What is it called when a company decides to contract its payroll services to a local financial organization?

Answer

The data controller determines the purposes for which and the means by which personal data is processed. So, if your company/organisation decides ‘why’ and ‘how’ the personal data should be processed it is the data controller. Employees processing personal data within your organisation do so to fulfil your tasks as data controller.

Your company/organisation is a joint controller when together with one or more organisations it jointly determines ‘why’ and ‘how’ personal data should be processed. Joint controllers must enter into an arrangement setting out their respective responsibilities for complying with the GDPR rules. The main aspects of the arrangement must be communicated to the individuals whose data is being processed.

The data processor processes personal data only on behalf of the controller. The data processor is usually a third party external to the company. However, in the case of groups of undertakings, one undertaking may act as processor for another undertaking.

The duties of the processor towards the controller must be specified in a contract or another legal act. For example, the contract must indicate what happens to the personal data once the contract is terminated. A typical activity of processors is offering IT solutions, including cloud storage. The data processor may only sub-contract a part of its task to another processor or appoint a joint processor when it has received prior written authorisation from the data controller.

There are situations where an entity can be a data controller, or a data processor, or both.

Examples

Controller and processor

A brewery has many employees. It signs a contract with a payroll company to pay the wages. The brewery tells the payroll company when the wages should be paid, when an employee leaves or has a pay rise, and provides all other details for the salary slip and payment. The payroll company provides the IT system and stores the employees’ data. The brewery is the data controller and the payroll company is the data processor.

Joint controllers

Your company/organisation offers babysitting services via an online platform. At the same time your company/organisation has a contract with another company allowing you to offer value-added services. Those services include the possibility for parents not only to choose the babysitter but also to rent games and DVDs that the babysitter can bring. Both companies are involved in the technical set-up of the website. In that case, the two companies have decided to use the platform for both purposes (babysitting services and DVD/games rental) and will very often share clients’ names. Therefore, the two companies are joint controllers because not only do they agree to offer the possibility of ‘combined services’ but they also design and use a common platform.

References

  • References: Article 4(7) and (8), Articles 24, 26, 28 and 29 and Recitals (74), (79) and (81) of the GDPR
  • Article 29 Working Party Opinion 1/2010 on the concepts of 'controller' and 'processor' (WP 169)

Type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company

What is Business Process Outsourcing (BPO)?

Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company. The third party is responsible for carrying out all operations related to the business function.

What is it called when a company decides to contract its payroll services to a local financial organization?

BPO is also known as subcontracting or externalization. It was originally used in the manufacturing industry but is now used for numerous business processes.

Summary

  • Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company.
  • Organizations contract with BPO vendors for back office and front office operations.
  • BPO offers several benefits, such as lower costs, global expansion, and higher efficiency, while some of the drawbacks include security issues, hidden costs, and overdependence.

What is BPO Used For?

Organizations contract with BPO vendors for two main areas:

  1. Back office operations: They include payment processing, information technology services, quality assurance, etc.
  2. Front office operations: They include marketing, sales, customer relations, and grievance redressal.

In many cases, organizations outsource one or more functions. For example, instead of outsourcing all HR functions, the company will outsource just the payroll processes.

Over the years, the BPO industry’s expanded considerably and offers a wide range of services and functions to organizations.

Types of BPO

BPO companies can be divided into several types based on their location:

  • Onshore outsourcing: When an organization hires a service provider that is located in the same country. It is also called domestic outsourcing.
  • Nearshore outsourcing: When an organization hires a service provider in a neighboring country.
  • Offshore outsourcing: When an organization hires a service provider in a different country. It is also called offshoring.

Making the BPO Decision

Transferring in-house work to a BPO company requires change management as it impacts employees, workflow practices, and business operations as a whole. The outsourcing decision-making process involves the following:

  1. Company executives arrive at the decision to outsource a business process or a part of it.
  2. They weigh the pros and cons of the decision and decide whether it makes strategic sense to the organization.
  3. They identify the best BPO for the work and shift the work from in-house to the external services provider.

Benefits of BPO

1. Lower costs

One of the main reasons organizations outsource is cost reduction. Instead of buying IT equipment and hiring more employees to do different tasks, they can outsource the tasks to a service provider, reducing or even eliminating overhead costs.

2. Higher efficiency

BPO companies are experienced in different fields and perform at the highest level. They also adopt best practices and use the latest technology. It naturally results in higher efficiency and greater productivity.

3. Focus on core business functions

Many companies, usually start-ups, encounter a difficult time with ancillary business activities. Transferring non-core processes to a BPO company gives the organization more time to focus on its main business activities.

4. Global expansion

If an organization decides to enter an overseas market, some activities that require local market knowledge, national law expertise, or fluency in a foreign language can be assigned to a BPO company. It helps in boosting efficiency and quicker expansion.

Drawbacks of BPO

1. Security issues

There is the possibility of a security breach while working with a BPO company as sensitive data needs to be shared and processed.

2. Overdependence on the BPO company

When work is outsourced to a BPO company for a long period, an organization can become accustomed to the way they work and tend to get overdependent on them. It leads to the organization paying higher than the usual costs if demanded.

3. Communication problems

When working with an offshore BPO company, the language barrier may turn out to be a hindrance to efficiency. Outsourcing work such as development or IT services, where a lot of people are involved, can lead to mistakes due to miscommunication. It can be extremely costly sometimes.

4. Unforeseen or hidden costs

As work is not always hard and fast, the organization may underestimate the quantity of work, and it can lead to costs that are higher than expected. Working with a BPO company can lead to legal expenses in case of a dispute or disagreement. Delay in delivery of work can also result in indirect costs.

Thank you for reading CFI’s guide to Business Process Outsourcing (BPO). To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Outsourcing
  • Business Operations
  • Capitalized Cost
  • Cost Structure

Which of the following best describes outsourcing?

Q: Which of the following best describes outsourcing? A: It involves contracting with another company in a low-cost country to have it perform a work activity the organization previously performed itself.

Is the process of helping employees make the transition to their home country?

Finally, repatriation is the process of helping employees make the transition to their home country. Many employees experience reverse culture shock upon returning home, which is a psychological phenomenon that can lead to feelings of fear, helplessness, irritability, and disorientation.
HR outsourcing is an arrangement through which a business owner hires a third-party company to oversee some or all of the business's HR functions. You can outsource your company's payroll processing, employee benefits administration, talent acquisition, or all of the above and more.

What allows expatriates to work abroad to claim taxes paid overseas on their US tax forms reducing or eliminating double taxation?

Foreign tax credits allow expatriates working abroad to claim taxes paid overseas on their US tax forms, reducing or eliminating double taxation.