The IT industry is one of the fastest-growing business sectors today. It has evolved dramatically in the past few years, responding to the COVID-19 pandemic and the major shift towards remote and dispersed work that followed.
Thus, contract work has witnessed a quick rise in popularity in the IT field, with the number of job postings skyrocketing by 20% by the end of 2022 and going further upward in 2023. Statista experts evaluated the IT temporary employment services market at around $29.9 billion in 2020 and projected its growth to $43+ billion by 2025. Motion Recruitment experts have also confirmed that the number of IT contract roles had tripled during 2021-2023, now constituting 1 in 5 tech jobs available. That’s why we can firmly say that contractual arrangements are getting more popular among IT businesses.
This trend doesn’t mean a total shift to IT contractors as the major workforce category in IT. Evidence suggests that companies still rely on the core in-house teams in the performance of strategic tasks and complement the direct hires with contractual workers based on their fluctuating staffing needs.
So, what is the difference between these hiring models – for businesses and for employees – and how can IT companies manage contractual workforce effectively? This article offers a comprehensive overview of the hiring practices in the tech industry and takes a glimpse at the future trends shaped by contractual staffing.
Definitions
Let’s make sense of both concepts before discussing the implications of IT contract staffing for businesses.
- Contract staffing, or contract-to-hire (C2H) recruitment, is a hiring model that presupposes temporary or contractual terms of employment. This means that a person is initially taken to a company for a predetermined period or for a specific project. After these terms are accomplished, the employee may leave the company, be offered a new contract, or get a permanent position.
- Direct hire refers to the person’s full-time employment at a permanent position in a business organization. This arrangement doesn’t presuppose any interim contract phase and means that the new employee becomes an equal part of the in-house team from the first day of their work. This way, the new hire gets access to the full set of employee benefits, health insurance, retirement plans, and paid leave policies.
Both variants are important for IT businesses and match specific business needs and circumstances. Yet, they differ in terms of the nature of employment, the length of the employer’s commitments, the cost of hiring, back-office requirements, and the recruitment process.
Why Do IT Companies Rely on Contract Staffing?
The figures don’t lie, showing how IT businesses across the globe increasingly opt for contract staffing solutions and prefer them to direct hiring. The major drivers of this change include:
- Competition. While the field of contractual employment used to be dominated by staffing agencies, the modern hiring space is much more democratic and diverse. IT specialists can be contacted via freelance marketplaces and job boards, giving IT businesses a broader choice of hiring options and plenty of opportunities for direct engagement with temporary hires.
- Rising demand. The IT industry is booming and growing at a fast pace. Thus, the future of an IT career looks bright for most job seekers, as top-tier specialists want to work on their own terms. The trend for a digital nomad lifestyle is also on the rise, cultivating the new idea of work-life balance and remote work on a convenient schedule. That’s why both businesses and employees consider contractual employment as a flexible option with many advantages.
- Innovation. The IT niche is evolving very fast, supercharged by the latest innovations and disruptive technologies. That’s why only dynamic and responsive businesses can survive and thrive in such an environment by keeping a competitive advantage with the help of a properly trained and skilled workforce. The pace of change is too fast to keep the same team for years, and businesses take advantage of rapid contractual hiring to embrace new technologies ahead of competitors.
All these drivers continue pushing the rates of contractual hiring in the IT niche upward, suggesting that the flexibility and agility of this employment model look appealing to all stakeholders. However, it’s vital to note that contract and direct IT staffing go hand in hand in any business, shaping its staffing strategy and responses to dynamic market conditions. Each has its own pros and cons, and HR departments make individual decisions on every employee they consider for the team.
Pros and Cons of Direct Hiring
Direct hiring is the classical version of employment used in the modern job market. It establishes a long-term partnership between the employee and the employer and presupposes a wide range of duties and responsibilities for each.
Pros of this hiring model are as follows:
Any IT business thrives with a stable core team responsible for mission-critical tasks and strategic planning. It can’t do without the small family of visionaries setting the company’s direction, overseeing projects’ execution, and managing other essential issues that temporary staff can’t be entrusted with.
IT experts working full-time are more loyal to their employer and more committed to staying in the company. They receive social benefits, have paid leave, and can expect a fair pension from their employer, thus improving the company’s retention statistics.
Companies with a stable, permanent working team save costs in the long run as they invest in employee growth and training, reaping the fruits of their investment in the form of better performance, loyalty, and productivity.
The cons of this hiring option should also be considered. They are:
It takes time to find the right candidate for a permanent position, and this process usually requires a dedicated HR specialist. Candidate screening, interviewing, and job offer negotiations may take weeks, if not months.
Once the employer hires a permanent employee, they lose the flexibility of adapting the team’s composition and tech stack to rapidly changing market conditions. It is not that easy to fire a full-time employee, as the dismissal process is legally and technically challenging.
The price of wrong hiring decisions is often too high, with businesses getting stuck with non-qualified or undisciplined employees. Their dismissal may be impossible due to protective legislation (e.g., ADA or LGBTQI+ protections) and may entail huge compensations that a business owner is not ready to sustain.
A permanent hire is the employer’s full responsibility in terms of benefits coverage, so a realm of extra expenditures should be added to the compensation plan. Besides, the company should have specialized staff for payroll, tax deductions, and other calculations for the in-house hires.
Pros and Cons of IT Contract Staffing
Contract staffing solutions offer a more flexible alternative to direct hiring due to many differences in the arrangement of employee-employer relationships. It presupposes a contract for a specific project or period, thus addressing the business’s fluctuating workload.
Benefits that businesses usually reap from contract hires are:
It is possible to test the new employee at work without making long-term commitments. This way, the employer can give a full grasp of the candidate’s skills and competencies before making the full-time job offer.
Contract hiring is speedy, especially if you engage a third-party contract staffing agency to scale your team up. The agencies usually have vast databases of pre-screened candidates and can address your staffing needs with a short turnaround.
By hiring a pre-vetted IT expert via a staffing agency, you can avoid the expenditures on HR staff. That’s why such staffing solutions are more affordable for short-term needs and technology-specific, small tasks.
IT businesses should respond to market changes quickly, as new technologies and threats emerge every day and challenge their stable performance. Contractual staffing is a shortcut to getting your staffing needs addressed quickly and effectively.
Yet, there are some drawbacks that also stand out as significant in the hiring process:
There’s always much uncertainty about contractual and temporary hires, as they are the staffing agency’s employees or freelancers who agreed on a short-term task. Thus, the employer should continually manage the contractual workforce to ensure that qualified staff stays in the team.
Top IT talent is rarely attracted to contractual job offers because they want greater coverage of their benefits, leaves, and pensions from the employer. That’s why businesses may find it hard to engage senior-level specialists or rare technology experts with contract offerings.
While direct hires enjoy the full scope of benefits and coverage in the company, contractual employees don’t have these privileges. This disparity may cause unnecessary friction or conflict inside the team and disrupt vital processes.
When to Choose Each?
What factors determine the choice between a contract hire and a direct hire employee? Here are a couple of cases to illustrate the factors of this decision-making process.
- Consider only direct hires to build the core team for your IT business. They will be your stable strategic human capital around which a contingent workforce may be built.
- Engage only direct hires in mission-critical activities or tasks dealing with sensitive or secret business data.
- Hire contractual workers for project-specific tasks and short-term project aspects that require some rare technologies or knowledge that you don’t specialize in.
- Add contractual workers to the team when you feel temporary overloads or need to close a staffing gap because of the permanent employee’s vacation, sick leave, or maternity leave.
- Rely on contractual workers with isolated tasks like QA testing, data analytics, or cybersecurity audits.
By using these guidelines, you will always achieve a proper mix of direct and contractual hires in your IT team.
How to Hire Contract Staff Effectively?
Contractual hiring comes with some nuances that you should anticipate and address to avoid troubles. Pros recommend focusing on the following aspects.
- Clearly define the scope of your project. As you have a concrete task that requires specific skills, the candidates should be carefully selected to match those expectations. It’s your task to formulate the scope clearly, ensuring that only the best-matching candidates respond.
- Evaluate several candidates. Don’t go for the first-best expert in your niche, as there are always several variants to consider. So, take some time to review the candidates’ portfolios and CVs and pick the right match.
- Be transparent about terms. If you don’t plan to hire contractual staff for further projects and only have a job for a couple of days, be clear about that. It’s important to be on the same page to ensure that everyone is satisfied with the outcomes of contractual arrangements.
- Treat a temporary hire as a perm prospect. Don’t treat temporary hires simply as contingent workforce; some experts may come in handy for further permanent employment.
- Establish effective communication channels. You’ll reap more benefits from collaboration with contractual hires if they have well-established communication channels, an in-house curator, and a broader understanding of their place in the team.
- Don’t discount culture. Though contractual hiring is usually not bound to geographies, it’s still important to hire people with a cultural match to your business culture. Make sure you check their soft skills and cultural values to avoid team friction.
- Turn to a staffing agency. Contract staffing becomes way easier if you turn to professionals in this area. Staffing agencies are experienced and have databases of quickly accessible talent, so they can help you close talent gaps quickly.
Cost-Benefit Analysis: Contract Staffing vs. Direct Hire in the Tech Industry
The past few years have been hard for the IT businesses, with 76% of businesses balancing role-filling and layoffs because of financial pressures. Therefore, a contingent workforce is the future of the gig economy that is typical of IT today. As businesses need to scale their teams up and down pretty fast, contractual hiring seems to be the right option with low legal risks and a proper cost-benefit balance.
Contract hires have become a strategically beneficial asset for IT companies because they offer:
- Access to the global talent pool without geographical limitations.
- An expedited hiring process with minimal onboarding.
- Access to specialized skills required for a limited number of hours on an IT project.
- Flexible short-term contracts with a variety of further arrangements.
If you need new staff but want to cut down on your operational expenses, you can always resort to third-party agencies specializing in IT contract staffing services and direct hiring services. As a rule, such agencies can provide both hiring options to help you achieve the right headcount and meet your business performance goals.
The Future of Work: How Contract Staffing Is Shaping Industries
As the technical skills shortage grows in IT, with over one-half of all recruiters worldwide reporting a lack of suitable candidates for 2023 job vacancies, contract recruitment is poised for growth in this industry. Companies want to spend less on recruitment processes and staff and, at the same time, want to engage qualified IT specialists across a wide range of specializations. That’s why the future of contracting seems bright in the IT sector, with more market participants seeking quick scaling solutions, access to skill, and flexible, mutually satisfying staff agreements.
Final Word
The modern IT industry is heavily dependent on the flexibility and adaptation that all participants should exhibit. As a result of rapid changes and the introduction of new technologies, businesses relying on permanent staff only may be too slow and rigid for fast adjustments. Therefore, contractual employment comes into play to close staffing gaps with contingent workforce solutions. Whether you’re conducting contract staffing on your own or partnering with a staffing agency, this solution is sure to supplement your traditional staffing practices and guarantee skill access and scaling.
