Pros & Cons of Direct-Hire vs Contract Employees

The 21st century workforce looks nothing like it has in the past. Today, remote workers, freelancers, contract, and direct-hire employees are all options. How can you know which is right for you?
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Most projects requiring specialists like AEM developers or Salesforce engineers are singular events, and there may not be a permanent position to fill. In such a case, you may wonder if contract employees are better options than direct hires. Ultimately, it comes down to the needs of your business. To help you determine which is right for you, let’s look at the pros and cons of direct-hire vs contract employees.

What is a Contract Employee?

A contract employee is an individual that you hire to perform a specific service for a specific period of time. In other words, a contractor does not join your permanent workforce, which means you are not responsible for insurance, benefits, vacations, etc.

Most of the time, a contract employee works for a pre-negotiated sum of money, regardless of the number of hours it takes them to complete the project. You may end up paying more per hour for a contract employee, but you save money on non-wage compensation.

Contract employees are an excellent choice for one-time projects that require field expertise. You receive the expertise you need without a long-term commitment and in many cases will end up paying less overall.

The downside is that a contract employee may not be around if you need them again in the future. It saves time and money if you can work with someone who understands your set-up and business needs.

What is a Direct-Hire Employee?

A direct hire employee is someone you pay as an employee of your company.  After receiving upfront training and instruction, a direct hire’s job is to do whatever you need them to do. This means that after one project ends, they move right on to the next.

They will receive a W2 as opposed to a Misc-1099. For most companies, there are both tax and insurance ramifications when you add an employee.
Direct typically earn less money per hour than contractors. However, benefits and payroll taxes are added to the cost of their wages and so your payroll costs may end up being more than if you hired a contractor.

When comparing direct-hire vs contract, the benefits of directly hiring talent are mostly intangible. Company loyalty, having resources when they’re needed, and team building may not be directly measured in dollars, but it can contribute to the success of your project.

Taking a Hybrid Approach

Another hiring option is the hybrid approach. Many recruiting firms will set up their candidates as full-time employees of their firm. They then contract out the workers to other companies on a trial or project basis. If that company decides to make the position permanent, the recruiter can help transition its employee to that company as a direct hire.

A hybrid employee can also start out at a company as a contractor with the agreement that, should everything go well, their services may be called upon more permanently. A hybrid employee continues to offer their skills based on a long-term agreement, although they are still not technically part of your “workforce.”

The hybrid approach seems to be becoming more and more popular in the technology field. Most consider it a win-win situation for all parties concerned.

Direct-Hire vs Contract Employee

Choosing a contract employee, permanent hire, or hybrid depends on the way your business operates. It’s a good idea to ask yourself the following questions.

  1. Will we have a position for this employee once this project is completed?
  2. What is our long-term budget?
  3. Do we need long-term manpower or a short-term skillset?
  4. Is this employee open to helping us with various projects?
  5. What are the employee’s expectations of us?

If you know you don’t have the room or the budget for a permanent hire, you should probably go with a contract employee or a hybrid. Work with a recruiter to locate the best talent possible and let them help you set up an employment contract that benefits both you and the person you wish to hire.

How Can TechBridge Help You?

Our goal is to bridge the gap between business and employee, matching qualified workers with the companies who need them. If you have any further questions or you’re ready to start the recruiting process, contact us today.

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