New Delhi: Companies in India are taking recourse to payrolling—the practice of transferring surplus employees onto the rolls of a third party or temporary staffing firm—as they try to weather the deepening economic downturn.

“Globally, this practice has been around for some time now. In India, however, we are now seeing the emergence of this trend," says E. Balaji, chief executive officer of Chennai-based Ma Foi Management Consultants Ltd, a recruitment agency.

Cost advantage: Contract workers are said to comprise less than 1% of the workforce in India. Madhu Kapparath / Mint

Also known as the pay-and-park system in the recruitment industry, payrolling is an alternative to layoffs for companies grappling with the challenge of dealing with excess employees and cutting costs.

It is a way of avoiding negative publicity of the kind Jet Airways (India) Ltd attracted when the carrier tried to lay off hundreds of people in October, a move it later retracted, and fend off repercussions on its future ability to attract employees.

“In addition to cost cutting considerations, payrolling is actually a derisking strategy," says Rajesh A.R., vice-president (temping), TeamLease Services Pvt. Ltd. “All statutory compliance with regard to employees is on the vendor once the employee is on the temping company’s rolls."

Recruiters say the advantages of having a contract worker, especially when one is saddled with surplus employees and watching costs, is leading to more firms seeking temporary employees. “Having employees on short-term contracts gives organizations flexibility to mobilize and demobilize workforce according to business need and companies in India are increasingly realizing the advantages of having a flexible workforce," says Sudhakar Balakrishnan, chief executive officer, Adecco India Ltd, a subsidiary of Swiss staffing company Adecco SA.

Human resource consultant Anita Belani, country head at Right Management India Pvt. Ltd, says, “The real gain for companies is the flexibility to downsize and taking away the risk and negative publicity from layoffs."

Historically, during tough times, the staffing business across the world sees an increase. In the past, downturns have seen the temping business go up by 20-25%, say recruiters.

“Firms with a hiring freeze that have won an additional business or project want to go for just-in-time hiring," says Ma Foi’s Balaji.

Staffing companies in India are already witnessing an increase in the recruitment of temporary workers. Staffing company Manpower India Services Pvt. Ltd too is seeing more firms signing up for temporary positions.

“We are excited about the new clients that have approached us in the last eight weeks. The last quarter shows an increase of 10% in our new acquisition of clients," says Manpower India’s spokesperson. However, he added that he will not be able to say if the pie of temporary staffing has grown because of existing clients opting for temporary employees or addition of new clients.

Like Manpower, the temporary staffing business of Ma Foi has grown by 12-15% in the last six months compared with the same period a year ago. Adecco India, which has seen a year-on-year revenue growth of 30% in its temping business, expects revenue to go up in the January-March quarter. “That’s when we can actually gauge the impact of the slowdown on temping business because the effects of slowdown have not sunk in yet," says Balakrishnan.

Recruiters say that in addition to offering workforce flexibility, there are cost advantages in having temporary workers in India. While in India, temporary employees are paid 15-30% less than their counterparts in permanent positions, internationally temporary employees are paid 15% more on average compared with permanent employees for the same role since they are seen as taking more of a risk, say executives from staffing companies. “In addition to direct savings, there are intangible savings by way of administration work such as paying provident fund and health benefits," says Balaji.

Also, internationally, temporary workers are more specialized people and working as temporary staff is a conscious career choice. “Professionals who choose to work on short-term contracts is because they are looking at experiencing different companies and varied learning," says Belani.

Globally, contract workers comprise 4-5% of the workforce, while in India the number is less than 1%, says Balakrishnan.

TeamLease’s Rajesh says that currently there are around 40 million employees in the organized sector in India and the number of temporary workers would not exceed 400,000. “Hence, there is a huge potential for organized staffing companies," says Rajesh.

Experts point out that one of reasons behind the under-penetration of temping in India is because of its cultural mindset. “Temporary jobs have not been very popular in Asia unlike in the US or Australia. The perception here is that if you are holding a temporary job, it is because you are not capable of having a permanent job," says Belani.

That view is slowly changing and in the future one can see highly skilled people taking up temporary positions as a career choice, say temping companies. “People are increasingly looking at ways to manage their own time and work from home. Being a contract worker gives you that flexibility," says Balakrishnan.