Temporary/Contract versus Direct Hire

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By Mark Turpin, CEO, HT Staffing

All indicators show that U.S. companies are hiring again. “Hiring Outlook for the Second Quarter Similar to Pre-Recession, CareerBuilder’s Survey Finds” is the headline for an April 5 press release from Career Builder. The survey quizzed more than 2,000 hiring decision-makers across the nation. Of these, 34 percent anticipate they will hire temporary or contract workers in Q2 2012. During this same period, 30 percent plan to employ additional full-time, permanent staff.

Amidst all this hiring activity, managers face a pivotal decision: Is it better to bring on temporary/contract staff or direct hires? What option best serves the needs of the business? The answer is: It depends.

This article first looks at the pros and cons of hiring temporary/contract workers for non-managerial positions; it then examines the pros and cons of recruiting direct hires for those same types of jobs.

Temporary/Contract

Pros: Flexibility is the chief advantage of augmenting headcount with temporary/contract workers. And flexibility is a biggie for U.S. companies emerging from lean times with a pared-down workforce. Company executives may be wary about fully committing to additional headcount, yet they need to respond with agility to new market opportunities the rebounding economy presents. Temporary/contract staffing provides “just-in-time” resources to address opportunities as they arise.

Employers needing to ramp up and staff down quickly turn to temporary/contract staffing, whether to complete a metered project or to maintain a high level of customer service during a busy time of year. Typically, companies ally themselves with a trusted staffing firm to handle the recruiting, vetting, hiring and in many cases the payroll for workers hired in this manner. The employer thus avoids onboarding costs and increased unemployment and workers’ compensation insurance liabilities. Fluctuating labor needs can be met without earning the company a reputation for volatile hiring and layoff practices.

Conversely, if the temp/contractor is a stellar performer who fits within the organization, the employer can make an offer to bring the person onboard as a full-time, permanent employee. The previously-mentioned CareerBuilder survey found that close to 24 percent of employers surveyed plan to convert temporary staff members to full-time, permanent employees in Q2 2012.

Temp-to-hire is an effective strategy for testing a potential employee’s fitness for succeeding in a high-turnover, high-stress position or a department with a difficult-to-please manager. The up-front financial investment for a temp-to-hire arrangement is lower than for a direct-hire approach, and the payment terms—typically 30 days—ease cash flow pressures. Additionally, the employer and temp/contractor get to check each other out before committing to a long-term relationship.

Cons: When hiring for temporary/contract assignments, the candidate quality may be lower than for full-time, long-term positions. Candidates for these limited-time jobs usually come from the ranks of the unemployed, and the temporary/contract candidate pool is likely to be limited to local talent. These are not the positions to entice top talent away from a competitor.

Direct-Hire

Direct-hire is always the right answer for companies filling top-leadership positions. For staff-level slots (any non-manager position), hiring managers have a number of pros and cons to weigh in deciding whether to fill positions with temporary/contract workers or direct-hires.

Pros: When staffing for long-term, ongoing workforce requirements, direct-hire is the best strategy. Loyalty and commitment are more prominent features in the direct-hire landscape than they are in the temporary/contract realm.

The benefits and relative security of a direct-hire position will attract a higher caliber of candidate than available for temporary/contract positions. The direct-hire candidate pool gives employers access to passive candidates—even star players currently working for competitors. Few full-time workers would leave a job for a temporary/contract assignment, but they might consider an attractive direct-hire offer.

Direct-hire allows companies to attract talented workers from out-of-state. This opportunity is especially valuable to companies recruiting for professional or technical roles with specific skill requirements.

Companies that work with reputable staffing agencies receive an additional direct-hire bonus—a replacement guarantee. If the new hire doesn’t work out for almost any reason, the agency provides a replacement credit or guarantee to be used within a given time frame.

Cons: Bringing full-time, permanent employees into the company requires a greater up-front investment than for adding temps and contractors to the team. Possible direct-hire costs include staffing agency fees, relocation costs, training expenses and benefit costs. Direct-hire requires a larger up-front time investment as well; more of the hiring effort is internal, and onboarding new employees is not a trivial task.

If the employee turns out to be a poor fit for the position, the whole process starts over. Termination of an employee is typically governed by strict dismissal policies, and the process can be lengthy and often costly.

If flexibility is a company’s number one concern, temporary/contract staffing is the answer. If “test driving” the worker before making an offer for a full-time, permanent position is of value, temp-to-perm is a sound strategy. For adding a long-haul, dedicated member to the team, direct-hire is the best option. Ultimately, the company has to weigh the pros and cons of each approach and choose the one that fits best.