Temporary employment vs. subcontracting - definitions and differences

Two fundamentally different models are available for companies that need to react flexibly to order peaks: Employee leasing (temporary work) and the use of subcontractor teams on a work contract basis. Choosing the right model has significant legal and economic consequences. This article explains the definitions, shows the differentiation criteria and gives you a clear basis for your decision.

What is temporary employment?

In a globalised world, companies are feeling the cost pressure more and more clearly. Temporary employment enables a company to react flexibly to the current order situation: A smaller permanent workforce keeps operations running, while temporary workers are deployed as soon as the order books fill up.

Temporary staffing can be a tactical or strategic solution. As a tactical solution, it enables a company with a relatively stable order situation to compensate for typical staff turnover - for example when an employee is on holiday or an employee is temporarily ill. As a strategic solution, it makes sense where the order situation fluctuates greatly: the permanent workforce is deliberately kept small; during order peaks, temporary workers step in, whose costs are refinanced by new orders.

Temporary employment as a solution for skills shortages

Particularly qualified specialists are hard to find. They can be requested for specific tasks via a temporary employment agency. The higher labour costs often associated with this can be justified by the savings made at times when this expertise is not required.

Employee leasing simplifies personnel planning and makes it as dynamic as market conditions require. However, it should not be confused with the subcontractor model - the differences are considerable.

What is concealed temporary employment?

A distinction must be made between regular employee leasing and so-called covert employee leasing. This form violates applicable law and must be avoided at all costs. Hidden temporary employment exists if one of three conditions is met:

• The lending company does not have a licence for the commercial supply of temporary workers in accordance with the AÜG.
• No labour leasing contracts are used - instead, work contracts are abused to circumvent social protection.
• The activity is falsely declared as self-employment in order to avoid income tax and formalities.

Commercial supply of labour

The commercial leasing of employees by a licensed temporary employment agency is legal and widespread. Temporary workers are deployed as labour for predominantly changing hirers - they primarily work for third parties, and these third parties change regularly.

The triangular relationship

The commercial supply of labour is based on a triangular relationship:

• Temporary worker - temporary employment agency: Regular employment relationship, the temporary employment agency has the right of direction and is responsible for the place and time of work.
• Temporary worker - hirer: The hirer is authorised to issue technical instructions to the temporary worker and to demand that the work is carried out correctly.
• Borrower - temporary employment agency: An employee leasing agreement regulates working hours, activities and hourly rates.

Further legal requirements

Temporary employment must be part of an economic activity and be of a temporary nature. Temporary workers can currently be employed by the same hirer for a maximum of 18 consecutive months - this maximum duration can be regulated differently by collective agreement.

In principle, the principle of equal treatment applies: temporary workers are entitled to the same remuneration, working hours, holidays and special payments as the permanent staff of the hirer. Access to communal facilities (canteen, transport) is also included. Collective agreements may deviate from this.

What is the difference to subcontractors?

In the case of employee leasing, the professional authority over the employee is transferred to the hiring company - the employee works as part of the local workforce. The situation is fundamentally different with a subcontractor: the subcontractor retains the authority to issue instructions to its employees, is liable for the work results and is not integrated into the client's processes.

Delimitation criteria: When is a supply of labour deemed to exist?

Temporary employment exists if one of the following characteristics applies:

• The employee is subject to the instructions and professional supervision of the hirer and is integrated into its processes like any other member of the workforce.
• The services rendered are indistinguishable from those of the hirer and are attributed to the latter.
• The work is carried out using the hirer's materials and tools.
• The hirer is not liable for the success of the labour service.

If none of these characteristics apply, a subcontractor has been commissioned to perform a work.

Subcontractor vs. temporary employment agency - the most important differences

Practical advantages of using subcontractors

If defects occur in the work performance, the subcontractor can be required to rectify them. It is advisable to define in advance exactly what end result is expected - construction plans, service specifications and similar documents are suitable for this purpose.

Subcontractors can provide support during order peaks and fulfil parts of the orders with their own specialists - reducing the need for in-house staff. Project-related specialists brought in via subcontractors also offer a considerable competitive advantage and open up the possibility of offering new specialist areas.

Frequently asked questions