These are challenging times when companies are looking to hire new employees. This is often....

Direct Hire vs Contract Hire: Which is Better for Your Business?

These are challenging times when companies are looking to hire new employees. This is often a very time-consuming and difficult task. It requires evaluating the professional abilities and the experience of a potential candidate and ensuring a right fit in the role that they are being considered for. In recruitment, you will often come across terms like contract hire and direct hire which are used for varying needs in an organization. First let us understand what each one means.

Table of Contents

  • Contract hire
  • Direct Hire
  • Long-term vs short-term
  • Skill-requirements
  • Timeline
  • Cost-effectiveness

Contract hire

Contract hire or contract-to-hire means that the employee is placed in a position for a short period of time on a contract basis and has the potential to be hired on a full-time basis when the contract ends. This short period allows both the employee and the employer to evaluate each other and enjoy a trial period before committing to a full-time employment. The contract hire employee is technically under the payroll of a staffing agency but is contracted to work for a client company. The staffing agency handles all the tasks related to recruitment like sourcing candidates, reviewing resumes and shortlisting candidates. Only final interviews are conducted by the client.  The contract duration can vary depending on the client from a period of one month to long tenures. At the end, the client company has the option of either recruiting the person for full time or ending the contract.

Direct Hire

Direct hiring or permanent recruitment refers to hiring of a candidate for a full-time role, as opposed to contract hiring for a limited duration. This is made more efficient when partnering with a staffing agency, given their expertise in vetting potential candidates to find the best fit for your business. These direct hire employees enjoy all the benefits and remuneration offered by the company. In this case, the staffing agency handles the recruiting tasks but the employee is on the payroll of the client company directly. The staffing agency does the role of shortlisting candidates and the company has a long-term relationship with the staffing agency to do this. Mostly direct hire is used to fill full-time positions but sometimes it is used to fill part-time positions as well.

There are various advantages and disadvantages of both direct hire and contract hire depending on the requirements of a business. Some points to consider:

Long-term vs short-term

Sometimes when you have a project with a specific duration, it is simpler to use contract-to-hire and fill the position and pay only till the project is complete. After that, you can scale down. These are short-term roles and can be handled effectively this way. However, for long-term roles, a direct hire may be more cost effective and a better solution.

Skill requirements

Many times, projects suddenly require specific skill sets to execute and these skill sets may not be existing within the company. At such times companies have to decide whether they must go for direct hire or contract hire for such roles. There are also times when a direct hire requires a longer tenure of recruitment, onboarding and training process which may delay the project. In such cases, going in for contract hire is preferred since the candidate can hit the ground running and get to work faster. If no specific skill sets are required then contract hire works better while if certain skill sets are required repeatedly, then a direct hire may be more preferable. 


A short-term project which has a limited time frame can be filled with contract hire whereas longer term initiatives which are larger may require a direct hire. These longer term initiatives require the employee to evolve with the needs and scope of the project and go beyond what a contractor will be willing to do. Moreover, direct hires are more involved with the vision of the company and invest their time and energy towards the company’s success rather than just completing a project.


While contract employees normally cost less, they are often less invested in the company that they are executing a project for. They usually move away to newer opportunities in other companies at the end of a project or may have other clients that they are working for. Direct hires, on the other hand, are more expensive but they bring long-term value and are an asset. 


Contract hire has its own advantages of a faster interview process, a lower budget and flexibility to avoid overstaffing and deal with unexpected growth and scaling up. Whereas direct hire offers more stable, loyal and engaged employees with more control and better qualifications.

It is the choice of the company whether they use contract hire or direct hire to fill an open position in a company. Depending on the need of the role, the best possible candidate is often chosen and recruited.

Visit Xpheno, our website, to find the best job opportunities in India. We are a staffing firm that aims to organize opportunities for skilled and unskilled Indian talent. We have been aiding the scaling journey of high-growth sectors like Fintech, Agritech, Edtech, Logistics, Pharma and D2C in India.

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