There’s a lot of lingo thrown around the staffing and recruiting world—remote and hybrid workplaces, executive retained search, and work-life balance. We hear these words because they reflect the state of the business world.
Two more words you may be hearing are direct hire and contingent staffing.
If you’re not familiar with them, keep reading to learn more about them and why you would—or wouldn’t—use them as part of your hiring strategy in 2022.
What’s Direct Hire?
What’s direct hire? Direct hire, also known as permanent placement, is when a company hires full-time employees (FTEs) rather than contractors. Direct hires go on a company’s payroll and almost always come with compensation packages that include benefits such as health insurance, and paid time off (PTO).
Advantages & Disadvantages of Direct Hiring and When to Use It
The main advantage of direct hiring is that it typically gives companies access to a larger and more diverse talent pool because said employment includes benefits.
Said another way, someone looking for a job or career change may decide to apply or engage with a recruiter based on the role’s benefits. If it doesn’t include any, right-fit candidates may ignore or deprioritize the role, giving the company a smaller talent pool to pull from.
Beyond that, direct hires can outperform their contract counterparts. Because they’re FTEs, have benefits, and are constantly involved, they can become more invested in the company and work. For better or worse, direct hiring also gives the company more control over the employee.
On the contrary, direct hiring can be costly.
FTEs are a company’s greatest asset, meaning a lot of time goes into hiring them. From sourcing candidates to multiple interviews and lengthy onboarding processes, hiring this type of employee requires considerable resources.
If the hire works out, that’s fine, but if it doesn’t, the company loses a lot and is forced to start over. According to the US Department of Labor, the average cost of a poor hiring decision is at least 30% of that person’s expected earnings in year one.
So, when does direct hiring make sense?
Direct hire makes the most sense when the company has a clearly defined role and sees the employee having a long-term impact on the company’s bottom line. For example, an IT company would likely directly hire a CTO because this person plays a fundamental role in the company. Meanwhile, they may hire a contractor (contingent staffing) to help them implement a new system or provide strategic expertise on a particular subject matter.
What’s Contingent Staffing?
What’s contingent staffing? Contingent staffing, also known as contract staffing, is the opposite of direct hire. With contingent staffing, companies hire for short-term or project-based initiatives. Contingent workers, also called contractors, generally don’t receive benefits from the company.
Advantages & Disadvantages of Contingent Staffing and When to Use It
The main advantage of contingent staffing is that it allows companies to remain flexible and pivot quickly.
For example, a company may opt for contingent staffing instead of direct hiring if they have a new project to which they don’t want to dedicate existing resources or need to scale quickly (burst staffing). Contingent staffing allows companies to keep their foot on the accelerator without having to invest a ton of resources into the direct-hire process.
The primary disadvantage of contingent staffing can cost companies one of the direct-hire advantages: Access to a large and diverse talent pool. Because contingent or contract work doesn’t usually include benefits or perks FTEs receive, people who need them or won’t work without them, likely won’t consider the role, even if they are a perfect fit.
Additionally, those who do join the company in a temporary capacity may feel less invested and perform at a lower level than those brought on full time.
So, when does contingent staffing make sense?
Contingent staffing makes the most sense for short-term or project-based initiatives that don’t require the individual to have a long-term relationship with the company. It also makes sense for companies looking to scale and work quickly without pouring a ton of resources into hiring FTEs.
Final Thoughts on Direct Hire & Contingent Staffing
There’s no right or wrong way to hire—there’s a time and place for direct hire and contingent staffing.
A company’s route depends on its goals, aversion to risk, and what they expect the hire to accomplish.
Despite the differences and use cases, many companies, especially larger ones, take advantage of both direct hire and contingent staffing, helping them move and grow quickly in the most cost-efficient way.