Contract Staffing 101
In today’s business environment, contract staffing has become a crucial element for companies of all sizes. This flexible workforce strategy allows firms to quickly address specific challenges and projects by connecting with specialized professionals when and where they’re needed, minimizing cost and maximizing personnel resources. As some industries shift toward a greater proportion of contract work — whether as freelancers, independent contractors, or otherwise — it’s become even more critical for companies to understand how to navigate this approach to business and how it can transform their business.
Contract staffing may seem deceptively simple, but it’s important to understand exactly what it is and how it can benefit your business. Unlike traditional staffing methods, where employees are hired for a standard work schedule and expected to complete job responsibilities in an office setting, contract employees work on a predetermined basis and generally on specific tasks or projects. Those projects may range from the short term to longer-term assignments. In most cases, contract staff are hired by a staffing agency who handles all recruiter responsibilities, even though the employee may work at the client company’s site.
Though the process is frequently referred to as "contract staffing," there are other terms used to describe this employment option. Employees may be referred to as freelancers, contingent workers, consultants, temps and on-call employees . Additionally, many staffing agencies will use their own label to refer to workers with whom they have a contract. Among other reasons, that may occur because the agency hopes to bring those workers back, or the company has a larger number of workers with their firm. As a result, it’s critical for employers to maintain clear communication in any offer letter to ensure both parties are on the same page regarding status and obligations.
Contract staffing meetings are growing in popularity because of their flexibility. Businesses often simply don’t have the need for a permanent employee, or prefer to maintain the ability to end the worker relationship at any time. Temporary staffing typically requires additional management resources, so companies may not want to add those needs long-term. Finally, contract staffing may also be used to fill a temporary vacancy for a standard employee.
The advantages of contract staffing extend far beyond flexibility, however. For companies that are seeking to grow, temporary workers may help to prevent mandatory layoffs if a project goes south, or help businesses remedy temporary staffing shortages while remaining ready to invest in growth. Finally, contract staffing also enables businesses to save money while meeting their needs for a specific skillset. Most contract staffing arrangements involve set fees, which can be helpful for budgeting along with eliminating the need for ongoing advertising.
Key Features of a Contract Staffing Agreement
The first step in ensuring a successful relationship is to have a detailed and precise contract staffing agreement in place. This agreement should be between the client company and the staffing company and should include, for instance, the employment of the temporary workforce; terms of employment including duration and conditions for an extension; all benefits offered to the temporary employees; pay rates and other expense reimbursements; liability insurance or indemnification terms of the contract staffing companies and/or the client companies; and terms of termination of the contract for whatever reason, including the term of the contract or any violations of the terms contained therein.
Pros of Using Contract Staffing from the Employer’s Perspective
The advantages of contract staffing for employers are numerous. These benefits can be grouped into three broad categories: flexibility, cost-effectiveness and access to special skills.
Flexibility is the ability to go go out, find the best person and hire them today! The work is done to perfection, your customer is thrilled with the result and maybe the project ends early. Your supplier now has time available to do more work for your customer. How? They assign another worker to your job.
Cost-effectiveness. Economically contracting for services means that you only pay for what you use, even if you use it 24-7. You lay out the parameters of the project up front: who works when, and sometimes, where. If things go faster than expected, you also pay less.
Access to special skills. Whether the contractor is highly experienced in a niche area of professional services, or possesses specialized technical expertise, or combines core technical capabilities with business knowledge, contract staffing is the easiest way for you to fill the gaps through project-based talent.
The Contractor’s Perspective: What to Look For
As a contract staff employee, there are a few things you can expect to encounter when accepting a contract staffing agreement with an employer. After all, you’ll want to know if you have any job security, the kind of benefits you’ll receive (if any), and the potential risks you’re taking by entering into the agreement.
Job Security and Flexibility
Because contract staffing agreements are only good for a period of time (usually 3-6 months), you don’t have much wiggle room when it comes to flexibility on the job. Your employer expects you to hit the ground running since you are only on board for a short time. That means clocking in and out on time, completing your tasks, and not slacking off.
If you wish to ask for time off or change hours, you’ll need to do it as soon as possible. Most contract staffing agencies will give you some leeway, especially if you’ve been a good employee and put in the time necessary to learn the task performing. However, expect your employer to say no if you ask for too much time off or too many drastic changes that will affect projects you are working on.
Benefits
As of 2010, contract employees are not entitled to health care benefits under the Affordable Care Act. However, be prepared to offer health, dental, and vision insurance to full-time contract staff as temporary employees qualify for these benefits under the ACA and must be provided them, despite the fact they are considered a temporary employee. Extended sick leave and disability coverage may also be provided.
Payment can be made as a weekly, bi-weekly, or monthly paycheck. You may also be provided reimbursement for certain expenses such as groceries, travel, or lodging if you are asked to commute to another location. Bonuses are not guaranteed and some contract staffing agencies may offer a stipend towards taking courses that will benefit your current job or future employment.
Risks
There are some real risks when you work as a contract employee. Your contract may be terminated at any time by you or your employer. Your employer can hire you on a full-time basis, which is an advantage. But, you can also be let go at any time without notice or cause, which is a huge disadvantage.
Legal Issues in Contract Staffing
A key element of a contract staffing agreement is the legal obligations that come with it. From taxation issues to ensuring that employment laws are being followed and other government regulations are complied with, thoroughly researching the legal aspect of using contract staffers is crucial. It could make or break your business.
Labor laws vary immensely by state, province, and even country, so knowing what you’re getting into is critical. It’s best to have a human resources (HR) professional onboard who can guide you and create the proper document for hiring, or reaching out to a recruiting firm or staffing agency specializing in this area.
Here, we will outline some of the most common – and most critical – legal concerns in those types of agreements.
Independent Contract Firm Contract Staffing Agreements
Independent contract firms exist to fill a gap in the labor force – those companies who need skilled workers for short periods of time and at a high level, but don’t want to hire full-time employees for a short-term contract. These firms often require contract employees to agree to legal terms and conditions within their own firm, and within the company they are being placed.
As an example, if a firm is contract staffing for the oil and gas sector, their contractors and temporary employees may be required to have specific certifications and perform a certain number of safety hours and training. This is a way to ensure that the employee is qualified to work in a potentially hazardous environment as per the law . This is also the responsibility of the contract staffing firm. The HR force can require certain actions from its contract employees to ensure admissibility and understanding of the regulations.
On the other hand, if the contract staffing agreement is for administrative services, there are very different responsibilities in place. In this contract staffing agreement, for instance, the contract staffing firm is responsible for ensuring that contract employees understand the technology and can perform the duties of the position as required.
When contract staff is outsourced, HR needs to ensure that the terms, conditions, and legal responsibilities are in writing and agreed to by all parties. This can save time and money in the long run. For instance, if an employee shows up onsite without the skill set for the job, commercial liability can have consequences for the contract staffing firm at an administrative level, and, if the contract staffing firm has legal grounds to end the assignment immediately, it can help reduce the financial impact in the long run.
There are dozens of questions to consider in a legal contract agreement, such as:
How contract staffing firms handle other legal aspects like taxes, overtime, obligations to CBA agreements (if applicable), pension plans, Health and Safety and more, will all depend largely on the type of industry the contract staffing firm is in.
Though it can be tricky, it’s important to understand all of the legal aspects of the position and the rights of the employer and the employee before you sign on the dotted line.
How to Renegotiate a Contract Staffing Agreement
Some basic do’s and don’ts when negotiating a staffing agreement:
Do: Negotiate payment terms that reflect hourly rates or fixed fees. Properly understand overtime provisions.
Do: If an hourly rate is established, define what is included and excluded (i.e., does it include overtime, travel time, bankruptcy court appearances?).
Do: Require the staffing agency to do the reviewing before the contractor gets involved.
Don’t: Agree to have the law firm involved in the hiring process. Contractors should be interviewed by the staffing agency first. In fact, since many contract attorneys do not want to "tarnish" their resumes with a failed interview, they will likely not interview for a contract staff position directly with a law firm.
Do: The staffing agency should make every effort to schedule an interview with the law firm and the contractor when at all possible. Do not be surprised if the law firm tends to favor agency employees who have worked on past projects.
Do: Ask what the rate of pay would be for interim employment of contractor (for the same hours) and apply the difference to the staffing agency’s fee.
Do: Research the billing rates established by law firms for different staffing agencies and contractors. Many law firms are moving to a tiered structure for contract staff and pay more for proven resources.
Do: Pay close attention to any non-compete or non-solicitation provisions. If you are working directly for the law firm, are these provisions even necessary?
Don’t: Focus too much on the staffing agency’s fee. The agency’s fee should be disclosed. There is without doubt a significant markup if your contract is limited to 3 months. However, if your contract extends beyond 3 months and you are not solicited to work directly for the law firm, there may be little harm in a particular staffing agency having a healthy markup on the contractor’s rate.
Typical Errors and How to Avoid Them
Contract staffing agreements are often thought of as agreements that are less legally binding or have fewer legal implications than traditional employment contracts. However, this is far from the truth. Contract staffing agreements are just as legally binding as any other professional contract and therefore should be taken into consideration and carefully reviewed in the same way one would examine an employment contract before signing.
There are a number of mistakes that often arise when entering into a contract staffing agreement. Consider some of them below and how to avoid them.
Too many assumptions. Entering into a contract staffing agreement with a third-party company can sometimes feel a lot like entering into a contract as an individual employee. You might be tempted, therefore, to think that the contract you "signed" with the staffing agency is also the contract the third-party company will have you sign. Don’t make this mistake. The contract staffing agency is likely to have their own agreement with the company that hired it. Before signing, make sure you have both agreements and review them with trusted counsel.
We don’t need a contract. Another common mistake is assuming you do not need an individual contract with a third-party company because you’ve already signed one with the staffing company and that you will not be eligible to work as a contract employee there if you do not sign an additional contract with the company.
A contract staffing agency usually works with multiple third-party companies and you could potentially be placed with some of those companies even if you do not have an individual contract with them.
Still have questions. A third-party company may have flexible policies on some issues—such as pay, hours and responsibilities—depending on what you can negotiate with the staffing agency. It is important to understand that most issues that are up for negotiation in a contract staffing agreement are also subject to that same negotiation process. Keep this in mind as you move forward with a contract staffing relationship with a third-party company.
Too much information. Your staffing agency may have a legal obligation to provide you with personal information about the company that wishes to hire you. While this may feel like an intrusion of privacy and it is always wise to consult with counsel to understand both your rights and your obligation as they pertain to the specifics of your situation, it is also worth understanding that the company also has a legal right to expect this level of due diligence before an employment contract is executed.
Not doing your research. Few things are worse than finding yourself placed with a third-party company only to discover once you’ve arrived that it is not as desirable a work situation as you once perceived it to be. Be sure to do your research on a company prior to signing a contract staffing agreement with that company through a third-party agency. Likewise, be informative with the staffing agency as to your personal knowledge of the company so they can help you get placed with a company you will want to work with.
Contract Staffing Trends
Employers must also keep in mind that we are looking at multi-generational workforces, and how their employees or potential employees use, view and respond to different technologies. Employees in their ’20s will respond differently to a "how to" instructional video than will an employee with a decade or two of service with the company under his belt. A firm should look at its staffing strategy as a way to incorporate different generations of workers and different platforms for training and integration.
Contract staffing agreements in the future will be more than a negotiated piece of paper between a staffing agency and a business. These agreements will detail a dynamic approach to using contract staffing in conjunction with traditional staffing, in-house staffing, and/or even a worker’s own self-staffing through the use of artificial intelligence, or AI. How can a business that utilizes standard staffing arrangements have a dynamic contract staffing strategy with its supplier? The answer is the use of Vendor On-Premises or VOP technology along with enterprise-level contracting. An employer can build its requirement into its standard staffing contract with its suppliers, but only those suppliers who can bring VOP to the employer . The benefit is that the employer is not just leveraging the staffing agency, but is driving standards and systems into its staffing agreements with its staffing suppliers.
For example, the employer’s contract staffing strategy may require a largely supplemental workforce. This can be done if, in conjunction with its staffing agreement, the employer requires the implementation of a VOP program. The VOP program includes an on-premises manager, a company accredited and hosted vendor management system, and a team of account coordinators. The on-premises manager becomes part of the employer’s HR team. The on-premises manager helps the employer ensure that the contract staffing system is working. The on-premises manager monitors the use of contract staffing and discusses contract staffing strategies with the employer. The on-premises manager will also train the employer’s in-house HR team on the use of the online technology used to manage the system. The employer can then monitor vendor performance and usage of contract staffing across its global or national system. This technology is hosted in the cloud. A supplier who delivers this integrated headcount direction with an overall contract staffing strategy has become more than a "place staffing" business and instead has transformed into a vendor partner looking at its client with a long-term, strategic, and mutually beneficial focus.