In today’s employment marketplace, the need for labour hire and contract workers – especially in certain industries, like building and construction – is on the rise. Our unemployment rate is the lowest it’s been for 48 years, at 3.5%. While at the same time, we’re hearing a constant stream of news about the decline of building companies. The outsourcing of labour in this complex environment makes good business sense.
But the perennial question remains: what’s the difference between labour-hire and contractors?
Today, I’ve answered that question, and have provided real-world examples of how the differences in these two worker categories can assist organisations in any industry.
Why the Need for Contractors and/or Labour-Hire Workers?
The answer to this question is simple: companies need more workers to operate efficiently (workers that aren’t on the payroll), all the time.
There’s the overflow of work during seasonal or busy periods.
There’s the need to cover for absent employees.
There’s the unforeseen boon of customer influx.
There are time-specific projects crucial to a company’s growth and evolution.
The reasons are many.
Mostly, when companies need workers in these scenarios, the requirement isn’t for more FTE workers. Non-permanent workers are typically the most commercially sound talent option. And it’s the terms of employment that becomes the crucial point of decision-making, when taking on temporary workers: hiring contractors, or engaging a labour-hire agency.
On the surface, the difference between labour-hire and contractors may seem like a technicality: they are both categories of workers issued to a company on a temporary basis. But the differences are more significant.
What IS the Difference Between Labour Hire and Contractors?
Well, by definition, the differences are:
Contract workers are a separate entity to your business. The relationship you build with them is based on a contract for the provision of a service from them to your business. In delivering this service, the contractor will either use their own resources (such as business tools, computer hardware and software), or they will use your resources. This depends on the agreed arrangement between your organisation and the contractor. A contract worker maintains control over how the work is delivered and the time taken to perform the agreed work.
Labour hire workers on the other hand are workers provided by a labour-hire agency, to work in your organisation. The workers supplied by the agency are not employees in your organisation. And because of this, their employment and work obligations rest with the agency. So, to put it simply, the work arrangement is between your business and the labour hire agency, not your business and the actual workers.
And What Other Differences?
The difference between labour-hire and contractors goes deeper than the simple definition above. There are practical applications to consider when engaging either category of worker. Here are the main factors that may impact your decision:
The Contract Period:
This is a really important differential. And the major factor at play here is whether you’ll know for how long your business will need the extra workers.
If you’re certain that the additional workload will be for a finite period, without extension, contract workers are a better choice (so it may be due to a seasonal fluctuation, a launch period, or finalising a construction project). For them, the employment period is defined at the start of the relationship, when the contract is being drafted. If for any reason, you need to extend the timeframe, you’ll need to negotiate a new contract with the worker once the existing contract has expired.
For labour-hire workers, greater flexibility is at play. The engagement period of labour-hire workers can be extended indefinitely and repeatedly for as long as your business requires the worker. Therefore, labour-hire workers are the ideal option if you’re not sure how long the business will require the additional workers. Case examples might include the implementation of a new IT system, from the inception stage of construction projects, and most projects out of the PMO (which typically go over time).
Managing Poor Performance:
Another important difference between labour hire and contractors is the ability to part ways with poorly performing workers.
If a new worker in your organisation isn’t performing as expected and they’re engaged as a contractor, depending on the contract stipulations, it might be difficult for your business to exit the contract. In this situation, you may end up undertaking legal action which costs your business precious time and money.
In a labour-hire arrangement, changing workers is typically an easy process. If your business isn’t satisfied with the work provided by the labour-hire worker, the onus will be on the agency to replace that worker with a new one.
Having said that, the selection process of the workers is an important consideration here:
- When engaging contractors, as your organisation will be doing the sourcing and selection, you have greater insight and control over which contract workers will be engaged in the business. So technically, poor choices are less likely
- When engaging labour-hire workers, the labour hire agency selects the workers from those on their books, based on your briefing. So, the margin for error can be somewhat wider.
Cost of Workers:
The final difference between labour-hire and contractors relates to cost.
With contract workers, your business is responsible for sourcing the workers, vetting applicants, and negotiating the terms of the contract. As mentioned above, this can play to your advantage, given your business is so deeply involved in the selection process.
Sure, there are greater costs in terms of time, money, and people involvement. But this level of immersion in the process can often illicit better candidates and higher quality outcomes.
When working with labour hire agencies, all the sourcing, vetting and selection of workers is done by the agency. In some instances, the agency will also provide onboarding and training services. It’s a cheaper option than using contract workers for short-term labour, but with less involvement of your company in the process, there can be greater risk.
For many organisations, using both contractors and labour-hire workers concurrently is very common. Contract workers may be more involved in higher level, strategic work. While labour-hire workers can be involved in more process-driven, task-oriented work. There is absolutely a place for both workers in today’s talent marketplace. The key for either category of worker is ensuring they are always integrated into your business from the outset. And, they have a clearly defined remit for the work expected of them.
As one of the world’s leading providers of contingent worker management solutions, CXC is well positioned to optimise all elements of your contingent workforce strategy. With operations in more than 50 countries across five continents and decades of experience, we can assist with every aspect of your program.