Ask A Recruiter: What's The Difference Between Contract And Direct Hire?

Ask A Recruiter: What's The Difference Between Contract And Direct Hire?

GREAT QUESTION

For job seekers, this can be a new and sometime confusing conversation to have, especially if you’re used to a regular salaried position. It’s becoming more mainstream for companies to utilize contract employment, especially with sales and development roles. There are benefits to contract and direct hire, for both employers and candidates. But let’s break this down further:

Direct Hire

What most people are familiar with; direct hire employees are salaried and benefited by their employee upon starting. This is the most “traditional” way to hire and what most people feel comfortable with, in terms of stability and longevity (more on this later….).

Contract

A contractor is not directly employed by the company they work at; rather they are placed on the payroll of the third party (usually a recruiting firm) as either a W4 or 1099 employee. Typically, a contractor is employed for a certain period of time that is established before the contract begins, ie. 12 months. Contractors are traditionally used for ad hoc projects and short term initiatives.

In conjunction with contract positions, companies and recruiting firms more often create Contract-to-Hire arrangements.

…what is that?

Contract-to-Hire (C2H)

With Contract-to-Hire, you begin your employment as an hourly contractor. During your time working, the employer has the opportunity to hire the contractor permanently after a pre-determined amount of time; typically 3-6 months on average.

So what are the benefits?

The Benefits for the Company
  • Contractors are billed for hours worked, rather than a large upfront fee after placement. On average, placement fees with recruiting firms can range from 15-20% of the employer’s salary. By “paying as you go”, companies can save sometimes thousands of dollars on the front end, if the employee doesn’t work out.
  • Ability to truly evaluate skillset and culture fit on the job; can they actually accomplish what they say they can?
  • Payroll and employment fees (including potential benefits, etc.) are handled by the recruiting firm
The Benefits for the Contractor
  • Same as companies, you are able to feel out the company, environment, and position without feeling a looming obligation to stay at least a year to “look good on your resume”
  • Because you are paid hourly during the contract, you will be able to be compensated for any overtime worked; a big talking point regarding salaried employment
  • Many times as a contractor, your pay rate is higher than a normal salary

Contract roles carry a lot of stigma, especially when it comes to job stability.

“What if I don’t get hired full-time?”

“Will they just let me go after 6 months?”

“I have a family to support, I can’t afford to risk a contract position.”

There are a few key pieces to keep in mind here:

  • Understand the situation. Speak to your recruiter or the hiring manager about what the goal of this job is. You’re allowed to vet the arrangement and get a full understanding of whether this is a short-term project or a means to finding a long-term employee.
  • Know your value and skills. The nature of C2H roles ESPECIALLY is to bring on employees long-term. In most scenarios, as long as you are doing well and there is not an abrupt change of the company’s goals, ease your mind about converting to permanent.
  • 27 states, including Florida, are considered “Right to Work”. Meaning? At the end of the day, it really doesn’t matter if you are a contractor or direct hire in terms of “job stability”. Employers have the right to let you go at any time.
The Takeaway

It’s important to fully understand the differences and benefits between being a contractor, C2H, or direct hire. But the biggest thing that I want to stick with you is to NOT turn away an exciting and potentially lucrative opportunity, simply because the employment starts as a contract.

If you have any other questions about contract or direct hire staffing, please don’t hesitate to reach out to our team!

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