Temporary Employment Offers Benefits and Risks

May 25, 2010 Updated: October 1, 2015

A job seeker looks at job listings posted on bulletin boards in San Francisco, California. Flexible employment and temporary employment are on the rise. (Justin Sullivan/Getty Images)
A job seeker looks at job listings posted on bulletin boards in San Francisco, California. Flexible employment and temporary employment are on the rise. (Justin Sullivan/Getty Images)
WASHINGTON—Flexible employment and temporary employment are on the rise and quickly turning into a source of stable income for America’s workforce and the unemployed.

Both companies and individuals are eyeing temporary work, also called the contingent, flexible, or alternative workforce or independent contract workers.

“Businesses remain cautious about adding too many permanent workers too soon. A growing number are turning to staffing firms for flexible work force solutions as the economy continues to recover,” said Richard Wahlquist, president and CEO of American Staffing Association (ASA), in a recent press release.

In the minds of many, temporary work assignments—either through choice or due to loss of a full-time job—bring benefits, including work hour flexibility and choice of workplace.

More than half of temporary workers in an ASA survey said that temporary work arrangements allow them to spend more time with their families. Close to 100 percent of companies interviewed said that they preferred a temporary workforce, as it is an effective cost control mechanism. Besides, the firm had workers on the payroll when it really needed them instead of having to pay an idle work force.

Yet temporary or contingent employment methods may not really result in cost containment for companies, according to a number of Workforce Management website reports.

“The most obvious cost of term limits is increased turnover. Every personnel transaction (bringing someone in or letting someone go) has costs, including administrative/transactional costs, and litigation threats. Perhaps the most significant cost presented by term limits is loss of skill and experience,” according to a Workforce report.

Almost 90 percent of companies surveyed by ASA preferred to test a prospective full-time employee through temporary work for work ethic and their ability to perform on the job.

Close to two-thirds of workers surveyed professed that they learned valuable skills as temporary workers, which helped them land well-paying full-time jobs. In addition, firms opted to hire temporary workers when looking for real talents, especially in the information technology sector.

Temporary Worker Numbers Difficult to Estimate

In April, 19 percent more people accepted temporary positions than during the same month in 2009, according to the Virginia-based ASA, which lobbies heavily for the American part-time workforce and its members.

The U.S. Bureau of Labor Statistics claims that private industry part-time workers, unable to find full-time jobs or due to work hour reductions, were around 9.2 million in April, and the numbers had not materially changed from the prior month.

The federal workforce increased in April by 66,000 temporary workers, mostly assigned to the Census 2010 effort. By May 9, the U.S. Census Bureau had hired 585,729 temporary workers, an increase of more than 96 percent since Jan. 9.

The Census Bureau was allocated $1 billion in funding under the Recovery Act, of which $120 million was allocated to hire a temporary workforce. This workforce will have jobs until the beginning of fall 2010, and then the unemployed numbers will swell again.

Accurate temporary employment figures are not available. Collecting such information is almost impossible, as it would require too much manpower. Additionally, many firms, especially small mom-and-pop shops, underreport their temporary workforce for tax reasons.

By the end off 2010, the contingent workforce may increase from between 35 percent to 50 percent, according to survey information published in an article on the Workforce Management website.

The trend of a temporary workforce is away from low-skilled to higher-end jobs. “More and more we are seeing requests for professional skills: engineers, information technicians, health care workers, specialists in accounting and finance,” according to a Workforce report.

Legal Risks in Hiring Temporaries

To avoid paying benefits, a firm may employ a temporary workforce, which in reality does the job of a full-time workforce. However, firms face litigation if they do not take into consideration applicable employment and employment benefit laws concerning benefits, wage and hour, and retirement pay.

Senator Sherrod Brown, D-Ohio, introduced the Employee Misclassification Prevention Act of 2009, which is still making its way through the Senate, with the last action on April 22. The act calls for penalties if employers misclassify employees.

Such legislation attempts to stop employers from classifying employees improperly. It will provide workers with many benefits, including health insurance, paid leave, and retirement benefits.

President Obama’s 2011 budget includes a proposal that will address the misclassification of employees, which costs the tax authorities billions of dollars.

“This proposal would increase Treasury receipts by more than $7 billion over 10 years. The 2011 Budget for DOL [Department of Labor] includes an additional $25 million to target misclassification with 100 additional enforcement personnel and competitive grants to boost States’ incentives and capacity to address this problem,” the president’s 2011 budget states.

The 2009 “Employee Misclassification” report by the Government Accountability Office openly admits that the extent of misclassification of temporary workers is not known. But the tax revenue loss through misclassification is in the billions.

High-profile employee misclassification cases have shown that the government and the U.S. judicial system take a dim view of misclassifying employees to escape from responsibilities associated with the employment.

In 2002, the U.S. Securities and Exchange Commission and other regulators blocked Enron Corp. from hiring Stephen F. Cooper, a prospective CEO at the time, as an independent contractor, as it would limit his fiduciary responsibility to the firm. Enron backed down and elevated Cooper’s position to that of a full-time company official with all the fiduciary responsibilities afforded to such a position.

In 2000, Microsoft Corp. settled with a $97 million payment to the thousands of so-called “permatemps” misclassified as temporary workers, because the temporary employees had established quite a long tenure with the company. The Microsoft case was filed in 1992. The covered workers had been employed under that designation since the beginning of 1987.

“The warning that this case signals is very important; when contracting temporary workers or contract workers, draw a clear distinction between which are which,” according to a 2001 news release by the Daniel A. Krohn law office.