Article: The shifting paradigm: Permanent to contractual recruitment

Staffing Recruitment

The shifting paradigm: Permanent to contractual recruitment

The entire employment ecosystem is faced with changing priorities. In a market where loyalty is low and attrition high, employees are largely prioritizing enhanced career opportunities, remuneration, and job flexibility over job security and permanency which was the case earlier.
The shifting paradigm: Permanent to contractual recruitment

As we all know, economic volatility is very much true today and a lot many organizations need to be more flexible to accommodate the current market dynamics. The staffing market is quite huge and is well poised to register titanic growth in the coming times.

The entire employment ecosystem is faced with changing priorities. In a market where loyalty is low and attrition high, employees are largely prioritizing enhanced career opportunities, remuneration, and job flexibility over job security and permanency which was the case earlier. Like it was the trend in yesteryears, today, people are more willing to shift the paradigm, and opting for contract based job roles which allow them to work at their own time and pace. Career growth and better remuneration have taken the driving seat. 

Difference between Contractual recruitment and permanent hiring

Let us examine what these two terms actually mean - Contractual recruitment and permanent hiring. Contract recruitment focuses on employing workers for a short term assignment. Such sort of hiring usually reduces the organization’s responsibility as it is more flexible for both the employees and  the employer as it offers the hassle free recruitment process.  Furthermore, generally  contract based job roles are for short periods of time, they are often outsourced on a vendor payroll. This implies that, at the end of the contract term, the staff can easily transition without causing any sort of administrative burden on the employers. Established corporates often have contracts of 3 years which can be extended further.   

Permanent recruitment, as the term implies, is exactly the reverse. This involves bringing in full time employees that are expected to work and grow with the company. These employees are fully on the payroll of the company and are liable to all the benefits the company is expected to provide by law including tax relief, sick pay, and pension entitlements, PF, LTA and so on.

The current staffing scenario and trends

Industry reports claim that temporary staffs will account for about 10% of India’s formal sector employment by 2025. This is next to just China and the US. While the formal sector employment numbers burgeon triggered by several policy-related initiatives of the government, the size of the temporary workforce will increase further. Size of the flexi staffing industry currently estimated at 1.7 million people and Rs 200 bn is expected to grow at a healthy - 20-25% CAGR over FY14-19. India can very well beat other countries with the sheer size of temporary staff employed in the organized sector within the next decade.

Contract based staffing is being increasingly accepted as a preferred mode of recruitment by a myriad sectors. The retail sector alone is expected to witness growth to the tune of 10% to 12% per annum, making it the most lucrative option for a massive growth in such type of staffing. Besides, the Indian Government employs a temporary workforce to the tune of 12.3 million currently and this figure is also estimated to grow manifold. One more sector worth mentioning here is the ITes sector which will also witness an increase in contract staffing by around 10% to 20% over the next few years. Majority of Indian companies across verticals are resorting to hiring talent on a contract basis across many levels.

Albeit temporary and contractual staffing had an innocuous start with jobs mostly at the lower end of the pyramid, like for example data entry, accounting, sales, backend operations, and routine administrative tasks, today, flexi-staffing scenario has undergone a massive change. It now cuts across the hierarchy in sectors such as IT and engineering to include mid-and senior-level roles with experts or managerial profiles up to the board of a company. Catapulting this trend is the true blue Indian start-up boom. 

The growth in the number of startups and new entrepreneurial ventures have given rise to a huge demand for flexible C-suite executives with a multitude of start-ups sharing one ace CFO or CMO, thereby facilitating an increase in their affordability and accessibility of top talent. Nowadays, many startups are coming up with the concept of flexi staffing model as it is the need of the hour and is helping in rapid growth of the potential workforce. The decision on staffing largely depends on the organization’s nature of business, drivers of the business, and the societal realities around employment.

The advantages that comes tagged with this contractual type of recruitment are: ability to scale up quickly to meet volatile market demands, increased flexibility and ease of resource allocation; independence and need for administrative tasks around employment, reduced costs of hiring and on-boarding of new talent; access to a wider pool of skilled talent. On the flipside there lies concerns such as, business critical projects which involves strategic thinking or confidentiality clauses poses a challenge for effective execution. 

One of the primary reasons as to why flexi-staffing hasn’t taken off in India like it should have, is because of the multiple and confusing legal and regulatory scenario around short-term or temporary employment. Moreover, the law enforcement agencies are many. We need one central agency and well defined labour laws for hassle free regulation, ease of doing business and effective administration of the employment environment. 

Contractual recruitment – Benefits to employers 

Pragmatically speaking, the contract based staffing industry has traditionally been a leading measuring tape of post-recession economic conditions and a reliable predictor of future employment trends. Calculative headhunters hire temporary employees and understand the requirements of each department. They plan hiring in accordance with the organization’s need and know very well for which department to outsource and which to keep in-house staff.  Most of the time these employers plan to keep a larger portion of their workforce as contract employees even after business recovers from financial gloom. 

Few years ago, during the recession, employers learned to re-focus on their core business, realizing that a smaller core workforce that was well trained and technologically astute was more effective and nimble than their pre-recession staff. As firms emerged from recessionary woes many hired full time permanent staff but many also went for highly skilled contract workers who were engaged on an as-needed basis. They managed to strike out a balance of both. 

Also, organizations that bring people on contract to work for them have a different pay scale for them than the direct employees they hire. Contractors cost companies much less than permanent employees. 

Large-scale employment of contractors is a trend in sectors like retail, IT and banking. However, industries that require research, confidential information handling and a dedicated workforce, such as the bio-tech and pharmaceutical industries, often do not contract staff. Individuals that require freedom and flexibility in their work environment are ideally suited for working on contractual basis.

Contractual recruitment – Benefits to employees

Ambitious individuals gets to explore new employment prospects and experiences through a contractual job. They are never tied down by a job or an organization. Moreover, there is immense flexibility. Contract employees considers their bosses as clients and not employer. With every new contract, a worker gets to negotiate salary and working conditions, like working from home etc. Since contracts are renewed occasionally, there are opportunities to ask for additional employment incentives.

It also promotes skill development because as a contractor, you would be offering a specialized service that can be used across different industries. The hidden benefit is that, one would get to work with various industries, and as a result, learn while they work. This sort of broad experience can strengthen your résumé and help you establish a large professional network.

Financial benefits are also another positive. Though they may have a less predictable income, it is possible to make what a full-time employee earns, and even more. Being on a contract basis means you stand a higher chance of receiving the pay you desire and deserve. 

The Debate

The school of thought that favors permanent employment often express concerns like lack of job security and no health or retirement benefits, as top reasons why contract jobs should be avoided. However, when an employee is sure about what he is good at and when he is offering a specialized service in a niche market, he can always be secure about his position. Plus, your professional network also keeps on getting bigger as you gain more experience. Simultaneously, as for health and retirement benefits, it is possible to negotiate extra earnings with each client so that you can afford an independent health care plan and pay your taxes all by yourself. 

Other advantages include easy exit for both parties if a contract based engagement doesn’t work out. For example, if a contractor isn’t contributing successfully to a project, the terms of the contract can specify flexible, easy exit arrangements for both parties. 

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Topics: Staffing Recruitment, Recruitment

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