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Contract-to-Hire Vs. Direct-Hire: Understanding the Basics

Tuesday, August 10th, 2021

When recruiting new staff, you have several options: temporary, contract-to-hire, and direct hiring. However, which hiring arrangement is most suitable for your company? Today, we compare direct-hire versus contract-to-hire — including their pros and cons.

All You Need to Know About Contract-to-Hire

With contract-to-hire, the employee is given a temporary position with the probability of becoming a full-time employee at the culmination of the contract period.


Risk of Time Loss: Contract-to-hire employees work for short-term purposes, but most candidates always hope for a permanent job. Once a contract terminates, the company may have to begin a new search for another candidate. If a contract-to-hire employee lands a permanent job, they will most probably opt out of your company. Therefore, you’ll have to start the recruiting process all over again.

Lower Job Security: In general, candidates are hesitant about undertaking contract-to-hire job opportunities. For instance, if a job seeker is uncertain about getting a permanent job at the end of the contract, they may opt to search for a permanent job instead. Therefore, effective communication between the employer and the employee — on job expectations — is uncompromisable. If the company intends to hire the candidate at the termination of the contract-to-hire job, it should be clear to the employee upfront.

Limited Candidate Pool: Generally, job seekers are always looking for job security and other job benefits like healthcare plans, retirement savings, vacations, pensions, etc. Employees on contract-to-hire don’t enjoy these benefits. As a result, some candidates lack interest in contract-to-hire positions. Consequently, fewer people look for jobs on a contract-to-hire basis.

The Pros

Significantly Reduces Time in the Interviewing Process: The hiring process is usually a cumbersome and strenuous activity. Often, other duties preoccupy human resource departments making it difficult for them to set aside ample time for recruiting exercises. Recruiting agencies come in handy since they handle all the work of searching and vetting potential employees. Contract-to-hire is less risky since the employer will not commit to paying salaries and allowances. Hence, this significantly reduces the time taken during interviews. Contract-to-hire is the most suitable option for your business if you need to fill a vacant position quickly.

Provides an Avenue to Assess the Suitability of an Employee: Contract-to-hire offers the best opportunity for employers to evaluate the compatibility of candidates before committing to permanent employment. It acts as a test run to ensure the candidate is suitable in their duties. In addition, contract-to-hire allows the prospective candidate to scrutinize the company’s culture and their roles. If the candidate is not satisfied with the job, they can comfortably exit at the end of the contract period.

Offers Room for Budget Flexibility: Contract-to-hire is the best option for companies working with constrained budgets. Employees on contract-to-hire positions do not enjoy benefits given to full-time employees-For example, retirement savings, healthcare plans, etc. Additionally, contract-to-hire employees receive their pay based on the number of hours they work rather than receiving a fixed salary.

Helps in Headcount Management: No company wants to be over-staffed and pay salaries for unnecessary employees. Equally, you don’t want to be understaffed and risk not completing tasks on a timely basis. Contract-to-hire helps you to have just enough employees for the task at hand. For example, if your company’s staffing capacity requirement fluctuates seasonally, or you have a short-term project to undertake that demands more resources.

Saves on Specialized Skills: Completing a unique task in your company may require skills that are unavailable in-house. It is not economical to get a full-time employee if their skills assist for a short period. In such a situation, you require contract workers to help do the job effectively and efficiently while paying them just for the time consumed on your project.

Everything You Need to Know About Direct-Hire

With direct-hire, HR and recruiting agencies interview prospective candidates for permanent jobs. Employees go directly onto the company’s payroll and enjoy the company’s benefits.


It is More Time Consuming: Although the right recruiting agency can find experts faster, the staffing process takes longer. There is more dedication in selecting the right candidate because you need a candidate that suits your business culture. In addition, you’ll spend more time training a permanent hire to fit into the company.


Provides a Stronger Employee Commitment: Direct-hire recruitment gives an employee the feeling of being part of the company from the first day. It raises their sense of loyalty to the company and improves chances of retaining the employee longer. In addition, a direct-hire employee means a higher buy-in to your company’s targets. Employees with a higher buy-in put in more work. As a result, there is more productivity and greater longevity.

There is a Broader Pool of Candidates: In general, most job seekers want a full-time job compared to a temporary one because there is a greater sense of job security, benefits packages, and better perks. As a result, direct hire attracts more qualified prospective candidates. You can get the most suitable candidate with niche skills for the job.

Direct-Hire Can Help Organizations with Small Turnover Save Time: Not all companies have human resources, and therefore hiring is done by someone with other responsibilities. Even companies with human resource managers get overrun by other tasks. Direct-hire helps reduce the amount of time spent on hiring by gaining stronger employee commitment, thus eliminating additional recruiting efforts that would be needed to replace a short-term contractors.

Helps Hire the Most Suitable Candidate for Hard-to-Fill Positions: Hiring from within your company limits you to your networks and channels. Getting the candidate with the right skills can be challenging, especially if you are searching for an expert outside your field of specialization. Direct-hire makes your job opening more attractive giving your organization the best shot at landing the most qualified candidates.

Let Us Help You Simplify the Hiring Process

What works for one company may not work for yours. Both direct-hire and contract-to-hire include unique pros and cons. Therefore, picking between the two comes down to what is best for your company. At Waypoint, our team of experts can help you simplify the hiring process. Contact us today to find the perfect employees for your company.

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