Earlier this summer it was announced that Google’s parent company Alphabet, who employs nearly 90,000 people, was comprised of more contract workers than direct employees for the first time. This raises a common question in the IT industry. When it comes to contract staffing or direct hire, which one is better? However, a more strategic question to ask is not which is better, but rather when each should be utilized. The answer depends on a number of factors and scenarios, which we explore below.
Hiring should always begin with a consideration of your overall business strategy and goals combined with the responsibilities that current and future positions will require. These are factors unique to your company. Start from scratch when considering what you want to get out of your open roles rather than copying and pasting bullet items from past job postings. This allows for a fresh perspective when considering which type of talent is the best for your need.
At the onset of the hiring process, attempt to summarize your talent needs through a direct and clear statement about what is most important. Below are examples of such statements along with what type of talent solution they typically lead to and why.
“I need to find niche talent.” = Contract
Hiring for any IT role is difficult, but it’s even harder to find specialized talent. Research shows contracting is increasing in niches such as data science, Python, IoT, cybersecurity, AI, and more. These in-demand individuals have often embraced and capitalized on the gig economy, finding consulting to be more lucrative and flexible to their needs. Due to that, when you need talent for a very specialized role, contracting makes it easier to find that elusive tech pro and get them producing for your team quickly.
“I need to fill a core-capabilities role.” = Direct
When you’re hiring for a position you consider the bread and butter of your organization, it typically means you need long-term consistency in that role. Find a great direct-hire who can be instrumental in determining important processes that affect operations in their department and beyond. An interesting example of this is in the U.S. Army. Recognizing that recruiting technical talent is critical, they’ve begun a new direct-hire initiative to secure the important tech professionals they continuously need.
“I need to turn this project around quickly.” = Contract
When speed is the priority, contract labor is often the answer. Expert talent who can come in with the skills needed, requiring no training, can start producing immediately and will boost the agility of any organization. While onboarding is still necessary for contract labor, the time from hire to production is drastically shorter than that of direct hires.
“I need someone for a long-term project.” = Direct
While using contract labor for back-to-back intervals of time can work, long-term projects lasting years often benefit from the continuity that direct hires can provide. Alternatively, shorter or sporadic projects lend themselves better to contract labor, and the same goes for when you’re not sure how long a project will run and simply need to get that role initially producing.
“I need to limit my risk and expenditure as an employer.” = Contract
Hiring contract talent often means engaging with a reputable staffing firm. This means the staffing firm, not you, can take on the worries of compliance and shoulder employment risk while you simply reap the benefit of having access to talented skill sets. At the same time, contract labor means you’re not committed to a yearly salary indefinitely. This allows more control over cost and the reassessment of hiring needs at shorter intervals as IT industry market rates change. With more regulations cropping up regarding the hiring of contract talent, haphazardly diving into the arena alone can be dangerous.
“I need to grow my company.” = Both
This may be a more general statement than those above, but it’s still a common objective for business leaders and requires both types of talent. Direct hires can be your leaders in key roles, those who set examples for others, provide mentorship, and create the core of your culture. At the same time, younger generations of technical talent who greatly value the flexibility of consulting can best be harnessed through contracting roles. Future growth depends on finding the right mix for you.
Ultimately, there is no blanket answer to the contract staffing vs. direct hire debate. Yet, it’s necessary to understand there’s a reason an uber-style hiring model is the future of IT employment. More and more tech pros are becoming contractors, but businesses lag in their adoption of contract hires. As a result of older hiring mentalities, it’s necessary for companies to increase their usage of contract hires to better modernize and balance their workforce.
Uber is only a few years old, yet consumers across the world have adopted the service to the point they would be lost without it. While multiple factors were certainly at play, this revolution in transportation came about swiftly and strongly due to a large talent pool of at-will drivers thriving in a new gig economy. Simply put, the Uber model changed the game. A similar transformation is happening right now in tech, and it’s distinctly shaping the future of IT employment and hiring.
Today’s hiring managers and business leaders are having an increasingly difficult time using traditional methods to find tech talent due to a profound shift in the labor market. Many of us know how Uber works: drivers decide where they want to work and for how long, effectively dictating their own schedules and how much income they’ll ultimately receive. A similar phenomenon is already underway in the tech sector.
By 2020, 40% of Americans will be working outside of traditional permanent full-time roles. In IT, talented professionals are gravitating toward becoming consultants and contractors with multiple revenue streams and working non-traditional hours. Like Uber drivers, tech pros are logging into online systems and choosing which jobs and projects they want to work on for limited time spans. Due to this, surveys show that blended workforces made up of a greater number of contractors are on the rise.
The tech sector is in a state of extremely high demand but drastically low supply, which means candidates can bend the market to their will. While technological developments like high internet speeds, the prevalence of smart phones, and video interviewing advancements have made a gig economy like this possible, it’s the talent driving change.
Many IT pros are finding a great number of benefits to contracting in the gig economy. They have the power of choice and variety, deciding which types of projects they want to work on. There’s greater flexibility, as talent can simply decide not to take a job for a few weeks or a month if they wish to go on vacation, work on a hobby, or spend time with their family. Also, working as a consultant can be more lucrative than ever, with a 64% increase in independent workers earning over $100,000 per year since 2011. Finally, by 2025, it’s estimated that Millennials will make up 75% of America’s workforce. As this group continues to thrive on technology and seeks greater work/life balance, the new gig economy will grow quickly.
Every change to how business gets done will have supporters and detractors, but organizations that adapt and increase their usage of contingent labor will see many benefits. As agile project management becomes more prevalent, companies are focusing on shorter, more specialized tasks. Hiring a contractor who is highly skilled in a certain area can help obtain the best expertise for only the time it’s needed.
Consider a Data Architect that can break down accumulated data silos, a Cybersecurity Analyst ready to safeguard a new network, or a Mobile App Developer set to create a new company app. A business that hires one of these as a contractor can get what they need completed and then be free of having a high salary permanently on their payroll after they no longer require that expertise. A new Uber-style employment model in IT easily allows for such a high level of agility. This is precisely why 100% of U.S. employment growth in the last ten years has come from alternative or contingent labor.
Organizations that truly want to capture the best tech talent will look toward accepting the new gig economy as soon as possible, understanding that it’s quickly becoming the best avenue for finding great candidates. To do so, begin considering which roles will lend themselves to contract work. As employees retire or leave, instead of following the status quo and looking for a permanent replacement, contemplate if a contingent labor option may work better. Additionally, determine if some positions can be made remote. This can save on expenses, be advertised as a perk, and result in greater efficiency since remote workers are often more productive than traditional workers.
While the gig economy can provide skilled IT pros quickly, it is still drastically important to find the right talent by maintaining integrity in screening and recruiting processes. Too often, when timelines shorten, quality will dwindle. A hiring manager new to contingent labor may feel temporary talent doesn’t need as much vetting since they will only be around a few months. Unfortunately, that mentality has led to the downfall of many.
Labor market shifts don’t happen overnight, but adaptation also takes time. As the gig economy morphs into an Uber-style model, those companies that begin to strategize with contract labor in mind are the ones that can grow with the times and continue to find hiring success. As more IT pros choose to become consultants, the difficulty of locating full-time, permanent employees will only increase. It is no longer a question of if or even when a business should adapt to the gig economy but a question of if a business wishes to be successful or not. The answer to that is always yes.