A Guide To Contract Staff: Definition, Benefits and Examples

Updated June 30, 2023

When assembling a team of staff members, companies may hire independent contractors, employees or a combination of both to fill their labor needs. If you're involved with the hiring process at your employer, it's important to understand the definition and function of contract staff to ensure you're picking the right type of professional help for your situation. Once you're familiar with the unique aspects of contract staff you can make informed decisions about your team and ensure that all employees receive the benefits they're entitled to.

In this article, we provide a thorough overview of what contract staff means in the workplace and how hiring contract staff differs from other categories of employment.

Key takeaways:

Contract staff are people who are self-employed and offer their services temporarily to an employer for a specific job and length of time.
There are many advantages to hiring contract staff, including flexibility, potential reduced cost of labor and faster turnaround times to create a specialized team.
Independent contractors, freelancers and temporary employees from agencies are all contract staff and can represent a budget-friendly short-term solution for a company's needs.

What does contract staff mean?

Contract staff refers to people who are self-employed and sell their services to employers on a contract basis. Contractors work with businesses based on a set about of time and pay rate that they negotiate at the start of their employment.

Some contractors work with multiple client companies concurrently while others work exclusively with one business for the duration of a project. Because contract staff are technically their own employers, they're responsible for their own tax withholdings. They also have a large amount of independence over how they complete their work.

Related: What Is a Contract Employee?

Contract staff vs salaried employees

Whether you're deciding what kind of jobs to pursue or are part of a company's hiring team, you should have a basic understanding of the difference between salaried employees and contract staff. The nature of someone's work and their relationship with the company both have an impact on their employment classification. Here are the primary differences between contract staff and salaried employees:

Benefits

Full-time salaried employees are entitled to certain benefits such as retirement savings plans, health insurance, paid time off, workers' compensation and disability pay. Even part-time employees can receive some or all of these benefits. Contract staff typically don't have access to these benefits because they're self-employed and their work is focused on completing key tasks instead of their ongoing relationship with the company.

Taxes

Contract staff typically file a 1099 tax form for independent contractors while salaried employees file W2s. Employers who hire salaried employees are responsible for withholding their tax payments and contributing to social security, Medicare and other company tax obligations.

Payment

Salaried employees have a set pay-rate that they receive which determines how much they earn each year. Contract staff may either agree to a lump sum of payment in exchange for a particular service or determine an hourly rate for a set amount of time.

Onboarding

Businesses provide salaried employees with training and onboarding to help them learn how to do their jobs at that specific company. Contract staff are already experienced professionals who have their own methods and equipment for completing work, so they have a much less extensive onboarding process.

Oversight

Contractors have very limited oversight when it comes to how they do their job. The company hiring them might provide feedback and request changes to the final product, but when, where and how they accomplish a goal is usually up to the contractor. Salaried employees can have internal review processes about how they do their job and what methods or materials they must use regardless of the final product of their work.

Job security and length of employment

When a business hires a contract employee, they create specific terms of their employment based on the expected duration of their work. The contract employee doesn't have any guarantee that they'll keep working with the company beyond the end of the contract. Salaried employees expect indefinite employment with their company if they continue to meet their employer's expectations.

Advantages of hiring contract staff

When compared to traditional salaried or hourly employees, contract staff have several unique advantages that they can contribute to a business. Some of the top benefits of hiring contract staff to a company's team include:

Flexibility

When businesses hire contract staff to complete specific projects, they have a high amount of flexibility over their workforce. They can extend the contracts of people who worked well with their team and decide not to renew the contracts of independent contractors who weren't a good fit. As a project changes and evolves, you can give updates and hire new contractors easily without having to restructure internal responsibilities.

Fast turnaround

Hiring contract employees enables companies to quickly release new products and initiatives. It can take a significant amount of time and resources to build a team of full-time employees and train them to accomplish a new goal. You can hire experienced contract employees quickly to speed up production, expand quickly and meet tight deadlines.

Contract employees aren't restricted by a certain number of hours per week and don't qualify for overtime pay, so you can set tight deadlines without worrying about increased labor costs.

Delegation

Having contract staff on your team can make it easier to delegate tasks based on their priority within a team. When you have access to contract employees who work on a task-by-task basis, you can quickly delegate tasks and have a clear timeline for when they'll be accomplished. Contract staff can take on the activities that fall outside of the job description of other employees and simplify disputes over who is responsible for managing an increased workload.

Specialization

If you need access to highly specialized skills, knowledge or equipment for a project, hiring contract staff can be the ideal solution. Hiring industry experts full-time can be costly, and may not be worthwhile if you don't anticipate needing their role on a long-term basis. By hiring a specialist on a contract basis, you can get access to niche expertise and resources without having to invest in them yourself.

Low overhead

Because companies don't train contract employees or offer them benefits, hiring contract staff tends to have lower startup costs compared to full-time employees. While their hourly rate might be higher, contract employees don't need assurance of a full-time salary or other expenses. If your project only requires a few hours a week from a particular role, it's much more cost-effective to pay a flat rate instead of hiring them on a part-time or full-time basis as a salaried employee.

Disadvantages of hiring contract staff

While there are several positive aspects of having contract staff on your team, there are also a few challenges to consider before deciding to look for a contract employee to hire. Some of the common disadvantages are:

Lack of consistency

Because contract staff are usually short-term or temporary employees, it can be difficult to maintain consistent standards in their work. If one contractor decides not to renew their contract for an upcoming project, you may not be able to replicate their work when hiring another contract employee.

Communication challenges

Contract staff may not even work on-site with the rest of your team, making communication more challenging. The autonomy that contract staff have over their work also means that they're less involved with the rest of their team. Some contract employees may be more communicative and give regular updates, while others work independently and only check in with others when necessary.

Decreased loyalty

The short-term, part-time basis of contract positions can lead to a less committed and dedicated workforce. Contractors that work for multiple clients won't be able to make a single business their top priority, and they have no obligation to continue working for the company beyond the terms of their contract. They also spend less time with other employees, which can reduce their opportunities to build loyalty and trust with their coworkers.

Legal considerations

Employers have to be careful when working with contract staff to ensure they meet the proper classification requirements. If a company treats a contract worker as an employee based on IRS guidelines, they could receive penalties for misclassifying the employee and failing to provide them with their benefits.

Types of contract staff

There are two main types of contract staff that businesses can hire to supplement their permanent employees. While both types of contract staff work on a temporary or project basis, they do have distinct differences:

Independent contractors

Independent contractors are contract staff who have a direct agreement with a client company. They negotiate their responsibilities and pay with each business and are fully responsible for their own work and tax obligations.

Agency temps

Temporary workers from staffing agencies are employees of an outside company that connects businesses with professionals to fill short-term roles. The business hiring agency temps negotiates the contract with the agency itself, not the individual temps.

When should businesses hire contract staff?

If you know that your team needs additional support, you should consider whether contract staff or standard employees better suit your needs. There are a few key situations where hiring contract staff is especially advantageous:

Completing project-based goals

When working on a project that has a clear beginning and end, contract staff can be the ideal solution. While salaried employees require a commitment beyond the end of a project, contract staff don't expect to continue working after completing their component of a project. This allows you to set reasonable expectations and focus everyone's efforts toward a clearly defined goal.

Expanding and scaling operations

If your company is experiencing rapid expansion, contract staff can enable you to keep up with production demands while you develop the internal infrastructure of the company. To fill immediate demand, you can outsource roles in your company to contract workers then transition to a full-time workforce once you have the systems in place to support it. This makes it easier to test the impact of new initiatives and workflows before instituting new company policies and changing the structure of your organization.

Improving current practices

Getting an outside perspective from a contract-based consultant can provide your team with essential insights to improve current workplace behaviors. Hiring contract staff to share an objective opinion on different aspects of the team facilitates improvement and helps align staff workflows with industry best practices.

Training employees

Contract staff are the ideal people to train existing staff and teach them new skills. As a company changes, the existing workforce may not have the necessary tools to adapt. Hiring contract staff to act as mentors and trainers can help you transform your existing team without making serious staffing changes or commitments.

When should businesses hire temporary workers from an agency?

If your team needs additional support but you're not interested in seeking out the perfect contract for the position or committing to a full-time employee, a temp worker from an agency may be the solution you need. Here are some of the circumstances that are ideal for hiring temporary workers:

Covering empty roles

Many companies have positions that are essential to the company's operation. If an employee leaves, you'll need to hire someone to cover that role while searching for a replacement. Temporary workers from an agency can report to work immediately and fill in for critical responsibilities until you find a permanent solution.

Fulfilling administrative duties

Temp agencies often specialize in matching employees with administrative roles that have fairly consistent requirements regardless of the employer or industry. You can specify to the temp agency what tasks you need to be covered and they'll connect you with a qualified professional who is already knowledgeable about how to accomplish those goals.

Filling seasonal roles

If you know that you only need additional help for a specific duration of time, an agency can help you find seasonal employees for that time period. This helps the business reduce the amount of onboarding paperwork while still having a dedicated team of seasonal help.