Direct versus Contract Employees

Published by MBA Skool Team, Published on June 25, 2013

Labour unrest takes a toll on most of the companies these days whether it is a manufacturing company, an IT company or even government organisations. Employees now know their rights and express their grievances openly. They have started to demand more.

Labour unrest is common in certain organisations, especially manufacturing companies, due to conflicts between the direct and the contract employees. How to deal with this cannot be written down in an easy formula or a generalized solution. The solution lies in situational factors and the efficiency of the manager handling it. It may even need a change in the company policies. But the question is do we actually need to address this issue or just ignore it as most of the companies do these days. Will it have an impact on the growth of the company? A probe into the lives of the employees of a manufacturing company provides sufficient evidence to conclude that the unheard grievances of the contract employees do have an impact on their productivity and thus the growth of the company.

Contract employees constitute a major portion of the employees in manufacturing companies especially in the gulf countries. There are many long term contract employees who stay with the company till even retirement by extending their contracts. Such employees despite contributing much to the company do not get recognized as direct employees and this in turn deprives them of the benefits they are eligible for. The host of benefits the direct employees are entitled to get are unlimited medical facilities and reimbursement of medical bills, bonuses on festive occasions and when the company gets huge profits etc. While direct employees and independent contract employees generally receive their cheques directly from the host companies for which they work, direct employees are paid through the company's payroll system and applicable payroll taxes are deducted.  Independent contract employees are paid either in this way or depending on the classification of the specific position, the wishes of the employee and employer and applicable state and federal laws.

Due to this discrimination the contract employees suffer, they do not give their hundred percent to the work they do, are less engaged in their work, develop a negative attitude to an extent and thus work with lesser efficiency than what they are actually capable of. These employees are as competitive as the direct employees but there is always a stigma within the organisation tied to the contract employees. This leaves them less motivated and with the feeling that they are not given the required power or position in the organisation. This has a very direct negative impact on the company’s performance as they hire contract employees in large numbers for solid work that they leave to the latter completely.

To solve this issue, the employees’ grievances should be heard. Employee engagement is as sensitive as customer engagement. Studies should be conducted on employee engagement in the organisation in order to find out the level of their engagement and also to find if there is a significant difference between the direct and contract level employees’ engagement levels. Employees who are only transactionally engaged can be found out using this exercise. The drivers of emotional engagement are organisational identification, person-organisation fit, perceived organisational support etc. These are all negatively associated with transactional engagement. The HR practitioners should set up an environment which helps unfold the emotional engagement of all employees.

The contract employees who wish to be converted to direct employees should be given consideration based on their experience and consistent performance when there is a vacancy for a post, rather than lateral hiring. This will motivate the employees to work harder and to develop a sense of commitment to the organisation as a whole. This conversion of contract to direct employment can be done after necessary medical check-ups, manager’s sign off about their performance etc so that the company does not end up making the wrong choice. But this definitely will improve the morale of the contract employees and bind them to their work and motivate them.

What is in it for the company? Labour unrest by the contract employees takes a back seat with regards to their frequency of occurrence as now they are given a chance of being a permanent part of the company if they put in their efforts. They will get a better treatment from the direct employees as well which will boost up their performance. Company can leverage on the efficient employees amongst this group by converting them into direct employees and hence reduce their cost of hiring and training to an extent. Overall the image of the company will that be of a solicitous and considerate organisation which stands for its people.

This article has been authored by Nandini Sudheer from SDMIMD, Mysore

Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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