Direct hiring typically involves bringing a developer onto your team as a full-time employee. This model often leads to stronger team integration and long-term skill development within your company. On the other hand, contract hire offers flexibility and can be ideal for project-based work or when you need specialized skills for a limited time.
While contract and direct hire are common approaches, the modern hiring landscape offers a spectrum of options. From full-time remote employees to project-based freelancers, part-time specialists to dedicated offshore teams, the possibilities are as diverse as the tech industry itself.
Our years of experience in remote tech recruitment have shown us that the key isn’t necessarily picking one model, but rather understanding the full range of hiring strategies available and how they can be tailored to your specific needs based on project duration, budget constraints, skill requirements, and your company’s growth plan.
In the following sections, we will discuss how these two employment options stack against each other. In the end, you can decide which is the best approach for you.
What is Direct Hire?
Direct hire is when a company employs a candidate for a full-time, long-term position. Also called direct placement, this employment model offers employees a regular salary, paid time off, and other benefits.
Employers can handle the entire direct hiring process. However, to speed up the time-to-hire, they can work with a recruitment agency like DistantJob.
Below are the pros and cons of this hiring process:
Pros:
- Increased loyalty and engagement: Direct hire employees are more likely to be loyal and engaged with the company since they are part of the permanent team. Besides, many companies invest in the professional development of their permanent employees, which contributes to higher job satisfaction and commitment to the organization. According to research, 94% of employees stay longer with companies that invest in their development.
- Promotes team cohesion and productivity: When employees are committed to their roles, they contribute to a positive, productive workplace. Your dev team will work to build rapport quickly if they know they’ll be working together in the long term.
- Access to highly qualified candidates: Offering permanent positions attracts top-level candidates due to the level of job security it offers. This is especially true for passive candidates needing more incentives to leave their current jobs. For example, a senior developer will only leave their full-time employment for a permanent position.
- Cost-effective in the long-term: Since the employee is on your payroll, you don’t need to pay the staffing agency monthly to keep them on their books. In addition, permanent employees have fewer turnovers, saving you money on recruitment and training costs in the long run.
Cons:
- Higher Upfront costs: While direct hiring saves you money in the long term, it requires a more significant investment in recruitment, onboarding, and initial training expenses.
- Longer time to fill positions: Unless you outsource this phase to a recruitment firm like DistantJob, it takes time and resources. Your internal team will have to conduct additional interview rounds, talent assessments, onboarding, and training — all of which can prolong the vacancy. This is especially true when trying to fill up tech roles, which take an average of 52 days.
- Less flexibility: Since direct hires are permanent, they likely aren’t the best choice for project-based or seasonal work as business needs shift. Scaling your business up or down can be challenging if you exclusively rely on direct hires.
Contract Hire
Contract to hire is when an employer hires a candidate, usually through a staffing agency, for a short-term position with the possibility of full-time employment. During this period (usually 3-6 months), the employer will assess whether or not the employer is a good fit.
Read our detailed article about contract to hire.
Contract vs. Direct Hire: Understanding the Differences
While contract hire offers a faster and more flexible solution for short-term employment needs—often managed by an agency—direct hire is better suited for long-term roles that require deeper commitment and are typically handled internally. The table below compares these two employment strategies, covering aspects like hiring process, time, length of employment, salary, benefits, and flexibility, to help you decide which approach aligns best with your organization’s goals.
Now that we know the difference between contract and direct hire, let’s see how they might play out in a real-life scenario.
Contract vs Direct Hire: Contextual Examples
To further understand their differences, let’s discuss when to use each hiring strategy for IT projects.
Contract Hire
- Unclear project scope: Organizations can use contract hire to adjust their staffing levels when a project’s requirements and timeline are uncertain. Say you’re building a new mobile payment app for a client. Then, midway through the project, the client changes the scope based on the latest market information. Suppose you lack the numbers to fulfill this new request. In that case, you can bring in developers on contract hire to support your team. At the end of the project, they leave, or you retain high performers.
- Peak workload: Contract-to-hire developers can help manage workload during increased project volumes or seasonal demands without committing to long-term hires. For example, during holiday seasons or when launching a new product that requires additional hands on deck. If the product succeeds, you may change the status of the contractors to become full-time developers.
Direct Hire
- Long-term project or product development: Projects that require sustained effort and deep product knowledge can benefit from a stable, permanent team. For example, if you’re building a proprietary software product or platform, a dedicated in-house team is crucial for product evolution. In addition, direct hires can provide better control over data security.
- Need for deep institutional knowledge: Systems that require a deep understanding of business processes often benefit from having developers who have worked on them for an extended period. Full-time developers can also become knowledge repositories, ensuring the continuity of the organization’s expertise.
Making the Decision: Factors to Consider
Consider the following before choosing a developer recruitment process for your IT projects:
Project Duration
If it is an ongoing project with a steady workload, then hiring developers permanently is the best option. It creates stability and ensures consistent progress without interruptions. Conversely, a short-term project that requires specific skills that aren’t needed long-term is better for contractors.
Budget
Direct hires usually involve high upfront costs from interviews, training, salary, and other benefits. However, with contract devs, you have more flexibility because you only pay for services rendered. Or, as in most cases, the staffing agency handles their payment. So, consider how much you’re willing to spend before deciding.
Skill Requirement
Some projects require specialized skills that your team lacks. In those situations, hiring contractors with such skills is better, especially if it costs more to train existing employees.
However, if those skills can be easily acquired, make permanent hires and train your staff. It is an investment in your company’s long-term future.
Company Culture
Another factor to consider when deciding between an IT contractor and a full-time employee is cultural fit. Direct hires offer cultural stability as they fully integrate into the company culture. Meanwhile, contract workers might not be motivated to blend in since they are not permanent employees.
Future Growth
Consider how each hiring approach aligns with your long-term goals. Direct hires are an investment in your team’s growth and development. They foster a sense of loyalty and commitment, which leads to productivity and innovation.
Contract hires, on the other hand, provide flexibility to scale your team based on project needs. They allow you to save on costs and adjust to changing market demands.
So, evaluate your organization’s trajectory and objectives to decide which model suits you.
Conclusion
Contract and direct hire are effective strategies for finding developers for your IT projects. These approaches are, however, different in their hiring process, length of employment, cost implications, and flexibility.
Ensure you choose one that aligns with your company and project goals. If you’re still unsure about the best option, contact us at DistantJob. We offer IT staffing solutions that connect companies like yours to global tech talent. Our team of expert recruiters will analyze your project and match you with software developers that meet your specific needs.
