Impact of COVID-19 on Contract Staffing


India is the 13th largest staffing market in the world and is growing exponentially at over 15 percent while the global staffing space has matured, and subsequent growth rates have flattened to a mere 1-2 percent.

Indian staffing market includes companies that list employment vacancies, place applicants in employment, supply temporary workforce, and all other employment-related services. The industry is segmented into three categories, namely, Temporary or Contract staffing, Permanent recruitment, and Other employment services. Surprisingly, temporary staffing makes up 75 percent of the total staffing industry in India.

Now, under Temporary staffing, Flexi staffing is a process where employees are hired by a Staffing agency and lent out to work at and under the supervision of an employer. For employees, it provides recognized employment, work choice, fixed compensation, and annual health benefits. Also, most Flexi-employees are employed in jobs like data operations, accounts, sales, back end, and administration.


Indian Workforce in Jeopardy

A gigantic number of 195 million jobs would be lost worldwide due to Covid-19 – ILO.

Hiring activity in India during March 2020 fell by 18% to 1,954 compared to the same month in 2019 at 2,378, following the nationwide lockdown to tackle the Covid-19 crisis, with major impact in cities like Delhi, Chennai and Hyderabad – Naukri JobSpeak Index.

The decline in hiring activity was led by following industries –

  • Hotel, restaurants, travel, airlines (56%),
  • Retail (50%), auto and ancillary (38%),
  • Pharmaceutical (26%),
  • Insurance (11%),
  • Accounting and finance (10%),
  • IT-software (9%) and
  • BFSI (Banking, financial services and insurance) (9%).


Across cities, Delhi saw hiring activity declined by 26% while Chennai and Hyderabad saw activity fall by 24% and 18%, respectively. Naukri also noted a decline across the board in hiring activity at every experience level. Senior experience bands (greater than 13 years’ experience) witnessed the sharpest decline of 29% while the entry-level experience band (0 to 7 years) saw a decline of 16%.

The International Labor Organization has called for urgent, large-scale and coordinated measures across three pillars – protecting workers in the workplace, stimulating the economy and employment, and supporting jobs and incomes.


Cost-Cutting with Flexi

Many companies in India, especially those providing IT and IT-enabled services, may have to trim their workforce or hire more flexi staff as part of cost cutting measures with projects getting delayed due to the Covid-19 pandemic.

Contrary to popular belief that flexi staff could be the first to be laid off during such times, experts believe they may have an advantage as they come with variable cost structures and minimal compliance requirements.

“As companies try to ensure least impact on financial payouts and compliance costs, and focus more on outcome-driven engagements, flexi workers have an upper hand,” – Greyhound Research. Most IT-ITeS companies do not make public the number of flexi staff they employ including TCS, Wipro, and Genpact.

“Employers may opt for additional temporary staff against permanent placements in such an uncertain environment. They may also switch to more variable pay in the salary structure as opposed to fixed pay, in line with pay-for-performance philosophy.” – Randstad India.

The IT-ITeS sector tops flexi-staff adoption with around 12 out of every 100 employees being contractual or flexi staff, according to Indian Staffing Federation (ISF), the apex body of the domestic flexi staffing industry. The sector’s flexi workforce is expected to grow to 720,000 by 2021 from 500,000 in 2018.

The move towards contract hires has been a trend across industries, but it had become more visible in the IT-ITeS sector because of the high requirements for project-based work.

Despite having certain advantages, flexi staff will be impacted in terms of the salary they can command amid subdued hiring. If the current situation persists for long, the temporary workforce may have to come in for reduced pay as companies keep them on standby for ramp up/down kind of situations.

There is a possibility of projects getting delayed if things move to the next stage of lockdown. We can see hiring and onboarding activities getting rescheduled to April and this is more from a wait-and-watch strategy that IT firms are adopting during this crisis.

If Covid-19 becomes a long-term phenomenon, all companies will have to bear the brunt with varying degrees of impact. For the IT sector, a lot of the business comes from outside of India with high exposure to the US and Europe, so it’s even more uncertain.


Inevitable Shift to Remote Working

To keep their businesses afloat, while also ensuring the safety for their staff, most companies have resorted to “work from home” policy. While this isn’t the most efficient way of doing work for some companies, it is the only option and is helping them keep their head above the water. It’s like they say, “Something is better than nothing.”

The companies who have been least affected are the ones whose majority of staff is flexi-staff – which means, a workforce that isn’t permanently bound to the company but is on hire for a certain amount of time. These contract workers are also relatively safer from being laid-off as the pandemic hasn’t affected their workflow too much.

Even the staffing solutions company who are in the businesses of providing flexi-staff are faring much better. People who comprise the flexi-staff are seasoned freelancers and are excellent at working from home.


So, Staffing Firms to Rescue?

Companies in India will have even more reason to use staffing firms once the Covid-19 crisis passes.

Though the current crisis of Covid-19 is bringing a new set of challenges, it further creates a rationale for outsourcing the non-core function of organizations, as companies with limited time and resources after the lockdown will have to hit the ground running to ensure the lost man-days and time is recovered by focus – President of the Indian Staffing Federation.

The Indian staffing industry reaches its peak during the festive season around the third quarter when internal consumption is high and Covid-19’s impact on the economy should be less severe.

So, even though there will be a contraction in the short term, the staffing sector will see rapid growth in demand (especially in e-commerce and pharma) in the months to come and it will be one of the important engines that supports growth across the economy.

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