Working End > Change of Job > Outsourcing

Outsourcing of Jobs

Definition, Explanation

The term outsourcing refers to the subcontracting or redirecting of a company's task-components or processes to other businesses (e.g. the manufacturing or design of products) which are often abroad. This is procuring formerly internal services from external suppliers. Complete departments can become dispensable or the employees can be transferred to the other company by means of an outsourcing-contract. The goals of outsourcing are improvement and efficiency of business processes, focussing business to the main sector of the company and cost savings.

Companies increasingly focus to their core business and prefer sourcing out mostly services of call centers, of IT- and human resources departments, of logistics and payroll accounting.

During an outsourcing-process, in Germany, § 613 a BGB is applied which regulates labour-legal consequences.

Outsourcing associates a set of other terms, including application service providing (complete applications are provided by others like SAP), application hosting (running of applications sourced out while the application itself is still owned by the company), business process outsourcing (sourcing out a complete process like payroll or human recources), in-house outsourcing (outsourcing services still located within the company building) and partial outsourcing / outtasking (sourcing out parts of tasks like the operating of a call center).

When an outsourcing is reversed, i.e. tasks formerly provided by another company are taken back over, this is called insourcing. For the purpose of reducing costs, increasingly offshoring is applied which is outsourcing tasks to other countries like India or China.

Tips, Checklist

• Prior to an outsourcing process, the company's parts are structurally organized within the company
• Such a re-structuring is a „company change“ (German labour law: Betriebsänderung) which obliges the works council to be informed. Works council's approvement is not required, for it is an entrepreneurial decision
• A service- or outsourcing-contract determines what tasks are to be provided by the other company. It also specifies shares of the capital, database and staff which are transferred to the provider. It must contain the intended contract duration and specified procedures for the case of cancelling or ending, in detail
• Employees must be informed in written about the date, the reason and the consequences of the restructuring
• Employees can object within 1 month after receiving this information, in written
• In a case of objection by one of the employees, his or her employment will continue. However, this will make possible a dismissal for operational requirements because the job becomes dispensable due to the outsourcing
• The new employer enters all rights and duties that were in the old employment relationship, including company agreements, collective agreements and employment contracts
• Since the complete authority of the employer, including managerial authority, is maintained, also an „Abmahnung“, payment entitlements, approvements of salary increases or the duration of staff membership are adopted

Last update: 07/08/2010