Understand the Difference between Direct-Hire, Contract-to-Hire, & Temp-Hire

By Published March 17, 2017
Contract-to-hire pros and cons

When there is a positive growth in business, it calls for the workforce expansion. Although, it does not necessarily mean permanent hiring. Companies can easily leverage an emerging trend of contract hiring or temp hires. The ultimate advantage of contract hiring is “less liability and a huge saving on hiring cost.”

No recruiter wants to spend hours on publishing the advertisements on job boards and social media. Subsequently, screening thousands of resumes and applications, interviewing 10 or more candidates than “new hire” negotiations. Keeping these hassles in mind corporations (especially big companies) are now adopting contract-to-hire trend increasingly.

Contract-to-hire pros and cons

In the following detailed article let’s discuss the difference between three most common types of employment including, direct hire, contract-to-hire, and temp-hire including their pros and cons.

1. Contract to Hire

Contract to hire is typically W-2, so companies do not require to pay the employer’s part of their taxes as opposed to 1099. In simple words, contract to hire is a combination of direct and temp-hire. The process of such employment type moves fairly quickly. However, it is important for companies to wisely outline the terms – when the contract period ends and how talent will be evaluated.

Pros of contract to hire

  • It enables an organization to assess the candidate for a predetermined period.
  • The entire process of bringing contract-to-hire employee onboard is less time invasive.
  • The company is not directly involved in managing the benefits and remuneration of an employee until he or she comes on board as a permanent employee.

Cons of Contract to hire

  • Companies need to invest in training every time contract to hire candidate starts a new project.
  • The background verification of such candidates entirely depends on staffing agency.
  • Once the employee comes onboard, the benefits and salary will be converted similarly to existing permanent employees.

2. Direct Hire

A candidate is sourced through staffing agency but offered a direct hire position on the client company payroll. In such employment, a candidate receives the full-time position with benefits. Conversely, the process of direct hire is a bit slower because client organisations take the time to evaluate the pros and cons when making a long-term decision.

Pros of direct hire

  • Direct hire may better suit the requirements if organisations pay high regards to dedication and loyalty among employees.
  • Such employees and highly qualified and trained as well as accessible at all times.

Cons of direct hire

  • From an administrative perspective, direct hire is more costly than temp-hire regarding the salary and benefits.
  • Achieving greater payroll flexibility with direct hire is difficult.

3. Temp-Hire

Temp-hires come on board when organisations seek full-time employee but do not want to commit to a permanent job offer up front. Ideally, organisations look for temp hires when there are seasonal peaks, unpredictable workloads, project work and other limited requirements (such as leave of absence). Under this type of employment, a candidate is paid by the staffing firm. Such positions typically have limited time frame.

Pros of Temp-Hire

  • It is an excellent solution to maintain the staffing flexibility.
  • Empowers business to adjust more quickly and easily to workload fluctuations.
  • The cost of hiring a temp is cheaper as compared to contract to hire or W2.
  • Without any commitment, organisations can efficiently evaluate the talent.
  • It further helps to nurture long term relationship with a staffing firm.

Cons of Temp-Hire

  • When temp employees and permanent employees work side by side then sometimes morale and employee relations issues arise.
  • Whenever a temporary employee is hired or start a new project a certain level of training is required regardless how skilled or unskilled the candidate is.
  • Companies must comply with all the rules and regulations when hiring temp employees especially in the extent of benefits.

These three types of employment have their pros and cons. It is up to the companies to decide better which type of employment is best suited as per their short term and long term business needs.

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