Legal Precautions in IT outsourcing for Startups!

Posted by Your Team in India on May 22nd, 2019

Everyone knows about the economic benefits for companies that hire dedicated offshore developers. In fact, several studies have revealed that outsourcing can bring down 70% of the company’s development cost.

Other Benefits of Outsourcing Includes:

  • Access to global talent

  • Option to extend or scale your business

  • Focus on core business activities

Because of these benefits, the outsourcing trend is blooming worldwide in entertainment, media, banking, software as well as many other industries. You just have to figure out a strategic approach & connect with a reliable offshore development center.

Most of the IT companies are using this business approach & enjoying benefits. Sometimes they outsource just design tasks and sometimes the complete development process.

Despite all the benefits, it’s always important to sign a brief contract. Therefore, signing a contract becomes the first step while hiring an offshore development team. This contract acts as a binding document.

However, while outsourcing software or mobile app development, it’s crucial to take the following legal precautions:

1. Taking the Work Contract Seriously:

It is a normal tendency amongst both the parties to forget the contract once the work starts. It might be due to the work-load or laid-back attitude of the company.

Whatever the reason may be, it can prove to jeopardize the future of the company. At times, some offshore developers are really good and the company doesn't want to let go of such an asset.

In such a scenario, the remote developer often increases the price of the services. But if your contract does not cover such a situation, you can’t do anything. Either you have to let go your offshore developer or increase the cost involved.

Additionally, there can be instances when your offshore team is not doing the work correctly. But the company forgot to include an exit clause. As a result, the company is stuck with that remote team with no redressal options.

So, you have to create a legally correct agreement that is free from any loop-holes. Here’s the list of some essential clauses that you should include in the contract:

  1. Payment Clause

  2. Exit Clause

  3. Time Clause

  4. Confidentiality Clause

  5. Performance clause

2. Background Check on the Contractor:

There are some circumstances where a company has to complete a task on urgent bases. It can't afford to undergo the entire process of interviews.

In this situation, a company hires an offshore team without performing a background check. And things will work fine until an argument arises between the employer and the offshore team.

If the resolution of the issue is possible by conversation, it is okay. But at times the problem stretches too far and requires intervention from the court.

At these moments the parent employer must come forward and solve the issue. But the contractor scrapes his shoulders off the legal proceedings or might even run away. The results can be disastrous if the claims are large and the company fails to justify its stand!

Accordingly, it is a must for start-ups to do a proper background check before agreeing with a contractor. If you want to outsource IT to India, such things need consideration.

A proper background check will help you in avoiding fake companies. Along with this, feedback from previous employers is a must. You must take it into consideration before finalizing a contract. This will not completely rule out any possibility of foul play, but a little bit precaution can never hurt!

3. Fixed Term Employment (FTE):

Your company and offshore development team will feel safe when work will be done using fixed-term contracts. It is a usual practice in industries today. But it involves various risks.

Many times, the fixed term contract doesn't meet the basic requirement of legally valid FTE. It puts the company under the radar for labor abuse along with the impending threat of forced permanency of the employee.

Such questions need to be answered, and an employer must know about the implications in case of an emergency. The Central Industrial Employment Standing (CIES) states that the FTE must be significantly amended to help the employer and employees as well to regulate the fixed-term employment procedures.

A company might commit a crime unknowingly in case there is no knowledge about laws safeguarding interests of the employees. The criminal charges include acts of fraud and misappropriation which do not go away easily.

Plus, they pose a major threat to the reputation of the start-up as well as the image of offshore developers working with the company. Moreover, the court often rules out the pleadings of the company and favors offshore team. As the company outsources the job, it is expected from the company to abide by the laws.


The goal of every entrepreneur opting for outsourcing is to avail a cost-effective solution for handling various tasks. Operational errors can be a  huge setback to the future of the company.

Such errors can damage the company's reputation irreparably. For this, outsourcing tasks to professional experts is the ideal way to progress. The management of a company is expected to focus on core business operations and not worry about trivial tasks.

This might be difficult in the initial stages when the start-up fights with budget constraints. It results in lowering of quality which is again not beneficial for the company at all.

IT Outsourcing emerges as an economical and effective option to handle such tasks with utmost efficiency. It helps the company to connect with experts and their team who can assist the development of the company.

Just a little precaution and due diligence can help in avoiding unwelcome situations. By taking care of all these issues, the company can fully enjoy the benefits of outsourcing. 

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Your Team in India

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Your Team in India
Joined: May 8th, 2019
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