LAHORE: Contract workers are easy to find, and for employers this flexibility is appealing. They can bring in workers when needed and ‘close the door’ when business slows. However, this convenience comes at a hidden price: eroding long-term productivity, stifling innovation and undermining worker morale — costs that businesses rarely account for.
Pakistan’s private sector is not unique in this regard. Globally, industries that rely heavily on contract labour — such as logistics, hospitality and gig-economy platforms — face similar challenges. But the problem is amplified in Pakistan due to weak enforcement of labour laws, minimal social safety nets and underdeveloped vocational training.
The country’s labour laws distinguish between independent contractors and employees, setting out conditions for classification. Yet poor enforcement allows many companies to blur these lines. Employers often label workers as “contractors” to avoid paying mandatory benefits, and with limited regulatory oversight, exploitation frequently goes unchecked. In jurisdictions with stronger regulatory frameworks, such misclassification can lead to penalties, lawsuits and reputational damage. In Pakistan, it is rarely challenged.
Many firms avoid permanent hiring because it raises fixed costs — benefits, pensions, health cover and training all add up. While contractors may cost more per hour, they do not require long-term commitments. Employers can pick from a large pool of candidates keen to prove themselves, while the constant threat of termination keeps workers compliant and submissive. Yet this practice erodes institutional memory and organisational cohesion, weakening companies over time.
Research suggests that businesses heavily reliant on contract labour often underinvest in workforce development. Contractors, excluded from benefits, career pathways and workplace culture, have little incentive to invest in the company’s success. As a result, innovation and customer service suffer — areas critical to sustaining competitiveness.
The widespread use of contract workers has created a two-tier labour system. Permanent employees receive provident funds, medical coverage and annual increments, while contract workers are denied these entitlements. This institutionalised inequality breeds resentment and fear — many permanent employees now worry that their jobs could be outsourced too.
The case of security guards is illustrative. Most banks and corporations outsource security staff to agencies, which take a commission from the guards’ wages, leaving them underpaid and overworked. With no annual increments or job security, these workers face long-term economic stagnation despite being essential to operations.
For contract workers, career growth is capped from the outset. Employers rarely invest in training non-permanent staff, preferring to “shop” for already-skilled workers. This perpetuates a vicious cycle — contractors are trapped in low-paying roles while employers complain of a shortage of skilled labour, a problem they themselves help create.
Not all contract work is exploitative, however. Skilled tradespeople — electricians, plumbers, carpenters and painters — often prefer contract-based assignments because they can earn more than on fixed salaries. Likewise, freelancers and professionals in fields such as software development and creative industries value contract work for the autonomy and higher income it can provide. The issue lies with involuntary contract work, where employees are stripped of rights and security without meaningful choice.
Globally, businesses are rethinking workforce models, with some returning to in-house teams to preserve institutional knowledge and foster innovation. Advanced tools that measure employee engagement and creativity are helping firms recognise the value of a stable, committed workforce. Pakistan’s private sector should take note.
Investing in permanent employees is not just socially responsible, it is a competitive advantage. A workforce that feels secure and valued is more innovative, productive and loyal. Rather than chasing short-term savings through contract labour, companies must weigh the long-term costs of turnover, training and lost intellectual capital.
Policymakers, too, must act, strengthening enforcement of labour laws, incentivising workforce training and closing loopholes that allow employers to deny basic rights through outsourcing.
