This work contributes to research on temporary employment, specifically through an analysis of its effect on firm efficacy. The authors analyze the potential curvilinear (nonlinear) relationship between temporary contracts and organizational outcomes and examine how the proportion of indirect temporary workers – hired through Temporary Help Agencies (THAs) – influences this relationship in a sample of 1597 Spanish manufacturing firms. The analysis finds a negative linear relationship between temporary contracts and labor productivity and a predominantly positive concave downward curve between temporary contracts and gross operating margin. This curvilinear relationship is especially stronger when the proportion of indirect temporary contracts is low, and it is found that the use of temporary contracts has a positive effect on gross operating margin, but this effect becomes negative with overuse. This empirical evidence partially questions the dominant linear view that has been established over the past few decades in the labor flexibility literature at an organizational level.