivated or innovative due to the job security they experience at their work. Permanent employees also increase a company’s administrative burden since the company is directly responsible for managing the human resource needs of the permanent employees.
Legal Framework Regulating Outsourced Employees in Ghana.
The Labour Act, 2003 (Act 651), herein after referred to as the Act, is the main legislation that governs the employee-employer relationship in Ghana. The Act does not specifically mention or define an outsourced employee or the outsourcing model. However, Sections 73 to 78 of the Act deals with Casual and Temporary workers.
Section 78 of the Act defines a casual worker as a worker engaged on a work which is seasonal or intermittent and not for a continuous period of more than six months and whose remuneration is calculated on a daily basis.
The same section defines a temporary worker as a worker who is employed for a continuous period of not less than one month and is not a permanent worker or employed for a work that is seasonal in character. The casual worker and the temporary worker are loosely classified as non-permanent workers. Most casual and temporary staff are managed by outsourcing firms. They form part of the work force in the company however, they are employees of the outsourcing firms hence the name non-permanent staff.
Section 74 of the Act provides that a contract of employment of a casual worker need not be in writing. As such outsourcing companies who employ casual workers need not have a written contract of employment with a casual worker due to the nature and tenure of their employment.
Section 75 of the Act states that a temporary worker who is employed by the same employer for a continuous period of six months and more shall be treated under this Part as a permanent worker.
Section 12 of the Act provides that the employment of a worker by an employer for a period of six months or more or for a number of working days equivalent to six months or more within a year shall be secured by a written contract of employment. It also states that a contract of employment shall express in clear terms the rights and obligations of the parties.
Section 68 of the Act also provides that every worker shall receive equal pay for equal work.
CHALLENGES
Ghana lacks a specific legislation regulating the outsourcing model. As a result, outsourced workers face challenges in seeking redress for issues unique to their employment arrangement. Additionally, many outsourced workers are underpaid, excluded from benefits that are available to permanent workers and are sometimes fired without cause.
The Labour Act provides under Section 68 that every worker is entitled to receive equal pay for equal work. However, this is not the case for many outsourced workers in Ghana. One would find that outsourced workers performing the same roles as permanent workers receive lower salaries as compared to permanent workers doing the same work. This situation is particularly disturbing as some outsourced workers may remain in such roles for many years without ever being given the opportunity to transition into permanent employment.
The Act specifically states that a temporary worker who is employed by the same employer for a continuous period of six (6) months and more shall be treated as a permanent worker. Despite this statutory mandate, many outsourced employees in Ghana find themselves working continuously for a client company sometimes, for many years without ever being transitioned into permanent employment.
Another significant challenge arises when the contract between the HR firm and the client company is poorly drafted, resulting in unclear delineation of responsibilities. This ambiguity can lead to confusion over who is accountable when issues emerge such as who is responsible for supporting an outsourced worker in the event of a workplace injury or an incident that occurs in the course of their duties.
RECOMMENDATIONS
Given the increasing reliance on outsourced staff in Ghana, there is a pressing need for a specific legislation that addresses the unique nature and needs of outsourced workers.
Additionally, companies engaging outsourced personnel must ensure that the outsourcing firms they work with are fully compliant with the labour laws and that they duly fulfill their SSNIT obligations towards their outsourced workers.
It is also crucial for companies who rely on outsourced employees to clearly define the respective responsibilities of all parties involved. This will prevent any confusion among outsourced workers regarding their employment status and discourage them from believing they are permanent staff.
The Labour Commission must also intensify its monitoring of outsourcing agencies and client companies to ensure compliance with the Act.
Penalties must also be imposed for non-compliance to serve as a deterrent to outsourcing companies and the third party companies.
It is further recommended that regulations are passed that limit outsourcing for core or permanent functions to a maximum period (e.g. 6 or 12 months), after which the worker must be absorbed by the host company.
Outsourced workers can also unionize or join sector-wide collective bargaining units in conformity to Section 10(d) and Section 79 of the Act which provides that every worker has the right to form or join a trade union of the worker’s choice for the promotion or protection of the worker’s economic and social interests, ensuring they are not left out of wage negotiations and benefits schemes.
CONCLUSION
The use of outsourcing in Ghana’s labour market is steadily increasing, offering companies greater operational flexibility and cost efficiency. However, it also presents significant legal and ethical challenges particularly regarding employee rights, fair treatment and accountability. The absence of clear legislation governing outsourcing arrangements leaves many outsourced workers vulnerable to exploitation, poor working conditions and legal uncertainty. To address these concerns, it is imperative for the enactment of a specific legislation that will regulate the outsourcing model and protect the interests of outsourced employees. At the same time, the third-party companies must take proactive steps to ensure that HR firms comply with existing labour regulations and that roles and responsibilities are clearly defined in their contractual agreements. Only through a balance and legally sound approach can the benefits of outsourcing be realized without compromising the rights and welfare of workers.
