Companies more inclined to hire contract staff to avoid complexities of layoffs
Source: Business Times
Article Date: 14 Mar 2025
Author: Low Youjin
They find it easier to scale their workforce in response to business needs and economic conditions -- especially amid growing uncertainty.
Singapore’s employers may prefer contract employment for certain roles as they can cut headcount without the complexities of layoffs, human resource (HR) companies said.
Last month, DBS announced plans to cut about 4,000 contract and temporary staff over the next three years, with some roles being replaced by artificial intelligence (AI).
Contract hiring allows such large-scale headcount changes to be made without severance payouts, as firms have the flexibility to simply not renew contracts, said HR firms.
It is thus easier for companies to scale their workforce in response to business needs and economic conditions – a crucial ability to have amid growing uncertainty.
As confidence in the global economy has fallen in the past two years, companies seek a more “flexible approach to scale up and down certain transactional or day-to-day work”, said Greg Cazalis, principal consultant at recruitment agency Robert Walters Singapore.
Replying to queries from The Business Times, the National Trades Union Congress (NTUC) said early indications suggest that companies are more inclined to let go of temporary and contract workers when downsizing in the face of AI disruption.
This is achieved largely by natural attrition from contracts that expire and are not renewed, said NTUC.
Among resident employees, the share of fixed-term contract employees has been stable over the past decade, at 7.3 per cent in 2024 compared to 7.5 per cent in 2014, based on Ministry of Manpower data.
However, these statistics do not show whether contract employment has risen for foreigners.
Previously, many contract roles were for foreigners with scarce skills, especially in tech, said Cazalis. But post-Covid, more of such roles are going to citizens and permanent residents.
In the short term, there has been a rise in one-year contracts. In 2024, 3.1 per cent of resident employees were on such contracts, about a fifth larger than the 2.4 per cent share in 2023.
This was also larger than the 2.5 per cent on fixed-term contracts of more than a year, and 1.6 per cent on contracts under a year.
This rise could reflect how companies are adjusting hiring strategies in response to uncertainty, said ManpowerGroup Singapore country manager Linda Teo.
“Fixed-term contracts provide companies with greater flexibility, allowing them to adapt their workforce to evolving conditions without overcommitting resources to specific areas or skill sets.”
Why hire contract workers?
Beyond cutting costs associated with layoffs, contract hiring helps businesses fill temporary skill shortages, bridge workforce gaps – arising from maternity leave, for example – or delay permanent hires until business conditions stabilise, said Teo.
HR firms said contract hiring is most common in sectors with project-based work or those undergoing digital transformation.
David Blasco, country director at recruitment agency Randstad Singapore, said many contract workers in software development, data analysis and engineering are hired for short-term projects – so permanent roles are unsuitable.
Other industries where contract hiring is common include banking and finance, healthcare, retail and logistics.
While AI has displaced some roles that are more manual in nature, it has also created demand for contract workers with specialised skills in automation, data analysis and digital transformation, said HR firms.
Worse for workers?
Some workers, too, are warming to contract employment, said Robert Walters’ Cazalis. “While contract roles may seem less desirable compared to permanent roles, that view is shifting.”
Tech professionals are generally more accustomed to project-based roles, he said, while retrenched mid-career professionals may take contract jobs while looking for permanent opportunities.
Junior employees, particularly those early in their careers, may see contract positions as a way to explore different industries without a long-term commitment, he added.
Blasco noted that companies in Singapore are offering higher salaries to contract workers with specialised and in-demand skills, to fill talent shortages.
Still, Teo said that despite competitive salaries, the overall compensation package for contract workers has “traditionally been less robust compared to permanent positions” due to varying bonuses and benefits.
Some employers also misuse fixed-term contracts, resetting benefits to the statutory minimum upon each renewal – a practice that NTUC has consistently opposed.
Renewals have been used to avoid paying retrenchment benefits, which are only for employees with at least two years of service, said NTUC. Letting contracts lapse is also a way to sidestep accusations of unlawful termination.
Another worry is that contract work may not lead to permanent employment. Cazalis observed that contractors are more often given renewals or extensions, rather than being converted to permanent roles.
The preference for permanent jobs thus remains strong, said Blasco. “Job security is still a significant factor for many employees. There remains a strong preference for permanent jobs in financially healthy organisations.”
This is reflected in labour data. In 2024, 90.1 per cent of employees were in permanent jobs – one of the highest shares in the past decade.
Source: The Business Times © SPH Media Limited. Permission required for reproduction.
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