Temporary employee: what it is and how to hire one

A temporary employee is a worker hired for a fixed period or a specific project, either directly or through a staffing agency, to cover a short-term need such as a leave, a seasonal peak or a project deadline. A temporary employee is still an employee: someone withholds their taxes, pays at least minimum wage and overtime, and keeps them safe at work.

TL;DR / Key Takeaways

• A temporary employee works for a set period or project and gets a W-2, not a 1099. Contractors are self-employed; temps are not.
• When an agency places the temp, the agency is the employer of record for payroll, taxes and unemployment insurance, but your company still directs the work and shares safety and anti-discrimination duties.
• About 945,000 people in the US work mainly through temp help agencies, and staffing firms employed just under 2 million temporary and contract workers a week in early 2025.
• No federal law turns a temp into a permanent employee after a set time, but assignments past 12 months in the same role raise misclassification and benefits risk.
• Hire in 7 steps: define the need, pick agency or direct hire, write a short job post, screen on skills, interview the shortlist, offer fast, then review and convert.
• Screen temps with a short role-based skills test before any interview. Speed matters, but a temp who cannot do the job costs more than the week you saved.

What is a temporary employee?

A temporary employee is a person hired for a limited, agreed term, usually tied to an end date, a project or the return of an absent colleague, who is not expected to stay once that need ends. Temps can work full-time or part-time and are paid through payroll like any other employee.

The term covers many familiar roles: a receptionist covering parental leave, extra contact center agents for a product launch, warehouse pickers for the holiday peak, or an accountant brought in for year-end close. Other names for the same thing are temp, temporary worker, fixed-term employee and, when a staffing firm is involved, agency worker.

Temps are a small but steady part of the workforce. The BLS Contingent and Alternative Employment Arrangements release found 6.9 million contingent workers in the US, 4.3% of everyone employed, and 945,000 people whose main job came through a temporary help agency. Full-time temp agency workers earned a median $818 a week, against $1,132 for workers in traditional arrangements.

What are the types of temporary employees?

Temporary employees come in five common types: agency temps, direct-hire temps, seasonal employees, fixed-term employees and temp-to-hire workers. The type decides who is the employer of record, who pays the payroll taxes and how easily you can offer a permanent job later.

• Agency temps: The staffing agency recruits the worker, runs payroll, withholds taxes and carries workers' comp. Your company directs the day-to-day work and pays the agency a bill rate that includes its markup.
• Direct-hire temps: You hire the person yourself for a set term. There is no agency markup, but your company is the only employer, so payroll, unemployment insurance, overtime and workers' comp are all yours.
• Seasonal employees: Temps hired for predictable peaks such as retail in Q4, harvest or tax season. They return each year in some industries. See seasonal employment.
• Fixed-term employees: Hired on a contract with a fixed end date, often for a project or a grant-funded role. Common in the UK and EU, where fixed-term employment has its own rules.
• Temp-to-hire: A temp placed with the plan of a permanent offer if the trial goes well. Most staffing contracts set a conversion window and a fee. More in temp-to-hire.

How is a temporary employee different from a contractor or seasonal worker?

A temporary employee differs from a contractor because the temp is an employee who works under your direction and gets a W-2, while an independent contractor runs their own business, controls how the work is done and gets a 1099. A seasonal worker is a temp whose term follows a predictable yearly peak.

The legal line between a temp and a contractor turns on control. The IRS looks at behavioral, financial and relationship factors, the Department of Labor applies an economic reality test under the FLSA, and some states, California among them, use the stricter ABC test, according to the US Chamber of Commerce's 2025 guide to temps and contractors. If you set the hours, train the person and supervise the work, treat them as an employee. Read more on independent contractors.

Why do companies hire temporary employees?

Companies hire temporary employees to add capacity fast without adding permanent headcount. The most common reasons are covering leave, handling seasonal or launch peaks, finishing a short project, filling a skills gap for a set period, and testing a candidate or a new role before a permanent commitment.

• Replacing a team member on family, medical or parental leave
• Managing workload swings, such as Q4 peaks in retail and e-commerce or open enrollment in benefits contact centers
• Finishing a short-term project, such as a system migration or a product launch campaign
• Closing a skills gap while you decide whether the role needs a permanent hire
• Testing a new role, location or shift before you add headcount

Demand for temps moves with the economy. The American Staffing Association reported that US staffing companies employed just under 2.0 million temporary and contract workers per week in the first quarter of 2025, down about 195,000 from the quarter before. For TA teams, that means agency talent pools grow and shrink with the cycle, so a bench of pre-screened temps is worth keeping.

What are the pros and cons of hiring temporary employees?

Temporary employees give you speed, flexibility and lower fixed costs, but they come with a learning curve, a higher hourly cost through agencies and a risk of weak fit when hiring is rushed. Most of the downsides shrink when you screen for skills and onboard properly.

Key takeaway: The cost of a temp is not just the hourly rate. A temp who has to be replaced after a week costs you the onboarding time twice, so the screening step pays for itself even on short assignments.

Who is responsible for a temporary employee: the agency or the host employer?

A temporary employee placed by a staffing agency has two employers in practice. The agency is the employer of record and handles payroll, tax withholding, the W-2, unemployment insurance tax and usually workers' comp. The host employer directs the work and shares duties for safety, fair treatment and, often, wage and hour compliance.

This shared setup is called co-employment, or joint employment. Under wage and hour law both the agency and the host can be liable for unpaid overtime or misclassification if the host controls hours, conditions and tasks. The Texas Workforce Commission notes that when a staffing firm supplies the worker, the firm reports wages and pays unemployment tax under its own account, but the client can still be held responsible as a joint employer if the firm defaults on wages.

Hours matter for benefits too. Under the IRS rules on identifying full-time employees, anyone who averages 30 hours of service a week, or 130 hours a month, counts as full-time for the ACA employer mandate, and employers can use a look-back measurement period for staff with variable hours. A temp on a long, full-time assignment can count.

Pro tip: Put the split in writing. The staffing agreement should say who trains on safety, who tracks hours, who handles conversion fees and who files unemployment claims. Teams that hire temps at volume should keep one documented co-employment protocol rather than deciding case by case.

What rights and benefits do temporary employees have?

Temporary employees keep almost all the legal protections of permanent staff. Federal minimum wage and overtime under the FLSA apply in full, as do Title VII, the ADA, the ADEA and the NLRA. What temps often lack is employer-sponsored benefits such as health insurance, paid leave and retirement plans.

• Pay and overtime: Temps earn at least the federal or state minimum wage and overtime at 1.5 times their regular rate past 40 hours a week, unless an exemption applies on its own duties and salary tests. Being temporary is not an exemption.
• Safety: Host employers must provide the same safe worksite, hazard training and protective equipment as for permanent staff.
• Fair treatment: The EEOC guidance on contingent workers says a client of a temporary agency typically qualifies as an employer of the temp, so both can be liable for discrimination.
• Unemployment: Most states let temps claim when an assignment ends. Quitting an assignment without good cause usually blocks a claim.
• Workers' comp: Usually under the agency's policy, though the host may share liability for an unsafe site.
• Retirement plans: A temp who works 1,000 hours or more in 12 months may need to be allowed into your retirement plan if you have one, under the ERISA rule the Texas Workforce Commission highlights.
• State laws: Some states go further. New Jersey's Temporary Workers' Bill of Rights and Illinois' temp worker law, both from 2023, require equal pay and benefits with comparable direct hires after set periods, plus safety and transparency duties, as the National Employment Law Project explains.

How long can a temporary employee stay temporary?

A temporary employee can stay temporary for as long as the agreed assignment runs, because no federal law converts a temp to permanent status after a set number of months. Most assignments run from a few weeks to under a year, and long, open-ended ones are where the risk sits.

The risk is reclassification. If a "temp" works for years in a core role, under your managers, the arrangement can be treated as ongoing employment. The best-known example is Microsoft, which paid a $97 million settlement in 2000 to long-term "permatemps" who had worked inside core teams on rolling temporary contracts.

Practical rules for HR teams:

• Review any assignment that passes 12 months in the same role.
• Do not roll contracts forward indefinitely without a written reason.
• Get legal review before extending the same person past 18 months.
• Track hours from day one for ACA and retirement plan thresholds.

How do you hire a temporary employee in 7 steps?

Hiring a temporary employee takes seven steps: define the need, choose agency or direct hire, write a short job post, screen candidates on skills, interview the shortlist, make a fast offer and onboard, then review the work and decide on conversion. Most teams can run all seven in one to two weeks.

1. Define the need: Write down why you need a temp (leave cover, peak, project, trial), the start and end dates, weekly hours and the three to five skills the person must have on day one. Ask whether a temp is really the answer, or whether a contractor, an agency or a permanent hire fits better.

2. Choose agency or direct hire: An agency is faster and takes on payroll, but adds a markup. Direct hire is cheaper per hour but makes you the only employer. For roles you hire every season, a mix works well: agencies for volume, a direct bench for repeat temps. If you go the agency route, see how to choose the right staffing service.

3. Write a short job post: State the dates, hours, pay, location, whether conversion is possible and the must-have skills. Post it on your careers page, job boards, social channels and employee referral channels, and share it with the agency so its screening matches yours.

4. Screen candidates on skills: Review applications against the job description, then send a short skills test before any interview. An applicant tracking system helps you sort fast, but resumes alone do not show whether someone can do the work on Monday.

5. Interview the shortlist: Keep it short and structured. Ask how the person would handle real situations from the role, such as a backlog on day two or a process they have never used. Their answers show judgment and team fit, the part that rushed temp hiring usually skips.

6. Offer fast and onboard: Good temps have options and take the first solid offer, so send yours the same day you decide. Then onboard properly: tools, access, safety training, who to ask for help. A simple onboarding checklist gets temps productive in days, not weeks.

7. Review and decide on conversion: At the end of the assignment, rate the work and the way the person worked with the team. Strong performers are your best permanent candidates. You have already seen them do the job.

How do you screen temporary employees for skills quickly?

Screening temporary employees quickly means testing the exact skills the assignment needs, before any interview, with a short role-based assessment of 20 to 40 minutes. A skills test filters a large applicant pool in hours and gives every candidate the same fair check, which a resume scan cannot do.

Temps are often placed with less checking than permanent hires because the job is short. That is backwards: a temp has to perform from day one, with little training time. A temp placed in a finance, compliance or data role without verified skills can create real risk, not just slow work.

Three habits keep the screen fast and fair:

• Test one to three skills only: A temp screen is not a full assessment battery. Pick the skills the job fails without.
• Use the same test for agency and direct candidates: Ask the agency to send its shortlist through your test so you compare like with like.
• Add a situational judgment test for customer-facing roles: A situational judgment test shows how people react under pressure, which covers the culture fit risk.

How do you convert a temporary employee to permanent?

Converting a temporary employee to permanent starts with the staffing contract: check the conversion window and fee, tell the agency you plan to hire, agree terms with the agency and the worker, then make the offer. Use the same criteria you would for an outside candidate so every conversion is fair and defensible.

• Check the contract first: Most agency contracts charge a conversion fee unless the temp has worked a minimum number of hours. Waiting until the window passes can remove the fee.
• Apply the same bar as direct hires: Use the same skills test and structured interview you use for outside candidates, so conversion decisions do not look like favoritism.
• Redo the paperwork: Background checks, system access and benefits enrollment usually need to be done again for the permanent role.
• Plan for a "no": Some temps prefer flexible work. Have a backup candidate ready.

How does Testlify help you hire temporary employees?

Testlify helps hiring teams screen temporary employees on skills in hours instead of days. You build a role-specific test from the job description, send it to every applicant from an agency or your own posting, and get a ranked shortlist with scores before anyone books an interview.

• 3,500+ validated tests: Role-specific, typing, language, situational judgment, software and coding tests for tech and non-tech temp roles. Browse the test library.
• Built for volume: Auto-invites, score thresholds for auto-shortlisting and AI interviews by video, voice or chat handle seasonal peaks. See volume hiring.
• Fair and secure: 20+ proctoring checks, including tab tracking and AI assistance detection, keep remote tests honest. More on anti-cheating and proctoring.
• Fits your stack: 100+ ATS and HRIS integrations, including Workday, Greenhouse and Lever, with two-way sync, so temp and permanent candidates sit in the same pipeline. Tests run in 15+ languages.

Ready to hire your next temporary employee?

Screen your next temp on the skills the job needs, not on a resume. Start a 7-day free trial of Testlify, no credit card required, and send your first role-based test to candidates today.

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