Temporary/Contract Hires vs. Permanent

When there is a positive change to your business, often you look at the option of hiring additional staff. If you are like most business owners, you would rather contribute to furthering your business. Spending time placing ads on the Internet or in newspapers, screening 50 plus resumes and applications, interviewing five (plus or minus) candidates, having to make the hiring decision (which sometimes doesn't work out), and then going through the new hire "negotiations" may not be how you want to spend your time. Some small business owners aren't comfortable doing these tasks because they question their "human resource" expertise.

One alternative to adding permanent staff is to hire someone on a temporary or contingent basis. To help you make the basic temporary vs. permanent decision, please review the reasons it may make sense to hire a temp, below.

Why Hire A Temp?

  • Do you need someone full-time or part-time?
  • Is the job seasonal?
  • Do you know when you will no longer need this extra help?
  • Is this need caused by a special project that has an end date?
  • Do you need someone with specialized skills that you won't need or can't afford once the project is completed?
  • Is this an emergency caused by someone who is absent unexpectedly and is planning to return? Is the return date certain or uncertain?

Sometimes the answers to these questions would suggest that a temp hire is not the best alternative but you'd still rather start out that way. There is another scenario under which a temp hire may make sense and it is called a temp to perm' placement.

Temp to Perm Option

  • Temp agencies will use either their applicant data base or recruiting skills to find a number of qualified applicants almost immediately -- that's their business.
  • Temp agencies are skilled at screening and selecting people.
  • There is no recruiting expense to the hiring company.
  • Most temp agencies will have a process in place that allows the hiring company to "convert" the temp to a "perm" (permanent) hire for an up-front negotiated fee or by keeping the temp for a specified period of time through the agency after which the hiring company may convert them to a regular or permanent hire.
  • If the person selected isn't working out, he/she can be replaced quickly by the temp agency and there are almost never any negative legal implications for making a change (e.g., wrongful termination, unemployment compensation, etc.).

If you want to make sure someone will work out longer term without the uncertainty of the outcome, the best way to make that "permanent" decision is to "try before you buy." The advantage of this approach is that you can observe the person doing the job for a period of time before you have to make the final hiring decision. That's the most reliable selection process going.

Here are a number of very good reasons to hire someone on a temp basis:

Temporary Hire

Pros Cons
Saves time & moneyMay negatively impact teamwork
Not making a hire that "permanent" If you get a "dud" it can decrease efficiency: adds to your costs and adds to your training time
If workload fluctuates throughout the year, use of temps avoids layoffs and the organizational "angst" that they bring Loss of team culture in that the temp will not have the same benefits and perks your employees have
If temp to perm, try before you buyBecause job is temp, not motivated to perform at highest level
A quick and efficient way to obtain the productive capacity needed by the employee If temp for six months or more, then may have legal issues on definition of who is an employee and who is in fact a temp

But does this approach actually save you money? In most cases it can, but you need to be sure you understand the temp agency's compensation structure as well as what percentage of the fee is going toward paying the temp, what percentage is spent on taxes/benefits, and what percentage is their fee. Most temp agencies only charge you, the business owner, for the time actually worked, they pay the temp hire and assume full responsibility for all payroll taxes, social security, workers' compensation and unemployment insurance.

Temp vs. Permanent Cost
(Note: this may differ greatly depending on your business' employee-cost structure, especially for benefits.)

"Permanent" Cost% Added to Salary/Wages Cost included in Temp Rates
Weekly Salary            500.00

Payroll Taxes*              50.0010%Yes

Paid Benefits
(health, life)

Paid Time off

Recruiting/hiring cost              25.005%Yes

TOTAL            700.0040%

(*FICA, Medicare, Unemployment {Federal & State}, Workers' Compensation)

Before you agree to an arrangement with any temp or contingent hire company, you should complete a bit more "due diligence" by gathering information on the business and making sure the temp agency can reasonably perform on all the "advantages" they may cite to you, since they are marketing their services to you. Below is a list of that information.

Information You Need From Temp Agencies Before You Do Business with Them

  • How long have you been in business and can you give me contact information for three current customers?
  • How do you test prospective hires? What is your selection process? Do you do a drug screening?
  • How quickly will you have people for me to speak with?
  • How do you monitor and maintain the quality of your temp hires? Do you visit them on-site and check for understanding of what they are doing?
  • Have you ever lost an account (like me) because of your inability to satisfactorily meet the account's needs? If so, please give me former client's contact information.
  • May I see proof of insurance for workers' compensation? Is there a clause in our agreement that specifies that under no circumstances will my company be liable for workers' compensation claims for your temp employees working for me?
  • If I am not satisfied with your services and let you know, what happens?

You should also carefully review a copy of the agreement that will be signed by you and the temp agency that details in legal language the relationship parameters of your business interaction. Make sure that document agrees with the information you garnered by asking the questions noted above.

Assuming you agree to do business with a temp agency and hire someone on a contingent basis through them, you still need to integrate your temp employee into the flow of your business and your work environment. You might want to consider the following "punch list" when doing this temp-hire orientation.

Integrating a New Temp Hire into Your Work Place

  • Show an interest in the temp hire by spending a few minutes with them and asking them basic questions about their work history, skills, knowledge and abilities.
  • Ask if she/he has any concerns about working for you or your company. Ask the temp what they liked or didn't like about their last temp engagement.
  • Restate/tell the temp what their role will be and how his/her work fits into your business process. Tell the temp what you expect in terms of quality and quantity of work.
  • Take the temp around the office and introduce him/her to the rest of the team, publicly stating that he/she is a temp and briefly describing what he/she will be doing.
  • As soon as possible after the temp begins their work assignment, find something to praise/recognize him/her for and publicly do so - this will solidify the importance of the temp's role with your employees and will establish a solid bond between you and the temp.
  • If the purpose of the temp engagement is to become a permanent hire if everything works out, let the temp know that up-front and give him/her the three to five things you will be looking for from him/her to help make this decision.
  • Ask the temp if he/she has any questions, etc.