<PAGE>   1
                                                                  EXHIBIT 10.27

                             EMPLOYMENT AGREEMENT


         AGREEMENT made as of the 1st day of October, 1999 by and between
Donald T. Kelly, residing at 458 Fairmont Avenue, Chatham, New Jersey 07928
(hereinafter referred to as the "Employee") and TEAMSTAFF, INC., a New Jersey
corporation with principal offices located at 300 Atrium Drive, Somerset, New
Jersey 08873 (hereinafter referred to as the "Company").

                            W I T N E S S E T H :

         WHEREAS, the Company and its subsidiaries are engaged in the business
of providing Human Resource Administrative Services; and

         WHEREAS, the Company desires to employ the Employee for the purpose
of securing for the Company the experience, ability and services of the
Employee; and

         WHEREAS, the Employee desires to be employed with the Company,
pursuant to the terms and conditions herein set forth, superseding all prior
agreements between the Company, its subsidiaries and/or predecessors and
Employee;

         NOW, THEREFORE, it is mutually agreed by and between the parties
hereto as follows:

                                  ARTICLE I

                                  EMPLOYMENT

         1.1      Subject to and upon the terms and conditions of this
Agreement, the Company hereby employs and agrees to continue the employment of
the Employee, and the Employee hereby accepts such continued employment in his
capacity as Vice-President, Chief Financial Officer and Corporate Secretary.

<PAGE>   2

                                  ARTICLE II

                                    DUTIES

         2.1      The Employee shall, during the term of his employment with
the Company, and subject to the direction and control of the Company's CEO,
perform such duties and functions as he may be called upon to perform by the
Company's CEO during the term of this Agreement.

         2.2      The Employee agrees to devote full business time and his
best efforts in the performance of his duties for the Company and any
subsidiary corporation of the Company.

         2.3      The Employee shall perform, in conjunction with the
Company's Executive Management, to the best of his ability the following
services and duties for the Company and its subsidiary corporations (by way of
example, and not by way of limitation):

                  (i)      Those duties attendant to the position with the
Company for which he is hired;

                  (ii)     Establish and implement current and long range
objectives, plans, and policies, subject to the approval of the CEO and Board
of Directors;

                  (iii)    Financial planning for the Company

                  (iv)     Managerial oversight of the Company's accounting
department;

                  (v)      Primary responsibility for the preparation and
filing of all financial activity reports with federal and state regulatory
authorities;

                  (vi)     Acquiring appropriate insurance coverage to
safeguard Company's assets (excluding workers' compensation coverage and
medical benefits).

                  (vii)    Acting as Corporate Secretary and the Company and
its subsidiaries;

                  (viii)   Promotion of the relationships of the Company and
its subsidiaries with their respective employees, customers, suppliers,
shareholders, analysts, mareket makers, and others in the business community.

<PAGE>   3

         2.4      Employee shall be based in the New Jersey area, and shall
undertake such occasional travel, within or without the United States as is or
may be reasonably necessary in the interests of the Company. The Company will
not base Employee in any other office without Employee's express written
consent.

                                 ARTICLE III

                                 COMPENSATION

         3.1      Commencing the date hereof and during the term hereof,
Employee shall be compensated at the rate of $170,000 per annum, effective
March 1, 2000, and then subject to such increases to be determined on each
12-month anniversary of the last increase during the term of this Agreement
(the "Base Salary"), which shall be paid to Employee as in accordance with the
Company's regular payroll periods.

         3.2      Employee shall be entitled to receive a bonus (the "Bonus")
in accordance with the Company's Executive Officer Bonus Program to be
determined at the commencement of each fiscal year; provided, however, for the
fiscal year ended September 30, 2000, Employee shall be entitled to be paid as
a Bonus provided that in Schedule A annexed hereto.

         3.3      The Company shall deduct from Employee's compensation all
federal, state, and local taxes which it may now or may hereafter be required
to deduct.

         3.4      Employee may receive such other additional compensation as
                  may be determined from time to time by the Board of
                  Directors including bonuses and nonqualified executive
                  benefit plans such as a split dollar life insurance
                  arrangement, supplemental executive retirement plan ("SERP")
                  and other long term compensation plans. Nothing herein shall
                  be deemed or construed to require the Board to award any
                  bonus or additional compensation except a split dollar life
                  insurance arrangement, the terms of which will be subject to
                  the reasonable agreement of the Employee and the Board.


<PAGE>   4



                                  ARTICLE IV

                                   BENEFITS

         4.1      During the term hereof, the Company shall provide Employee
with group health care and insurance benefits as generally made available to
the Company's senior management; provide such other insurance benefits
obtained by the Company and made generally available to the Company's senior
management; reimburse the Employee, upon presentation of appropriate vouchers,
for all reasonable business expenses incurred by the Employee on behalf of the
Company upon presentation of suitable documentation; and pay to Employee the
sum of $800 per month as and for an automobile allowance.

         4.2      In the event the Company wishes to obtain Key Man life
insurance on the life of Employee, Employee agrees to cooperate with the
Company in completing any applications necessary to obtain such insurance and
promptly submit to such physical examinations and furnish such information as
any proposed insurance carrier may request.

         4.3      For each year of the term hereof, Employee shall be entitled
to five (5) weeks paid vacation.

                                  ARTICLE V

                                NON-DISCLOSURE

         5.1      The Employee shall not, at any time during or after the
termination of his employment hereunder, except when acting on behalf of and
with the authorization of the Company, make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade secret or
other confidential information concerning the Company's business, finances,
marketing, computerized payroll, accounting and information business,
personnel and/or employee leasing business of the Company and its
subsidiaries, including information relating to any customer of the Company or
pool of temporary employees, or any

<PAGE>   5

other nonpublic business information of the Company and/or its subsidiaries
learned as a consequence of Employee's employment with the Company
(collectively referred to as the "Proprietary Information"). For the purposes
of this Agreement, trade secrets and confidential information shall mean
information disclosed to the Employee or known by him as a consequence of his
employment by the Company, whether or not pursuant to this Agreement, and not
generally known in the industry. The Employee acknowledges that trade secrets
and other items of confidential information, as they may exist from time to
time, are valuable and unique assets of the Company, and that disclosure of
any such information would cause substantial injury to the Company.

                                  ARTICLE VI

                             RESTRICTIVE COVENANT

         6.1      In the event of the voluntary termination of employment with
the Company prior to the expiration of the term hereof, or Employee's
discharge in accordance with Article VIII, or the expiration of the term
hereof without renewal, Employee agrees that he will not, for a period of one
(1) year following such termination (or expiration, as the case may be)
directly or indirectly enter into or become associated with or engage in any
other business (whether as a partner, officer, director, shareholder,
employee, consultant, or otherwise), which business is located in the States
of Florida, New Jersey, New York, and Texas or any other state the Company is
operating in and is involved in the professional employer organization
business, or is otherwise engaged in the same or similar business as the
Company shall be engaged and is in direct competition with the Company, or
which the Company is in the process of developing, during the tenure of
Employee's employment by the Company. Notwithstanding the foregoing, the
ownership by Employee of less than 5 percent of the shares of any publicly
held corporation shall not violate the provisions of this Article VI.

         6.2      In furtherance of the foregoing, Employee shall not during
the aforesaid period

<PAGE>   6

of non-competition, directly or indirectly, in connection with any
computerized payroll, employee leasing, or permanent or temporary personnel
business, or any business similar to the business in which the Company was
engaged, or in the process of developing during Employee's tenure with the
Company, solicit any customer or employee of the Company who was a customer or
employee of the Company during the tenure of his employment.

         6.3      If any court shall hold that the duration of non-competition
or any other restriction contained in this Article is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed
amended to delete therefrom such provision or portion adjudicated to be
invalid or unenforceable or, in the alternative, such judicially substituted
term may be substituted therefor.

                                 ARTICLE VII

                                     TERM

         7.1      This Agreement shall be for a term of two (2) years
commencing October 1, 1999 and terminating on September 30, 2001 unless sooner
terminated as provided for herein (the "Expiration Date").

         7.2      Unless this Agreement is earlier terminated pursuant to the
terms hereof, the Company agrees to notify Employee in writing whether it
intends to negotiate a renewal of this Agreement by notice six (6) months
prior to the Expiration Date. In the event the Company fails to so notify the
Employee, the term of this Agreement shall be extended for an additional one
(1) year.

         7.3      If the Company elects not to seek to renegotiate a renewal
as provided in paragraph 7.2 above, or if the Company fails to reach agreement
with Employee as to the terms of renewal, upon the termination of Employee's
employment with the Company for any reason after the Expiration Date, the
Company shall pay to Employee, in addition to any other payments due
hereunder, a severance payment equal to twelve months of Employee's Base

<PAGE>   7


Salary ("Severance Payments") payable in twelve equal monthly installments
commencing on the first day of the first month following the date of such
termination; provided, however, if Employee secures alternate employment
within such twelve month period, the Company will be responsible only for the
negative difference between the severance payments and the amount derived from
such alternative employment.

         7.4      In the event this Agreement expires without renewal, or is
terminated for any reason except for cause, the Company shall pay for
executive outplacement services.

                                 ARTICLE VIII

                            DISABILITY DURING TERM

         8.1      In the event Employee becomes totally disabled so that he is
unable or prevented from performing any one or all of his usual duties
hereunder for a period of four (4) consecutive months, and the Company elects
to terminate this agreement in accordance with Article IX, paragraph (B) then,
and in that event, Employee shall receive his Base Salary as provided under
Article III of this Agreement for a period of twelve (12) months commencing
from the date of such total disability or the balance of the original term of
this agreement, whichever is greater. The obligation of the Company to make
the aforesaid payments shall be modified and reduced and the Company shall
receive a credit for all disability insurance payments which Employee may
receive from insurance policies provided by the Company.

                                  ARTICLE IX

                                 TERMINATION

         9.1      The Company may terminate this Agreement:

                  a.       Upon the death of Employee during the term hereof,
except that the Employee's legal representatives, successors, assigns, and
heirs shall have those rights and interests as otherwise provided in this
Agreement, including the right to receive accrued but unpaid incentive
compensation and special bonus compensation on a pro rata basis.

<PAGE>   8

                  b.       Subject to the terms of Article VIII, upon written
notice from the Company to the Employee, if Employee becomes totally disabled
and as a result of such total disability, has been prevented from and unable
to perform all of his duties hereunder for a consecutive period of four (4)
months.

                  c.       Upon written notice from the Company to the
Employee, at any time for "Cause." For purposes of this Agreement, "Cause"
shall be defined as: willful disobedience by the Employee of a material and
lawful instruction of the Board of Directors of the Company; conviction of the
Employee of any misdemeanor involving fraud or embezzlement or similar crime,
or any felony; breach by the Employee of any material provision of this
Agreement; or conduct amounting to fraud, dishonesty, negligence, willful
misconduct, recurring insubordination, inattention to or unsatisfactory
performance of duties which adversely affects operations of the Company, or
excessive absences from work, provided that the Company shall not have the
right to terminate the employment of Employee pursuant to the foregoing
clauses (a) and (b) above unless written notice specifying such breach shall
have been given to the Employee and, in the case of breach which is capable of
being cured, the Employee shall have failed to cure such breach within thirty
(30) days after his receipt of such notice.

         9.2      In the event the Company demotes, substantially reduces the
duties of or reduces the salary or benefits of the employee, the employee may
elect to treat this Agreement as terminated for "good reason" upon ten (10)
days prior written notice to the Company. In the event of termination of this
Agreement for good reason, the employee shall be entitled to payment of the
greater of all salary, benefits and stock grants or options due for the
remaining term of the Agreement or the severance payments as defined in
Article VII herein, in addition to any rights or remedies available to the
employee at law or in equity.

         9.3      In the event of the termination of this Agreement and the
discharge of Employee by the Company in breach and violation of this
Agreement, Employee shall not be obligated to

<PAGE>   9

mitigate damages by seeking or obtaining alternate employment.

                                  ARTICLE X

                       TERMINATION OF PRIOR AGREEMENTS

         10.1     This Agreement sets forth the entire agreement between the
parties and supersedes all prior agreements between the parties, whether oral
or written prior to the effective date of this Agreement.

                                  ARTICLE XI

                                STOCK OPTIONS

         11.1     As an inducement to Employee to enter into this Agreement
the Company hereby grants to Employee options to purchase shares of the
Company's Common Stock, $.001 par value, as follows:

                  Subject to the terms and conditions of the Company's Senior
Management Incentive Plan (the "Plan"), and the terms and conditions set forth
in the Stock Option Certificate which are incorporated herein by reference,
the Employee is hereby granted options to purchase 50,000 shares of the
Company's Common Stock, of which options to purchase 25,000 shares shall vest
immediately, 25,000 shall vest on the first anniversary hereof, and the
balance shall vest on the second anniversary hereof. The exercise price of the
option shall be $1.0625 per share and shall contain such other terms and
conditions as set forth in the stock option agreement. The foregoing options
shall be qualified as incentive stock options to the maximum as allowed by
law. The Options provided for herein are not transferable by Employee and
shall be exercised only by Employee, or by his legal representative or
executor, as provided in the Plan. Such Option shall terminate as provided in
the Plan.

<PAGE>   10

                                 ARTICLE XII

                          EXTRAORDINARY TRANSACTIONS

         12.1     The Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication
of members of the Company's management, including the Employee, to their
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a change in control of the Company. A "Change
in Control" of the Company shall be deemed to have occurred if there shall be
consummated (i)(x) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's Common Stock would be converted into cash, securities
or other property, other than a merger of the Company in which the holders of
the Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (ii) the stockholders of
the Company approved any plan or proposal for the liquidation or dissolution
of the Company, or (iii) any person (as such term is used in Sections 13(d)
and l3(d)(2) of the Securities Exchange Act of l934, as amended (the "Exchange
Act")), shall become the beneficial owner (within the meaning of Rule l3d-3
under the Exchange Act) of 20% or more of the Company's outstanding Common
Stock, except in connection with a transaction approved by the Board of
Directors; or (iv) during any period of two consecutive years, individuals who
at the beginning of such period constituted the entire Board of Directors
shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.

<PAGE>   11

         12.2     The Company agrees that, if during the term hereof, or
during such time as the Employee is otherwise employed by the Company, a
Change in Control shall occur, all additional compensation arrangements and
plans provided Employee under paragraph 3.3 shall be funded to the maximum
allowable under their terms and all options to purchase Common Stock of the
Company held by Employee, either pursuant to this Agreement or otherwise,
shall immediately vest and become exercisable on the first day following a
Change in Control. Further, the options shall be deemed amended to provide
that in the event of termination after an event enumerated in this Article X,
the options shall remain exercisable for the duration of their term; and
further, at the Employee's option, an amount equal to three times the
aggregate annual compensation paid to the Employee during the calendar year
preceding the Change in Control shall be credited against the exercise price
of any options held by Employee at the time Employee elects to exercise such
options; provided, however, that if the lump sum severance payment under this
Article XI, either alone or together with other payments which the Employee
has the right to receive from the Company, would constitute a "parachute
payment" (as defined in Section 280G of the Internal Revenue Code of l954, as
amended (the "Code")), such credit shall be reduced to the largest amount as
will result in no portion of the credit under this Article XI being subject to
the excise tax imposed by Section 4999 of the Code.

<PAGE>   12

                                 ARTICLE XIII

                       ARBITRATION AND INDEMNIFICATION

         13.1     Any dispute arising out of the interpretation, application,
and/or performance of this Agreement with the sole exception of any claim,
breach, or violation arising under Articles V or VI hereof shall be settled
through final and binding arbitration before a single arbitrator in the State
of New Jersey in accordance with the Rules of the American Arbitration
Association. The arbitrator shall be selected by the Association and shall be
an attorney-at-law experienced in the field of corporate law. Any judgment
upon any arbitration award may be entered in any court, federal or state,
having competent jurisdiction of the parties.

         13.2     The Company hereby agrees to indemnify, defend, and hold
harmless the Employee for any and all claims arising from or related to his
employment by the Company at any time asserted, at any place asserted, and to
the fullest extent permitted by law. The Company shall maintain such insurance
as is necessary and reasonable to protect the Employee from any and all claims
arising from or in connection with his employment by the Company, provided
such insurance can be obtained without unreasonable effort and expense.

                                 ARTICLE XIV

                                 SEVERABILITY

         If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all
other circumstances.

<PAGE>   13

                                  ARTICLE XV

                                    NOTICE

         All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered to the addressee in person, with written acknowledgment received, or
mailed by certified mail, return receipt requested, as follows:

                  IF TO THE COMPANY:        TeamStaff, Inc.
                                            300 Atrium Drive
                                            Somerset, NJ 08873

                  IF TO THE EMPLOYEE:       Donald T. Kelly
                                            458 Fairmont Avenue
                                            Chatham, NJ 07928

or to any such other address as the party to receive the notice shall advise
by due notice given in accordance with this paragraph. Notice shall be
effective three (3) days after delivery or mailing.

                                 ARTICLE XVI

                                   BENEFIT

         This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.

                                 ARTICLE XVII

                                    WAIVER

         The waiver by either party of any breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach of construction and validity.

<PAGE>   14

                                  ARTICLE XVIII

                                  GOVERNING LAW

         This Agreement has been negotiated and executed in the State of New
Jersey shall govern its construction and validity.

                                   ARTICLE XIX

                                  JURISDICTION

         Any or all actions or proceedings which may be brought by the Company
or Employee under this Agreement shall be brought in courts having a situs
within the State of New Jersey, and Employee and the Company each hereby
consent to the jurisdiction of any local, state, or federal court located
within the State of New Jersey.

                                   ARTICLE XX

                                ENTIRE AGREEMENT

         This Agreement contains the entire agreement between the parties
hereto. No change, addition, or amendment shall be made hereto, except by
written agreement signed by the parties hereto.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and affixed their hands and seals the day and year first above written.

(Corporate Seal)                    TEAMSTAFF, INC.


                                       ----------------------------------
                                       Donald W. Kappauf
                                       President & Chief Executive Officer



                                       ----------------------------------
                                       Donald T. Kelly
                                       Employee


<PAGE>   15


                                  Schedule A

         (A)      For the fiscal year ended September 30, 2000, Employee shall
be entitled to be paid as a Bonus a percentage of the net pre-tax profit of
the Company as determined by the Company's independent auditors no later than
75 days following the end of the Company's fiscal year without giving effect
to tax loss carry forwards or the payment of any bonus under the Company's
Executive Officer Bonus Program (the "EBT") as follows: (1) if EBT is at least
$3,115,380 but less than $3,894,225, a percentage of EBT determined as
follows: (a) the sum of 2% plus the percentage equal to the amount of EBT
earned in excess of $3,115,000 divided by 778,845 and multiplied by 2; (2) if
EBT is at least $3,894,225 but less than $5,062,500, a percentage EBT
determined as follows: (a) the sum of 3% plus the percentage equal to the
amount of EBT earned in excess of $3,894,225 divided by 1,168,275 and
multiplied by 2; and (3) if EBT is equal to or in excess of $5,062,500, 4% of
EBT; provided that in the event EBT is less than $3,115,380 no bonus shall be
paid by the Company to the Employee other than at the discretion of the
Compensation Committee. Such determination, for Bonus purposes only, shall be
made in accordance with generally accepted accounting principles, as modified
by this Schedule A.

         (B)      In the event the Company consummates a divestiture (a
"Divestiture") of a subsidiary or business unit, the EBT required for each
percentage level of Bonus shall be proportionately adjusted downward based on
the Company's profit plan projections to reflect the loss of EBT for the
remainder of the fiscal year attributable to the divested business unit or
subsidiary. A Divestiture does not include a transaction involving the sale of
all or substantially all of the assets of the Company.