Temporary Agency Work vs. Subcontracting – Differences, Distinctions and Legal Basis

If you want to survive in the market, you have to be flexible. When order volumes are low, the labour costs associated with a large workforce are not viable. However, if order volumes rise unexpectedly, there must be a way to expand the workforce immediately. This flexibility in workforce planning is possible today thanks to agency work – but also thanks to subcontractors. This article explains the difference between the two models, how commercial staff supply differs from disguised temporary work, and what clients need to bear in mind.

What is temporary work?

In a globalised world, the cost pressures on businesses are becoming increasingly evident. Temporary work gives businesses the opportunity to respond to this cost pressure in line with their current order situation – put simply: a small permanent workforce keeps the business running, whilst temporary staff are on hand as soon as the order books fill up.

The use of temporary agency workers can represent either a tactical or a strategic solution for companies:

Tactically: Coping with typical staff fluctuations – an employee has planned family leave, a secretary is temporarily off sick. A temporary worker steps in until she recovers.
Strategic: When the order books are full, the permanent workforce is smaller than is needed for peak production. As soon as orders start to dry up, it is the agency workers who step in – their wages can easily be covered by the new orders.

Highly qualified specialists are hard to come by. As soon as such staff are needed for a specific task, they can be hired through a temporary employment agency – the associated higher labour costs can easily be justified by the savings made during the periods when this specialist expertise is not required and no temporary worker needs to be paid.

What is covert temporary work?

The so-called must be distinguished from actual agency work disguised agency work must be ruled out. This form of temporary agency work contravenes current legislation and must be avoided at all costs.

Disguised agency work occurs when one of three conditions is met:

The agency does not hold a licence to supply temporary workers. Before hiring temporary staff, the agency should first be checked. If a proper application for a temporary agency work licence has not been submitted, this can be verified via the Federal Employment Agency.
There must be no Contract for work is used for the supply of temporary workers. In this context, it is being misused to circumvent the social protection to which the worker is entitled.
The employee’s work must not be declared as self-employment. This is usually done in order to circumvent payroll tax obligations and the administrative formalities associated with the work.

Commercial temporary work

In contrast to this is commercial temporary work provided by a licensed temporary employment agency. Under this arrangement, temporary workers are employed by the agency to work for one, or at least predominantly different, client organisations. The staff work primarily for these third parties and change regularly. The provision of temporary workers, on the other hand, is not on a commercial basis, where the agency workers carry out their work primarily at the agency’s own premises – work carried out at a third party’s premises is the exception here, not the rule.

The triangular relationship in temporary agency work

It is in the nature of commercial temporary agency work that there is a Love triangle between the agency worker, the agency and the client organisation:

Relationship	Contents
Temporary workers ↔ Temporary employment agency	Standard employment contract. The agency worker has the same rights and obligations as other employees. The agency has the authority to issue disciplinary instructions.
Temporary agency workers ↔ Client companies	The client company is entitled to expect the agency worker to carry out the work to a professional standard. The client company has the authority to issue professional instructions.
Client ↔ Temporary employment agency	A temporary agency work contract that specifies working hours and the specific duties to be performed. The temporary work agency receives a fee for the provision of the workers.

Further requirements for the supply of temporary workers

Temporary agency work must be carried out as part of an economic activity.
The commercial supply of temporary workers must be carried out by temporary duration . At present, the rule is that temporary workers may be assigned by the agency to the client for a maximum of 18 consecutive months. This maximum duration may also be regulated differently by collective agreement.
For temporary work, a temporary employment contract is used which complies with the provisions of the AÜG.
The principle of Equal treatment: Temporary workers are entitled to the same pay, the same working hours, the same annual leave and the same allowances as permanent staff – unless a collective agreement contains different provisions.

What is the distinction between these and subcontractors?

In theory, a company can also gain a certain degree of flexibility in its workforce planning by using a subcontractor. In practice, however, things look a little different.

In the case of temporary agency work, the agency assigns its workers to the client company for a specific period – these workers carry out their duties at the client company as if they were part of its workforce. A subcontractor, on the other hand, deploys its own staff at the site of the contract in a similar situation – whilst a temporary worker provides their labour to a third company, a subcontractor’s employee continues to work for their parent company, except that this parent company is carrying out a contract for the third company.

Temporary work vs. subcontracting – the key differences

A temporary agency work arrangement exists when all four the following characteristics apply:

The agency worker is subject to the instructions and technical supervision of the client company and is integrated into the work processes just like any other member of staff
It is not possible to distinguish any products, services or interim results produced from those of the borrowing organisation, or they are attributed to the latter
The work is carried out using the materials and tools provided by the hirer
The agency itself is not liable for the success of the work performed

If none of these points apply, a subcontractor was commissioned to complete the project.

A subcontractor…	A temporary employment agency…
Sends out its own workers	Provides staff
Take responsibility for the outcome yourself	Is not responsible for the success of the work
Employs staff with specialist training and many years’ professional experience	Temporary agency workers are not necessarily professionally trained and do not have a wealth of long-term professional experience
Can be commissioned without any restrictions on the duration of use	The duration of employment for temporary staff is limited to 18 months
Works under their own professional supervision – the client has no right to issue instructions	Is subject to the technical instructions of the borrowing organisation

Advantages of using subcontractors over temporary staff

Project-based specialists brought in via subcontractors offer a major competitive advantage: they enable companies to offer new areas of expertise and expand their core business. The prompt provision of specialist staff by subcontractors enables long-term savings on costs in the form of wages and ancillary costs. These specialists work within their field of expertise, continually gaining experience from various companies, and thus represent a particularly attractive category of specialist staff.

Whilst subcontractors do not directly influence the number of staff available, they are able to provide support in coping with peaks in order volume – using their own staff and skilled workers, they take on parts of the orders, meaning that fewer of the company’s own staff are required to handle the workload as a whole.

Conclusion

Commercial temporary staffing refers to the provision of temporary workers to a client organisation when that organisation has an increased need for staff. This improves efficiency within the client organisation and enables better workforce planning.

Commercial supply of temporary workers occurs when not This does not apply if the agency does not have the necessary authorisation, if work is carried out under contracts for services, or if the work is presented as self-employment.

The engagement of a subcontractor must also be distinguished from temporary agency work: the subcontractor supports the client with its own staff, who, however, remain under the technical supervision of the subcontractor. Consequently, this does not constitute the hiring of temporary staff – nor does the client have the right to issue instructions.

Global Business Recruiting places only subcontractors on a contract-for-services basis – No temporary work, no disguised agency work. All contracts are drawn up by lawyers and comply with the requirements of the law governing contracts for work and services. Enquire now without obligation →