Top 10 Tips for Hiring Outsourcing Services in Central America and the Dominican Republic
Oct 01, 2014 Top Ten Download PDF
By Francisco Salas
IntroductionIt is very common for multinational companies entering the Central American and Dominican Republic markets to hire outsourcing services, especially at the start of their operations when they have not yet acquired the capabilities to perform certain tasks using their own personnel.
While engaging outsourcing services is completely legal and not as restricted as in other regions, it is important to consider the following tips.
1. Be aware that no laws in Central America or the Dominican Republic regulate outsourcing services.
Neither the Dominican Republic nor any of the countries in Central America have enacted specific laws that regulate this type of service contract. As such, the obligations and rights of all parties involved are not established by law.
Given the lack of regulations, an outsourced worker may confuse the nature of the relationship and believe that he or she should be considered an employee of the company that contracted to receive the services and, therefore, bring a claim against the latter to hold the company jointly liable for any compensation or benefits owed to the worker under labor and social security laws.
The lack of legislation creates an obligation to be proactive when it comes to defining the relationship with the outsourcing companies.
2. Look for an outsourcing company with experience and a good reputation in the local or regional market.
The lack of regulation can open the door for opportunists that attempt to enter the market disguised as an outsourcing company, when in fact they are intermediaries. Intermediaries typically source workers for other companies, but fail to pay the workers correctly or hire them into conditions that violate the labor legislation.
Businesses should avoid hiring a company of the same economic group, for a specific service, if that company does not offer it to the general public. The creation of a separate company to give exclusive services to another company of the same economic group will make both jointly responsible for any employee.
3. Sign a detailed contract or agreement with the outsourcing company.
Local authorities in all of the countries in this region will presume that the outsourced worker is an employee (even in the absence of a written employment contract) if the company that hired the outsourcing service cannot prove that there is a service provider contract between the two companies and that such contract establishes the terms and conditions of the commercial relationship.
The outsourcing or service provider contract should establish the obligations and rights of each party, and it should clearly state that the outsourcing company absorbs all legal responsibility with respect to the outsourcing company's own employees. The contract should also state that the company that contracted with the outsourcing company to receive the services maintains the right to check on a regular basis the outsourcing company's compliance with its obligations as an employer.
4. Avoid exerting control (known as "subordination") over the outsourced personnel.
The employees of the outsourcing company and the employees of the company that contracted for the outsourced services can easily blend together, creating confusion as to who should be deemed to be an employee or an outsourced worker. Therefore it is important to set clear distinctions between the groups.
The company that hired the outsourcing company should not engage in acts of control (also known as "subordination") over the outsourced personnel. While it is acceptable to give regular instructions on how to perform the services that the outsourced personnel were hired to perform, there should be no verbal or written reprimands, nor any other kind of behavior that might create the impression that the outsourced worker is under a subordinated (or employment) relationship with the company that is paying for the outsourced service.
5. Exclude all outsourced personnel from all types of company benefits.
Even though an employee of the outsourcing company might share the same facilities as the employees of the customer (the company that hired the outsourcing company), this should not provide the outsourced workers with access to benefits available to the customer's employees.
Benefits such as cafeteria services (with special prices for employees), gym membership/access, access to the company's doctor, birthday celebrations, Christmas parties, etc., that are available for the customer's employees, should not be made available to the outsourced worker. Such exclusion will help avoid any claim from the outsourced personnel that they were treated as any other member of the customer's staff.
It is important to remember that in the countries in this region, when a case is unclear, the labor judge is obligated to rule in favor of the employee, and when the plaintiff has access to the benefits referenced above, it might create the requisite doubt in the mind of the judge.
6. Name a contact person as the only connection with the outsourcing company.
Each of the companies involved in an outsourcing contract should appoint a person at each company as their only contact, so that all communications related with the execution of this agreement should be handled by them. Following this simple rule will help avoid having the customer's employees giving inappropriate instructions to the outsourced personnel.
While you may have all the documents that prove the existence of an outsourcing agreement, perception can play a large part if a claim is filed by one of the outsourced workers. Therefore, it is important to be sure you have all communications and actions under the control of as few people as possible.
7. Give training to your personnel on how to interact with employees of outsourcing companies.
As we mentioned, a single question in the judge's mind can be enough to make him or her rule in favor of the employee seeking compensation from a company that was not the direct employer, but behaved like one.
It is crucial that all employees understand the differences between the regular workforce of the company and the employees of the outsourcing company, as a way to avoid any potential legal liability.
Also, the company should train the outsourced personnel about any limitation they may have for using the company's premises or services and regarding certain internal policies that might be applicable, for example, a policy against sexual harassment in the workplace.
8. Check the compliance of the outsourcing company with local authorities.
The customer (the company that hires the outsourcing service) should require, as part of the terms and conditions of the services agreement, the right to check at least every quarter, that the outsourcing company is complying with the local authorities, especially regarding social security contributions and taxes.
Some of the local authorities in the region consider that, should they discover any irregularity related to an outsourcing contract, both parties should be jointly liable for any obligation that was not fulfilled and that might affect the outsourced worker's interest or those of the government.
9. Review terms of the outsourcing contract on a yearly basis.
Given the possibility that there might be claims from employees of outsourcing companies or difficulties in handling personnel assigned to the company, the term of the contract should not exceed one year, so that both parties can review all clauses on a yearly basis and determine whether they should continue the relationship.
Long-term contracts that are not constantly reviewed might create a false impression for the outsourced workers assigned to the customer's company. Therefore it is important to make regular revisions to avoid inappropriate behavior from any of the parties that could generate problems in the future.
The yearly review of the contract's terms should serve as an opportunity to identify possible mistakes in the execution of the contract. For example, one mistake can be the use of outsourced personnel for tasks that are not included in the services agreement that the parties executed. The review can also be an opportunity to audit the price charged by the outsourced company, to make sure it is enough to cover the obligations with the employees, because it is not uncommon to see companies offering a "competitive price" in order to win the contract, which can then affect the outsourced workers' pay and labor rights.
10. Rotate as much as possible the outsourced personnel that are assigned to the company.
After a long period of time of rendering services for the same company, it is very easy for an outsourced worker to start thinking that he or she is an employee of the company that hired the outsourcing services company, thereby confusing the "commercial relationship" between the outsourced company and its customer for an employment relationship.
To avoid this situation, it is best to rotate personnel and ask the outsourcing company to periodically change the assigned workers in order to avoid potential claims.
Outsourcing is a very common tool used by companies to cover many non-essential services. Because of the lack of regulation of this type of contract, companies that intend to hire an outsourcing company to provide specific services should implement very clear rules, not only with the outsourcing company (the terms of which should be expressly stated in the services contract), but also within its own company. Doing so will help the company avoid treating the outsourced personnel in a way that might create confusion about the existence of an employment relationship.
One common characteristic in this region is that, according to labor law, even though you may have all documents and contracts establishing the intent or the nature of the company's relationship with the outsourced personnel, the actions of the company and its representatives might be enough to expose the company to liability not only with respect to the outsourced personnel under the labor and employment laws, but also before the labor authorities in charge of enforcing local law.
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