Temporary staffing in the time of business turmoil

The last of a four-part series analyses why companies are increasingly opting for contract workers and the implications of the trend

Raj Kumar, who works in the information technology sector in southern India, has been on contract for five years. His salary hikes were lower compared to his permanent counterparts, who now earn more than thrice his salary for similar work.

Such employees often contend with fewer perks and also face the threat of sudden termination, according to Elavarasan Raja, general secretary, Forum for IT Employees, a union for employees of technology companies.

“Benefits are denied… payroll is entirely with the contractor,” he said.

Lower cost and easier termination may well be among the reasons that companies seek to have employees on contract. In fact, the share of employees on contract and those in similar situations (such as temporary and casual workers) has increased to 57.3 per cent of the workforce. It was 53.7 per cent in the previous year.

The analysis is based on data collated from annual reports of S&P BSE 100 companies over the years. There were 67 companies with comparable data over the past three years. The data shows a 361-basis-point increase in the financial year 2018-19 (FY19) compared to a 90-basis-point rise in the previous year. The caveat to this is that not all companies define total employees as permanent employees. However, a constant sample is expected to provide a broad sense of the trend of employment on contract and similar labour.

Rituparna Chakraborty, executive vice-president at human resources solutions company Teamlease Services, said that companies tend to look for options other than hiring permanent employees when they expect times to be difficult.

“Temporary staffing acts as a shock absorber during business turmoil,” she said.

Indeed, some sectors have seen a greater change in the ratio of contract and similar workers to total employees. In communication services the ratio is up from 1.06 to 3.19. It has also risen in consumer staples and in the consumer discretionary sector, and fallen in utilities. The communication services sector includes telecom companies. Consumer discretionary includes automobile companies and consumer staples includes fast-moving consumer goods firms. Telcom companies have been affected by high debt and low earnings because of intense competition. Auto companies and others have been affected by falling demand.

The use of contract employees is also seen as a way to get around India’s rigid labour laws. But it also helps keep employee pay in check, according to a January 2019 working paper from think tank Indian Council for Research on International Economic Relations titled ‘Explaining the contractualisation of India’s workforce’ from authors Radhicka Kapoor and P P Krishnapriya.

“Firms appear to be using contract workers to their strategic advantage against unionised directly hired workers to keep their bargaining power and wage demand in check,” it said.

This seems to be borne out by a falling share of employee costs even as use of contract labour has increased. The employee cost as a percentage of net sales shows a decline in recent years. This helps measure how much of the money that the business generates goes to employees. It was 10.17 per cent of net sales in FY17. It is currently at 9.39 per cent.

One reason for increased use of contract labour is the fact that training on health, safety and other issues tends to take a back seat. Providing training for other skills too is not a priority since employees can often move on after short periods of time, said Yasir Ahmad, partner and leader, Sustainability and Responsible Business Advisory, PWC India.

“This can have an effect on safety on the shop floor and efficiency overall,” he said.

Data that Business Standard obtained under the Right to Information Act on four public sector oil companies for recent years supports this. It shows that the number of fatalities is higher for contract labour. The number of permanent employees among public sector oil companies who died in fatal accidents was seven, while that for contract employees was 42.