Types of Employment
Contingent, contract-to-hire, and direct-hire are three of the most common types of employment. How do they differ?
Staffing agencies remain a popular partner for workforce solutions as governments and commercial organizations seek to reduce costs, ease administrative burdens, and find high-quality talent.
According to the American Staffing Association, staffing, recruiting, and workforce solutions provide career opportunities to more than 15 million people every year. These types of employment opportunities comprise of contingent, contract-to-hire, and direct-hire employment, with each offering unique advantages and disadvantages.
A contingent employee is hired for a specific period of time in either a full- or part-time capacity, depending on the needs and requirements of the hiring entity. Contingent workers are often referred to as temps, summer interns, seasonal workers, freelancers, consultants, and contractors.
Contingent workers are technically considered employees of the staffing agency once selected for a temporary assignment with the end client – the entity that needs the work done. All work is performed either remotely or on-site with the end client.
A few important aspects to consider about contingent work from the employee and employer perspective:
- The contingent worker has the opportunity to work flexible hours, gain experience, and potentially get a foot in the door if hoping for long-term employment with a particular company. Although the majority of contractual workers receive minimum benefits per the Affordable Care Act (ACA), they are not eligible for the same company perks provided to full-time employees with the end client such as paid-time off (PTO), 401k matches, etc.
- The end client experiences reduced administrative burdens and cost savings because staffing agencies handle every step of the process, from recruiting and hiring to scheduling and payroll. On the other hand, the end client may pay a higher bill rate for the contingent employee than if recruited, vetted, and hired on their own, due to staffing agency billing standards when finding qualified talent on the client’s behalf.
Although, the next type of employment is similar to contingent, the terms of contract-to-hire positions are what varies the most.
A contract-to-hire worker is hired for a specific period of time, similar to a contingent worker. These positions are a great opportunity for the end client to determine how well the contract worker adapts to the company’s environment before committing to offering a permanent role. Similarly, it provides the worker with the same opportunity to adapt to the work environment before exploring permanent placement.
For contract-to-hire positions, a staffing agency will recruit, hire, manage and pay the employee throughout the duration of the contract. However, if the contract worker is offered a permanent position and accepts, the end client will at that point assume all responsibility of the worker after converting them to a permanent employee. Usually, there is no guarantee that a contract position will turn into a permanent role. The specific terms are typically stated within the initial job posting, giving the applicant a clear understanding of the potential opportunity from the beginning.
Contract-to-hire positions can be a mutually beneficial arrangement for both the employee and the end client but does come with its disadvantages.
- The contract employee has an incentive to prove his/her value with the hopes of being offered a permanent position. Additionally, they have an opportunity to first ensure the end client’s environment and culture is a good fit before committing permanently to the company. However, if the end client decides not to move forward with a permanent position, it might seem like an unfulfilling experience on behalf of the contract employee.
- For the duration of the contract, the end client has the opportunity to evaluate the technical and social skills of the contract employee to ensure they meet expectations. However, if the end client offers the contract employee a permanent position, the employee may decide to decline the offer or may find other permanent work before the offer is extended.
The third, and one of the more common types of employment, is direct-hire.
A direct-hire employee is hired to fill a permanent role within a company. These positions normally come with company-provided benefits such as health insurance, PTO, 401k matches, and other company perks.
Similar to the previous two hiring types, staffing agencies can also be utilized for filling direct-hire positions. The staffing agency helps the hiring employer identify and qualify candidates, which alleviates costly and time-consuming corporate recruiting processes. Once vetted, the employer performs the interviews and takes over the responsibility of actually hiring the candidate.
Direct–hiring is different from contingent and contract-to-hire for one main reason:
With direct–hiring, the employee and employer share some of the same risks since there isn’t an explicit trial period to decide if the other is the best fit. In most cases, the employer will want some sort of agreed upon guarantee period to claim a full or partial refund of any fees paid to the staffing agency in case the hire does not work out. This protects the employer from paying all direct-hire fees to a staffing firm only to realize the candidate did not meet expectations.
Furthermore, there are some additional things to keep in mind when it comes to direct–hiring:
- When the employee is offered a permanent position, they receive all company benefits and perks, creating stability and longevity. However, due to the nature of traditional interviewing, the employee has limited time to engage with and analyze the company’s environment and culture.
- In using a staffing agency, the employer has the advantage of leveraging all of the recruiting tools and sourcing techniques utilized by mature staffing agencies. It allows the employer to review and interview only those candidates who best align with the job requirements. But unlike contingent or contract-to-hire, direct-hires require more of an investment of time and money on behalf of the employer. There is risk in losing valuable institutional knowledge and delaying key deliverables. In fact, a CareerBuilder survey found a price tag of $25,000 or higher that is attributed to making a single bad hire by 41% of companies. In addition, 25% of businesses placed a bad hire at the cost of $50,000 or higher.
As presented above, contingent, contract-to-hire, and direct-hire models have important advantages and disadvantages, depending on the nature of the workforce need and employer. The type of employment depends greatly on the work, project, budget, salary limitations and, ultimately, what best fits the needs of both entities.