How to Meet Staffing Needs: Deciding between Contract-to-Hire and Direct Permanent Placement

June 30, 2021

Dave Rudary, Director of Business Development & Drew Kartes, VP, Talent Sourcing


During the last year, the COVID pandemic has raised a lot of uncertainty making it difficult for employers and employees. We saw companies do everything from downsizing, to re-organizing their teams, to having struggles to retain top talent.

Hiring and retaining top talent is evolving rapidly post COVID. Think about it: people who considered leaving pre-pandemic, but held onto their current role, are now looking for new opportunities since the economy is growing. Experts say a 'turnover tsunami' could be on the horizon as pandemic uncertainty subsides - L.A. Biz (bizjournals.com)

As we leave the pandemic behind, we are finding that the demand is largely stronger than supply.  Therefore, an organization and a Hiring Manager may consider multiple options when hiring talent.

But how do you determine what is the best model for meeting longer-term staffing needs in your organization?

Should I hire all permanent employees?  Or should I try using a Consult-to-Hire model? Maybe a mix of both? Below we will discuss the pros and cons of both options so you can determine what is best, not just for your company, but for each position.  

Contract-to-Hire Pros:

1. Faster interview process – It is now a candidate-driven market; candidates are finding jobs much faster because there are more opportunities than there were a year ago. Candidates can be selective, and are now making decisions quickly so if you find the right person, you can take a chance and hire them immediately with limited risk.

2. Limiting your risk – Onboarding a new employee can be expensive, contract to hire will allow you pay for the number of hours the candidate works while having payroll burdens and unemployment costs covered. BLEND360 also provides benefits to their consultants while on contract.  There are no severance costs if the candidate doesn’t work out.

3. Contract-to-Hire to evaluate the candidate or the employer – This allows the employer to evaluate the candidate’s skills during the contract period and to make sure the candidate is a great fit. The candidate also has an opportunity to evaluate the employer to make sure it is the right fit for their career. A win-win.

4. Filling a talent gap without taking up headcount During the contract period, the candidate doesn’t have to be considered in your headcount if you have a budget for outside resources.

Direct Placement Pros:

1. Full Time Employee – Hiring a candidate permanently from the start shows you are investing in the candidate and allows them to participate in your full suite of benefits and PTO right away.

2. Less back-office work for you – You won’t have to approve timecards on a weekly basis

3. Testing the Agency – Hiring direct allows you to determine if the recruiting agency is truly able to attract and retain top talent for your needs, enabling you to assess if they can support your organization on other positions.

4. Candidates prefer Direct Placement – The majority of candidates prefer to be a full-time employee right out of the gate to show you are investing in their career long-term so retention is higher.  

 

Contract-to-Hire Cons:

1. Candidate is not an “employee” –Although they may largely act and function as an employee, they aren’t fully part of your organization until you hire them into a permanent position.  Given that the consultant won’t accrue benefits from your organization directly they may feel they are only filling a short-term need.

2. If the Candidate will be in a management position– It may not make sense for a company to hire someone for Contract-to-Hire if they are going to be building out a team.

3. Risk of not getting headcount approval –If you aren’t able to secure budget approval for permanent headcount at some point, the candidate’s expectations for a full-time position may ultimately not be met.  This can lead to attrition which can put critical initiatives at risk while you look for a backfill.

4. The role is a critical position for the company – If this is a critical core function, it may make more sense to invest the time and resources in hiring a full-time employee.

Direct Placement Cons:

1. Losing candidates in process – Direct placement hiring normally takes longer, because hiring leaders are taking additional steps to make sure they are making the best hiring decision. In today’s candidate-driven market, candidates choose another opportunity part way through the interviewing process, leaving you back to the drawing board.

2. Onboarding headaches – the onboarding process for new permanent hires can take weeks or even months compared to bringing on a consultant quickly in most cases  

3. Costs associated with a bad hire – The US Department of Labor states the cost of a “bad hire” can be 30% of their annual salary, including the cost of benefits. There are other costs that are much harder to quantify, like impact to culture, possible overtime for other employees, morale, etc.

Interviewing & Hiring isn’t an exact scienceSometimes candidates don’t work out, even if you use an expert recruiting agency or conduct a very thorough hiring process. If you’ve paid a fee to hire and the candidate doesn’t work out, it’s a sunk cost. Nothing in life is certain so this is a risk. There is no right answer for every circumstance, as you can see on our pro/con lists this decision needs to be made on a position-by-position basis. The best way to evaluate is speak with your Human Resources, Talent Acquisition team or staffing provider. This will allow you to evaluate their bandwidth, time needed to fill, what are the costs/revenue implications associated if this person is not hired on, and what fits in your budget. Now it is up to you, which model works best for your current openings?

We’d be happy to walk through this with you if you need assistance!

HOW BLEND360 CAN HELP

BLEND360 provides flexible talent solutions, two of Contract-to-Hire and Direct Placement. Contract-to-Hire means that the candidate will start as a W-2 employee of BLEND360.  Their work will be under the day-to-day direction of the Client, but their paycheck and benefits (health, dental, vision, cost of onboarding, etc.) will come through BLEND360. Additionally,BLEND360 covers the payroll expenses, hourly rate, and our fees within one bill rate. Direct Placement means BLEND360 will identify candidates for placement. When the client has selected an individual they want to hire, that person is an immediate employee of the Client and the Client will pay BLEND360 a percent of the employee’s first year salary. We provide a variety of options because each client has different needs, and we pride ourselves on our customer service to both clients & our consultants. We value long term relationships that benefit all parties involved to help companies achieve their goals.

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