Contracting trends

Recession has encouraged employers to re-focus on their core business, realising that a smaller core workforce that was well trained and technologically astute was more effective and nimble than their pre-recession staff. 

In 2010, contract placements are found in nearly every profession in verticals like manufacturing, IT, services, and infrastructure and hospitality sectors. 

Why is there a surge in contract jobs and only a handful of direct-hire opportunities? So, will contracting growth continue? Should companies consider contracting? Let us learn more about the same and what role it has come to play in the retail sector.

Competing in the market

Companies have increasingly started hiring temporary staff in order to avoid risk and maintain sustainability of projects. Experts estimate temp staffing industry as USD 140 billion with India showing growth and expect to hire 5-7 % of temporary staff in the near future. 

“Contract staffing allows quick ramp-up (expand) and ramp-down (contract) of the workforce within short notices. Thus by Contracting can prove to be a smart strategy by companies to effectively compete in the market by offering products/services at optimal cost points; enhanced quality of products and overall increased customer experience,” opines Chetan Indap, Founder & CEO, StaffonContract.com.

Temp staffing also provides flexibility of employment, ease of recruitment and replacements throughout the companies' operations.  

“This trend is rolling because the organisations get an opportunity to concentrate on core areas while the non-core areas are takencare by other experts resulting into the long-term cost benefits and a responsible employer image. The companies also get more work done from temporary workers and also escape for paying those perks and incentives.

Temping also saves training costs by leasing companies direct skilled and experienced workers. Moreover, non-performing employees can be dealt with much simplicity and legal responsibility,” adds Deepak Kaistha, Director, Planman Consulting.

 Where retail is headed

Retail, although in the boom phase, is yet to see significant profits to its shareholders. Apart from the high cost of real-estate, Retailers have major problem around retaining workforce. Indap says, “Today, retail probably has the highest attrition rates of over 40 percent, resulting in high recruitment and training costs. A few retailers have started adopting contract staffing as means for converting their fixed workforce costs to variable. With contracting, retailers can achieve 'just-in-time' hiring, enabling them to control the impact of attrition on cost and quality of service.” “My vision for Retail segment is to implement "Employee as a Service (EaaS)" model similar to the Cloud Computing model,” he further adds.

You may want to hire a staff on temporary basis thus saving on to your operating cost but again an extra employee may generate enough new sales to more than compensate the salary of the employee. The additional help could give you a chance to produce more products or serve more customers efficiently. “If the added business does not outweigh the minimum salary that you would have to pay, then, consider other alternatives to hiring a permanent employee. There are many staffing options available and each has some pros and cons,” avers Kaistha.

Trending upwards

Temp staffing has become a budding trend that is spreading across industries like FMCG, Telecom, IT, Engineering, Logistics, Retail and BFSI. “With India having a young population, a number of employees in the age group of 20-28, could find their first jobs through temping,” comments Kaistha.

However, it is noted that upward trending of contract staffing is highest in the IT/ITES industry vertical because this vertical is largely services (manpower) driven. Indap says, “Till about last year, contracting was about 3-7 percent of the total headcount of an IT company. This year it is on an 8-12 percent and in the next 3 to 5 years, it would be close to 40 percent.” Internationally, end-user companies tend to contract upwards of 60 percent of their headcount through contracting. “Retail industry is the next vertical poised to adopt contracting aggressively. Retail industry is also manpower intensive and they are realising the fact that contracting is the best solution to control workforce costs, attrition and quality,” he further adds.

Justifying compensation

It is noticed that there is a gradual shift in the mindset of the employees who are realising the benefit of contracting because they get the freedom to choose the type of work, duration of engagement and desired compensation, which at most times are better than being employed.

“With contracting, there is a huge opportunity to save/manage their personal taxes and getting maximum money in-hand. Some of them prefer to work on part-time basis where it could be 3 days a week or 10 hours a week or 10 days a month etc. This way they have an opportunity to pursue their hobbies or take up another assignment and achieve a good 'work-life' balance,” says Indap.

Contracting can enable a person to work with different companies on different tasks, enhancing their capability skill-set and have good visibility of the market and demand. Sometimes contracting also presents an opportunity to join full-time with a company of choice, which they otherwise may not have got. “The obvious benefit of permanent employment is job security and stability, although permanent employees don't have the kind of guarantees they once enjoyed. Another important consideration is the benefits the employer provides beyond pay. Full-time employees usually qualify for health insurance and vision coverage and company retirement plans,” comments Kaistha.

Gaining more steam?

Although ‘The Great Recession’ has supposedly ended and the economy is recovering, contract staffing has surged since 2006 and the trend indicates it will continue in the coming years. Kaistha avers, “With the wide acceptance of temp recruiting across several industries, the penetration level is expected to go up to 1.5-2% in the coming 5 years.”

Till recent years, contracting was looked-down upon by the society giving it a view of non-competence. India had grown up with the traditional thinking of 'get good grades, get a good job (preferably a Govt. job) and retire from the same job. This is no longer true. “Today, most IIM graduates are choosing to become entrepreneurs rather than take fat salaried job offer. Today, being a sound recordist or tarot reader is also a plausible career option. We are moving towards specialisation rather than generalization. Hence my view is that a decade from now, there will be no employees; only entrepreneurs; offering each other specialist service on contract basis,” concludes Indap.