Direct Hire vs Contract Hire: Which is Better for You?

Smiling manager standing outside of her office shaking hands with a new employee after an interview for a direct hire position

When you’re on the hunt for new talent to help your business grow, you’ll probably come across a variety of terms used by different staffing agencies and headhunters use to describe their services. For example, some agencies offer direct hire recruiting, while others offer temporary or contract-to-hire staffing services.

The real question is this: “Which hiring process is best for my organization?” To help you answer this question, let’s compare direct hire vs contract to hire processes, defining both as well as contrasting their unique advantages and disadvantages for different situations.

Direct Hire Definition

Direct hire is sometimes called direct placement. In the direct hire process, a staffing agency works to find, qualify and hire permanent staff members on behalf of their client. These are usually full-time positions with benefits, but direct hire can also be used to fill part-time positions.

While the staffing agency handles the direct hire recruiting tasks, the new hire goes straight onto the client’s payroll and becomes an employee of that company once an offer is made and accepted. A direct-hire search typically means the company is committed to a long-term relationship with their staffing partner. Under this partnership, the recruiters are able to do a thorough job finding and interviewing the best candidates for the role. 

Contract-To-Hire Definition

A contract Hire process looks a lot like a direct hire process in terms of how the recruiting is conducted, but there’s less of an up-front commitment on behalf of the client when it comes to hiring the chosen candidate. In a contract-to-hire scenario, the selected candidate begins their employment on the staffing agency’s payroll rather than the client’s. 

Whereas direct hire recruiting immediately makes the new hire an employee of the end-user client, the contract-to-hire process offers more flexibility by providing an option to hire the contractor directly after the end of the contract period or decide not to move forward. Contract lengths vary greatly from short-term to indefinite. In nearly all situations, the client will have an opportunity to convert the contractor to an employee at a time that best meets their individual needs.

Direct Hire Recruiting Versus Contract Hire

When comparing direct hire vs contract hire processes, it’s important to carefully weigh the advantages and disadvantages of each before settling on one solution. The type of arrangement that makes the most sense for one open role might not necessarily be the best arrangement for the next role. 

Pros of Direct Hire Recruiting

Promotes loyalty

One of the greatest benefits of direct-hire recruiting is that it allows your new hires to feel that they are “part of the team” from day one. This promotes a sense of loyalty to the company and can lead to greater retention over time. 

Certain positions, like leadership roles and those that spend a lot of hands-on time with clients, aren’t well-suited to a large amount of turnover. Direct hire recruiting can help you fill positions that call for a long-term commitment from the candidate being hired. 

Facilitates speed

Working with a direct hire staffing firm allows you to fill permanent, full-time roles more quickly than you’d be able to do on your own, keeping productivity high and downtime to a minimum. 4 Corner Resources, for example, aims to deliver a qualified candidate for every non-executive role within 48 hours. This gives you the advantage of responding rapidly to fluctuations in the marketplace and tracking down niche skills faster than if you had to start the search from scratch using only your internal resources.  

Attracts stronger talent

Since a permanent role offers a greater sense of job security than a contract one, direct hire positions can be more attractive to top talent. This is particularly true for passive candidates, who may need more incentive to consider leaving their current job than those who are actively job searching. Full-time candidates also like the appeal of direct hire roles because they offer immediate access to your company’s benefits program.

More cost-effective 

Because direct hire candidates go directly onto your payroll, you’ll avoid any additional cost markups associated with the staffing agency keeping the new hire on their payroll. While it doesn’t offer you as much flexibility, paying a one-time fee to a recruiting agency is typically more cost-effective.

In sum, using direct hire recruiting is a great option when you want to add permanent staff, find qualified talent quickly, and attract candidates who are invested in sticking around for the long term.  

Related: The Pros & Cons of Direct Hire Staffing

Pros of Contract-To-Hire Recruiting

Opportunity to assess the candidate

Contract-to-hire recruiting gives you a chance to assess a prospective hire in action without committing to putting them on your payroll. There’s less risk on the employer’s part, allowing you to assess culture fit and effectiveness in the role before assuming the added costs of a new full-time hire. 

On the flip side, it also gives the candidate a chance to assess you, which can also be seen as a positive as it lowers the likelihood of the wrong candidate ending up in a position where they’re not happy or productive. 

Faster interview process

Though working with a staffing firm is a proven way to reduce your time to hire for direct hires, its impacts are even faster for contract hires. Contract-to-hire recruiting involves a shorter interview process, accelerating the hiring cycle. 

Control benefits costs

Since contract workers remain on the staffing agency’s payroll until the point that you decide to hire them, there’s no need to add employees still in the assessment period to your benefits program. Contract employees are paid only for hours worked and do not go on your benefit plan until they become a direct employee, which can help control costs. 

Adapt to uncertain timelines

Contract to hire is a good option if you’re dealing with an uncertain workload or timeline, for example, a new vertical that requires a niche skill or a client contract that may or may not come to fruition. Using a contract-to-hire arrangement gives you the opportunity to get someone up and running to fill your immediate need with the option to keep them on full-time if and when the demand for their skills persists. 

However, it’s best not to use contract-to-hire to fill a staffing need you know will be temporary, such as a seasonal or purely project-based position. Candidates who accept a contract-to-hire assignment will expect an opportunity to become a direct employee if they perform well, so it’s best to use temporary staffing to fill short-term staffing needs. 

Related: Contract-to-Hire Pros and Cons You Need to Know

Tips For Successful Contract-To-Hire Staffing

If you decide a contract-to-hire process is a right fit for your current staffing needs, follow these tips to make the relationship successful. 

1. Have a game plan

Create a plan upfront for how you’ll assess the contracted talent when deciding whether to add them to your payroll. What are the benchmarks on which you’ll judge their success or failure in the position? If you fail to set these success metrics, your decision to hire or let talent go after the contract period may feel arbitrary and lead to confusion or frustration. 

2. Set a timeline

Even though your timeline may shift as the position develops, it’s a good idea to go into a contract-to-hire arrangement with a set deadline for the contract period. Clearly communicate the timeline in advance to the recruiting firm so they can properly set expectations with prospective candidates. This ensures everyone is on the same page with regards to the time frame and there are no unpleasant surprises. 

3. Anticipate a hire

As we mentioned earlier, employers should enter into contract-to-hire agreements on the good faith assumption that it may result in a full-time hire. After all, one of the main benefits of such an arrangement is that it gives you more time to test and find the perfect candidate for a necessary role. 

Thus, treat the contract employee as if they are a direct employee of your company from the start, since that’s what you intend for them to become. This will help them fully adapt to the demands of the position and integrate smoothly with the rest of your team. 

Find the Right Staffing Fit with 4 Corner Resources

If your objective is to hire the best possible candidate for every open role (and who doesn’t want that?), choosing the right contract staffing partner is just as important as interviewing the right candidate and choosing the right staffing arrangement. Depending on your specific situation, either one of the staffing processes discussed here may be better for your needs than the other. 

Need help deciding between direct hire vs contract staffing solutions? The staffing professionals at 4 Corner Resources are eager to help. Our team of hiring experts will ask questions to better understand your unique business, needs, and goals, then make recommendations tailored to your timeline and budget. Contact us today to schedule your free consultation. 

Pete Newsome

About Pete Newsome

Pete Newsome is the President of 4 Corner Resources, the staffing and recruiting firm he founded in 2005. 4 Corner is a member of the American Staffing Association and TechServe Alliance, and the top-rated staffing company in Central Florida. Recent awards and recognition include being named to Forbes’ Best Recruiting Firms in America, The Seminole 100, and The Golden 100. Pete also founded zengig, to offer comprehensive career advice, tools, and resources for students and professionals. He hosts two podcasts, Hire Calling and Finding Career Zen, and is blazing new trails in recruitment marketing with the latest artificial intelligence (AI) technology. Connect with Pete on LinkedIn