If you want to survive in the market, you have to be flexible. When order volumes are low, the labor costs for a large workforce aren’t justified. But if order volumes then rise unexpectedly, there must be a way to expand the workforce immediately. Today, this flexibility in workforce planning is made possible by temporary staffing. But there’s also an alternative: subcontractors. Here, we’ll look at the difference between the two—and how commercial temporary staffing differs from disguised temporary work.
What is temporary work?
In a globalized world, companies are feeling the pressure to cut costs more and more acutely. In this world, temporary staffing gives a business the ability to respond to this cost pressure in line with its current order volume. Put simply: A small core workforce keeps the business running, while temporary workers are on hand as soon as the order books fill up.
Temporary staffing can be a tactical or strategic solution for a company:
Tactical Deployment – Bridging Short-Term Staffing Shortages
As a tactical solution, it enables a company with a relatively stable order book to offset typical fluctuations in staffing levels. Did an employee schedule their family vacation at an inconvenient time? A temporary worker steps in. If the secretary is temporarily out sick, a temporary agency worker takes over until she recovers. This simplifies personnel management in day-to-day operations.
Strategic Deployment – Mitigating Order Fluctuations
Then, of course, there are companies where anything is possible—from full order books to a decline in customers. Here, the permanent workforce is actually smaller than what’s needed for peak operations, in order to keep wage costs at a manageable minimum. However, as soon as additional workers are needed because orders are pouring in, it’s the temporary workers who step in. Their wages can easily be covered by the new orders, so everyone wins.
In addition, there is a constant shortage of highly qualified skilled workers. As soon as they are needed for a specific task, they can be requested through a staffing agency. The higher labor costs often associated with this can easily be justified by the savings realized during the periods when this specialized expertise is not needed and no wages need to be paid for it.
This makes temporary staffing the solution to a whole range of problems. It allows companies to supplement their existing workforce in a targeted manner when day-to-day operations require it. It enables companies to handle peaks in order volume, and skilled workers—such as temporary engineers—are available exactly when they are needed. This makes workforce planning simpler, more efficient, and as dynamic as market conditions demand.
What does "disguised temporary work" mean?
Disguised temporary employment exists if one of the following three conditions is met:
- Lack of authorization: The staffing agency does not have a license from the Federal Employment Agency to provide temporary workers on a commercial basis. The staffing agency should therefore always be checked in advance—you can contact the Federal Employment Agency to find out whether a valid license has been applied for and granted.
- Abuse of the Contract for Services: A contract for work and services is being misused for temporary staffing in order to circumvent the social protections to which the employee is actually entitled.
- Incorrect Classification as Self-Employed: The employee's work is reported as self-employment—usually to avoid payroll taxes and labor law formalities.
Consequences of Disguised Labor Leasing
Disguised temporary employment is an administrative offense and can be punished with substantial fines. In the worst-case scenario, an employment relationship between the employee and the user company is established by law—and social security contributions are retroactively demanded. Both the staffing agency and the user company are liable.
What is commercial temporary employment?
In contrast, there is commercial temporary work provided by a licensed staffing agency. Under this arrangement, temporary workers are employed by the agency to work for clients that are either entirely or at least predominantly rotating. This means that the workers primarily work for third parties—and these clients change regularly.
Temporary employment, on the other hand, is not on a commercial basis, if the temporary workers perform their work primarily at the staffing agency’s own premises. Work at a third party’s premises is the exception here, not the rule.
The Triangular Relationship in Temporary Employment
It is inherent in the nature of commercial temporary staffing that a three-way relationship exists between the temporary worker, the staffing agency, and the client company. This relationship entails its own rights and obligations.
Temporary Worker ↔ Temporary Employment Agency: Employment Contract
There is a standard employment contract between the temporary worker and the temporary staffing agency. The temporary worker is employed by the temporary staffing agency. Within this relationship, the temporary worker has the same rights and obligations as any other employee in any other employment relationship. The disciplinary authority Responsibility for the temporary worker lies with the staffing agency—it is this company that is responsible for ensuring that the temporary worker performs the work at the right time and in the right place.
Temporary Workers ↔ Hiring Companies: Authority to Issue Work Instructions
The temporary staffing agency has a right to ensure that the temporary worker performs the work in a professionally sound manner. To this end, the temporary staffing agency has the authority to issue technical instructions compared to the temporary worker. So the point is that the right work gets done—but the temporary staffing agency decides how and when.
Temporary Employment Agency ↔ Client Company: Temporary Employment Agreement
There is a temporary employment contract between the client company and the staffing agency that governs their collaboration. This contract specifies the working hours, the specific duties, and the price or hourly rate. In addition, the staffing agency receives payment for the assignment of the workers.
| Ratio | Contract Type | Authority to Issue Instructions | Contents |
|---|---|---|---|
| Temporary Worker ↔ Temporary Employment Agency | Employment Contract | Disciplinary (Temporary Employment Agency) | Employment, with the same rights and obligations as regular employees |
| Temporary Workers ↔ Hiring Companies | No direct contract | Technical (Borrower) | The borrower provides technical instructions; is not liable for the success of the work |
| Temporary staffing agency ↔ Client company | Temporary Employment Agreement | — | Hours Worked, Activity, Hourly Rate, Invoice Amount |
What are the requirements for temporary employment?
Temporary employment must take place within the context of an economic activity. This means that there must be an activity involving the provision of goods or services in a specific market. Temporary employment for charitable purposes and intra-group temporary employment are also considered economic temporary employment.
- Temporary duration: The commercial provision of temporary workers must be of a temporary nature. Temporary workers may be assigned to the user company for a maximum of 18 consecutive months. This maximum duration may be modified by collective bargaining agreement—and this option is frequently utilized.
- Temporary Employment Agreement under the AÜG: For temporary work, a temporary employment contract is used, which must comply with the provisions of the Temporary Employment Act (AÜG). It must clearly define the terms of the assignment so that there are no surprises for either party.
- Equal Treatment (Equal Pay / Equal Treatment): Care must be taken to ensure that temporary workers are treated equally compared to permanent staff. Essentially, this means that temporary workers receive the same pay, work the same hours, are entitled to the same vacation time, and receive the same overtime pay. In addition, they have access to shared facilities—including meal services and transportation. This does not include employee discounts or the company pension plan. Here, too, collective bargaining agreements may contain different provisions.
How is the distinction made between contractors and subcontractors?
In theory, a company can also gain a certain degree of flexibility in workforce planning by using a subcontractor. In practice, however, things look a little different:
In temporary staffing, the staffing agency assigns its workers to the client company for a specific period of time. These workers then work at the client company as if they were part of its workforce—in other words, the temporary worker provides his or her labor to a third company.
In a similar case, however, a subcontractor deploys its own employees at the job site. The worker continues to work for his or her primary employer, except that this primary employer is carrying out a contract for the third-party company. The authority to issue instructions remains with the subcontractor, not with the client.
What are the differences between temporary staffing and subcontracting?
When does temporary employment apply?
If any of the following conditions apply, the work is considered temporary agency work:
- The temporary worker is subject to the instructions and supervision of the host company and is integrated into its operations just like any other employee on the staff.
- All products, services, or interim results produced by the employee cannot be distinguished from those of the client company and are attributable to the client company.
- The work is performed using the materials and tools provided by the borrower.
- The staffing agency itself is not liable for the success of the work performed.
When is a subcontractor involved?
If none of the above apply, a subcontractor was hired to complete the project. A subcontractor:
- Sends its employees with their own tools and under their own organization
- Take responsibility for the outcome of the work
- Has employees with specialized training and many years of professional experience
- Can be commissioned without any legal restrictions on the duration of use
For a temporary employment agency, however, the following applies:
- It only provides workers; it does not perform any tasks itself
- She is not responsible for the success of the work
- Temporary workers are not necessarily trained or experienced in their field
- The duration of temporary staff assignments is limited to a maximum of 18 months
| Criterion | Temporary Employment | Subcontractors |
|---|---|---|
| Authority to Issue Instructions | Technical support provided by the borrowing organization | At the subcontractor's own facility |
| Liability for Work Performance | No (the lender is not liable) | Yes (the subcontractor is liable) |
| Tools / Materials | Provided by the borrower | Provided by a subcontractor |
| Integration into the client company | Full-time – like permanent staff | No – our own operational organization |
| Duration of deployment | Max. 18 months (AÜG) | Unlimited |
| Qualification | Not necessarily high | Typically, skilled workers with formal training |
| Liability for Defects | No | Yes – A claim for rectification is possible |
| Deployment During Peak Order Volumes | Yes – direct staffing reinforcement | Yes – Acceptance of partial orders |
What are the advantages of subcontractors over temporary agency workers?
If defects arise during the work, the subcontractor can be required to correct them. In such cases, it is particularly advisable to clarify in advance exactly what is expected of the finished product. Construction plans, specifications, and similar documents can be used for this purpose.
While subcontractors do not directly affect the number of available staff, they are able to provide support in handling peak workloads. To this end, they can use their own staff—and especially their skilled workers—to carry out parts of the orders, thereby reducing the number of in-house staff needed to complete the work.
Project-based specialists brought in through subcontractors offer a significant competitive advantage. In addition, these specialists make it possible to offer new areas of expertise or expand the core business.
Providing specialized personnel through subcontractors in a timely manner can lead to long-term savings on wages and related costs. These specialists continue to work in their respective fields, constantly gaining experience from various companies, and thus represent a particularly valuable group of professionals.
FAQ: Frequently Asked Questions About Temporary Employment and Subcontracting
In temporary staffing, the staffing agency assigns its workers to the client—the temporary workers are then fully integrated into the client’s operations, work with the client’s tools, and are subject to the client’s technical instructions. The staffing agency is not liable for the success of the work. A subcontractor, on the other hand, takes on an independent contract, carries it out using its own personnel and materials, retains the authority to issue instructions, and is liable for the outcome.
Disguised temporary employment exists if: (1) the staffing agency does not have a license from the Federal Employment Agency, (2) a contract for services is misused to circumvent social security obligations, or (3) the employee’s work is falsely classified as self-employment. Each of these scenarios is unlawful and may result in retroactive demands for social security contributions.
Three parties are involved: The temporary staffing agency enters into an employment contract with the temporary worker and has the authority to issue disciplinary instructions. The client company enters into a temporary staffing agreement with the temporary staffing agency (covering working hours, duties, and hourly rate). While on assignment, the client company has the authority to issue work-related instructions to the temporary worker—in other words, it tells the worker what to do.
Temporary workers are entitled to equal treatment compared to permanent staff: equal pay, equal working hours, equal vacation time, equal bonuses, and access to shared facilities (cafeteria, company transportation). This does not include employee discounts and company pension plans. Collective bargaining agreements may deviate from the equal pay principle within certain limits—in such cases, equal pay applies no later than 9 months after employment begins.
Temporary staffing is considered commercial if the staffing agency primarily assigns its workers to various third parties. It is not considered commercial if the workers are primarily employed at the staffing agency’s own facilities and assignments to third parties occur only in exceptional cases. Only commercial staffing agencies require a permit from the Federal Employment Agency.
Yes—subcontractors can take on parts of large contracts, allowing the main company to require fewer of its own employees. They often bring in specialized workers who expand the company’s range of services. Unlike temporary staffing, there is no legal limit on the duration of their assignment. However, they have no direct impact on the number of staff available at the main company.