Contract staffing is a hiring arrangement where individuals are hired only on terms specifically set out in a contract. It usually refers to a fixed-term or project-based, rather than permanent, hiring arrangement. In many cases, it is arranged by a third party staffing agency.
Here we explain what contract staffing is, and set out its advantages and disadvantages as an approach to Human Resources.
1. Contract staffing occurs when a third party agency provides non-permanent staff for a client company.
2. It is an alternative to other HR solutions such as direct employment, independent contractors and PEO.
3. Advantages of contract staffing include fast hiring, cost savings, hiring across multiple locations and mitigating compliance risks.
4. The disadvantage of contract staffing is that it is inappropriate in certain circumstances, such as where hiring executives or hiring on a permanent basis.
Businesses are increasingly using staffing agencies to supplement their own hiring — particularly when on the search for temporary staff. According to the US Bureau of Labor Statistics, the use of these agencies has increased steadily over the past decade, covering 3,000,000 workers in 2020.
Any business looking at engaging a contract staffing firm needs to carefully consider the advantages and disadvantages of doing so, compared to other forms of staff hiring.
What Is the Definition of Contract Staffing?
‘Contract staffing’ refers to an arrangement that has arisen organically in hiring practices in many countries, rather than a term defined by law or regulations. Therefore, it is difficult to define precisely. However, it usually involves three components:
- 1. A contract for services, not an employment contract. When a company uses contract staffing, they don’t usually hire those individuals as employees. Instead, the company enters into a B2B contract with a staffing agency which provides specific services.
- 2. Fixed-term, or project-based hires, not permanent. It applies to a relationship of a fixed time period, or relating to a specific project. When that period is over, the contract terminates. It does not usually refer to permanent staffing arrangements.
- 3. A third party agency. A staffing agency (sometimes also called a ‘labor hire company’, ‘employee leasing company‘ or ‘contract services company’) is usually engaged to lend or assign their staff to the client company. These staff may themselves be employees of the staff agency, or in some cases, contractors of the staffing agency.
While the definition above covers the most common way in which the term ‘contract staffing’ is used, it is worth acknowledging that it is also sometimes used to include other services, such as hiring independent contractors.
Where a company seeks to contract with an employee or contractor directly, as well as with the support of a third party agency, it may be possible to use a ‘tri-partite contract‘ for that purpose.
An organization that also hires permanent and ongoing employees, as well as contract staffing, is known as a ‘Professional Employer Organization‘ or ‘PEO’.
What Is Contractual Staffing?
Sometimes the term ‘contractual staffing’ is used rather than ‘contract staffing’, with the terms being interchangeable.
Sometimes, ‘contractual staffing’ means the more specific activity of hiring employees on fixed-term contracts, rather than permanently. When the term is used this way, contractual staffing need not involve a third party agency.
What Services Does a Contract Staffing Firm Provide?
A contract staffing firm usually provides the following services:
- recruitment, or choosing from among its existing staff, appropriate workers for a client company;
- contract provision. Compliant employment or service contracts are provided, aligned with the project or work requirements of the client company;
- payroll and benefits administration. The contract services company manages the payroll for staff, as well as benefits and social contributions;
- tax withholding and declarations. The contract staffing firm withholds income and payroll taxes in relation to employees;
- ongoing HR services. The staffing agency deals with any employment disputes, contract renewals or terminations.
What Are the Alternatives to Contract Staffing?
Human resources strategy means working out the right balance for staffing arrangements in the organization. Besides contract staffing, some other possibilities that businesses need to consider include:
What are the Advantages of Contract Staffing?
Given the range of options available for human resources, why would a firm add contract staffing to the mix? Some of the advantages include:
What Are the Disadvantages of Contract Staffing?
A contract staffing agency is not the right HR solution for every situation. For example, it may not be the best HR solution in the following cases:
Frequently asked questions
A contract staffing agency usually provides non-permanent staff to a company. By contrast, a Professional Employer Organization (PEO) can hire permanent and ongoing employees to work for a client business.
In some cases, such as a Europe PEO operating in Germany, temporary staffing solutions may be the only compliant option for a client company.
It depends. If the contract staffing agency hires professionals as employees, such as umbrella companies in the UK, then staff are entitled to the same benefits as any other employee.
Some can. An international contract staffing agency can hire staff in virtually any country or region throughout the world.
Contract staffing usually refers to an arrangement where a third party agency provides the workforce for a client firm. By contrast, in independent contracting an individual directly contracts with the client company to provide their services to that company.