Dear Colleague,
You have to clarify what you mean by contract employee. It can mean a person employed through contrąctor and also ą person employed by a company as fixed term contractual employee.
In either case, it is legally alright to supervise the work of permanent workers. But the supervision by the employee of contractor may not carry force and may create barrier in the minds of permanent workers.
Regards,
Vinayak Nagarkar
HR-Consultant