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U.S. Department of Labor Futurework
  Trends and Challenges for Work in the 21st Century
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Flexible Staffing Arrangements

A Report on Temporary Help, On-Call, Direct-Hire Temporary, Leased, Contract Company, and Independent Contractor Employment in the United States

Susan N. Houseman
August 1999

11. Conclusion

The circumstances facing workers in flexible staffing arrangements vary substantially by type of arrangement. Agency temporaries, on-call workers, and direct-hire temporaries are disproportionately young and female; they tend to be unhappy with their work arrangement and want a permanent job with regularly scheduled hours; and they are likely to earn low wages and come from poor families. Along with contract company workers, they experience less job stability compared to regular, full-time workers. Consistent with this finding, the major reason firms give for using these types of arrangements is to accommodate fluctuations in their workload or absences in their regular staff. In addition, firms appear to be increasing their use of these types of arrangements, in part, to increase their workforce flexibility. A trend towards a "just-in-time" workforce raises concerns about the future job stability and training of workers. It also raises policy issues about the adequacy of unemployment insurance coverage for these workers under current state laws.

Another reason that firms appear to be increasing their use of these workers, particularly agency temporaries, is to screen workers for regular jobs. This motivation for using agency temporaries carries quite different implications for workers and for policy. Policy makers are less likely to be concerned with poor compensation associated with temporary jobs if they are avenues for securing good, permanent positions. Similarly, the use of temporary help agencies to help place disadvantaged workers becomes more attractive if these positions help workers find permanent jobs. The extent to which workers, particularly disadvantaged workers, are able to secure stable employment through temporary jobs is not known and needs to be studied.

In contrast to agency temporaries, on-call workers, and direct-hire temporaries, independent contractors are disproportionately older, male, white, and more educated. They tend to be quite happy with their employment arrangement and do not, on average, earn lower wages or experience less job stability than regular full-time employees.

One issue that cuts across all flexible staffing arrangements, including independent contractors, is lack of health insurance and pension coverage. Workers in flexible staffing arrangements who are employees are much less likely to be eligible participate in an employer sponsored health insurance or retirement plan compared to regular full-time employees. Workers in all flexible staffing arrangements are also much less likely than regular full-time employees to have health insurance or a retirement plan from any source. Survey evidence suggests that savings on benefit costs is one important reason firms use flexible staffing arrangements. ERISA and anti-discrimination clauses in the IRS tax code make it difficult for firms to offer benefits to a subset of their full-time workforce. Firms may side-step these regulations by hiring more temporary and part-time (including on-call) workers directly or by hiring independent contractors, agency temporaries, and contract company workers, who are either self-employed or employees of another firm.

While some steps have been taken to curb obvious abuses involving misclassification of employees as independent contractors and use of leased employees to avoid pension benefits, there remains considerable confusion over when a worker may be legitimately classified as an independent contractor and over the responsibilities client firms have as "joint employers" of leased employees, agency temporaries, and contract company workers. These issues affect not only benefits for workers in flexible arrangements, but also their coverage under a host of other employment programs and labor standards, including workers' compensation, unemployment insurance, various anti-discrimination laws, The Family and Medical Leave Act, the Workers' Adjustment and Retraining Act, the Fair Labor Standards Act, and the National Labor Relations Act.

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