What Is Contract Staffing?

Contract staffing refers to an employment arrangement where a company hires an individual on a temporary or contract basis for a specific duration, typically to work on a particular project or to fill a specific need.

Contract staffing is also known as temporary staffing or contingent staffing.

In a contract staffing arrangement, the employee is not a permanent member of the company’s workforce. Contract staffing provides a flexible solution for employers to access specialized skills for a fixed term while allowing individuals to pursue diverse work opportunities and experiences.

What do contract staffing services entail?

Contract staffing is common in various industries, such as information technology (IT), finance, engineering, and healthcare. Some key characteristics of contract staffing include the following:

Temporary duration. An employer hires an individual for a specific period, often to fulfill short-term project needs or to cover a temporary increase in workload. The employer outlines the employment terms and duration in the contract.
Specific projects or tasks. A contract employee typically has specialized skills that fulfill a company’s needs and work on unique projects or tasks. Their contract ends once the project is complete or the need decreases.
Recruitment agencies. Companies often work with recruitment agencies or staffing firms to help them find contract employees. These third-party staffing agencies handle recruiting, screening candidates, negotiating terms in the contract, and administration of contract employees.
Fixed-term commitment. Contract staffing typically implies a short-term commitment between the employer and the employee. The employee may seek new employment opportunities once the contract period ends.
Fewer benefits and protections: Contract employees typically do not receive the same benefits as permanent employees; however, they may receive certain benefits depending on the negotiated terms in the contract.

Example of contract staffing

Consider the following scenario:

A software company hires a marketing specialist to run a six-month marketing campaign to help advertise their services and gain more awareness within the industry. The company works with a third-party staffing agency to recruit and screen the candidate and negotiate a six-month employment contract with the contract employee.

Over the six months, the marketing specialist develops and manages a marketing campaign for the company. At the end of their contract, the relationship is terminated, and the contract employee moves on to another assignment with a different company.

Benefits of contract staffing

Contract staffing offers employers numerous benefits that accommodate their changing needs, including the following:

Flexibility

Contract staffing allows employers to quickly adapt to changing business needs, fluctuations in demand, or specific project timelines. They can fulfill particular needs by bringing in temporary staff for specific durations without committing to long-term employment contracts.

Specialized skills

Employers often hire contract employees for specialized skills or expertise for projects requiring specific knowledge or talents. Contract staffing allows companies to access expertise that may not be available in their permanent workforce, which is valuable for short-term projects or unique tasks.

Cost savings

Contract employment is also a cost-effective solution that helps employers control labor and operational costs. Contract employees’ salaries are short-term, and they often do not have the same entitlements to benefits and perks as permanent staff. Employers save on payroll costs and long-term benefits, such as health insurance and retirement plans.

Time savings

Because contract employees typically already have the specialized skills to fulfill a specific task, contract employees do not require as much training as permanent employees. The hiring and onboarding process is relatively quick, so employers can address staffing needs efficiently and save time for other company needs and goals.

Adaptability

Contract employees allow employers the adaptability to adjust to dynamic market conditions without committing to hiring more full-time employees. Employers can quickly and easily scale their workforce up or down by utilizing contract employees for temporary projects based on project requirements, seasonal demands, or business trends.

Disadvantages of contract staffing

Despite the many benefits of contract staffing, employers may also face some disadvantages, including the following:

Turnover challenges

Recruiting and hiring contract employees may be difficult and time-consuming due to the lack of benefits and job security associated with contract positions. Employers may experience frequent turnover with contract staff and may find themselves constantly seeking and onboarding new hires to fulfill their short-term needs.

Limited loyalty

Because their employment is short-term, contract employees may not feel a strong sense of loyalty to their employer, colleagues, and company. Limited loyalty from contract employees could result in more turnover, impact team cohesion and morale, and negatively affect company culture.

Misclassification

Engaging different types of talent, such as full-time employees, contract staff, and contractors, can increase employers' risks of misclassifying their workforce. Misclassification is the illegal practice of categorizing employees as contractors, which denies them their entitlement to benefits, tax withholdings, and other legal protections.

Misclassifying workers leads to fines, employee entitlement back pay, and other legal headaches. Employment regulations and laws vary globally, so employers must correctly classify their talent and comply with all applicable international laws.

Minimized valuation

Potential investors and partners may not feel confident investing in a business with many contract employees. The company may not appear to have a stable, long-term team, and investors may worry about high turnover, lack of team loyalty, and potential misclassification issues.

Alternatives to contract staffing

When deciding what type of talent to hire, companies must weigh their unique workforce needs, global expansion strategies, and overall business goals. While hiring contract employees provides companies with much flexibility and savings, employers may consider the following alternatives to avoid the challenges of contract staffing.

Some alternatives to contract staffing include:

Full-time employees

A full-time employee describes a worker who works the maximum hours at a company and is entitled to statutory benefits and employee protections. Full-time employee requirements vary depending on the country, but many companies use 35 or 40 hours per week as a baseline for full-time hours.

A full-time employee is part of a traditional, permanent employer-employee relationship. The employer typically pays the employee a salary and controls their work and how they complete it.

Permanent part-time employees

An employee is a permanent part-time employee when a company employs them, but they do not work the hours needed to qualify as a full-time employee. The employer decides how many hours the employees work and pays them based on the number of hours they work. A part-time employee’s hours may fluctuate from week to week.

Employers often hire part-time employees when they operate outside of regular business hours or to accommodate staff who are unavailable to work full-time.

Zero-hour workers

A zero-hour worker is an individual who works under a casual contract that stipulates the employer does not have to provide the worker with a minimum or guaranteed number of working hours.

The zero-hour worker isn’t guaranteed a regular salary and receives pay for the hours they work, and they are not obligated to perform a set number of hours or accept the work hours offered by the employer.

Employers using zero-hour contracts typically experience fluctuations in demand or rely on on-call scheduling.

Fixed-term employees

An employer hires a fixed-term employee for a specified period. A fixed-term employment contract between the employer and employee has a start date and end date, and the company can choose to terminate, extend, or renew the employment relationship once the contract expires.

Employers might hire fixed-term employees for temporary work needs, such as covering absent employees, increasing staff for a large project, or filling an employment gap.

Independent contractors

A business hires a contractor or self-employed individual to perform temporary work or short-term projects. A contractor may work for one or more clients and determine how, where, and when to perform their job. They also do not receive benefits from the employer and must file their own taxes.

Companies often engage independent contractors when they require talent with specialized skills, need someone to complete a temporary project, or want to save costs associated with hiring full-time employees.

However, if an employer intentionally or unintentionally misclassifies their talent, they may face unpaid taxes, back benefits, legal fines, and reputational damage. When engaging contractors, employers must understand contractor regulations and seek in-country expertise to ensure compliance with local laws.