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Contract Hiring and Permanent Hiring are Two Different Beasts. Here’s How to Get More Strategic About It.

November 17, 2020

Contingent Staffing (contract) and Permanent Hire are the two main modes of staffing these days. But companies need to be aware: these are two very different talent markets, with different processes to hire. Here’s why you can’t treat them like two sides of the same coin.

Over the past 5+ years, contingent staffing has taken off as an alternative to direct (permanent) hiring. As we’ve chronicled on our blog, this has been also true in Argentus’ recruitment verticals of Supply Chain Management, Procurement, and Logistics. Hiring on contract is no longer just for leave coverages (e.g. maternity leaves), or for clerical/administrative staff (“temps”). Companies rely on it as a real alternative to permanent hire for strategic contributions like change management, temporary projects, implementations, business transformations.

Companies are using contingent staffing to lower their risk for high-impact, project based work. They use it to hire faster, with qualified resources who can hit the ground running. What they pay in an (often) higher hourly pay rate, they save in long-term payroll costs. If you’ve been reading the Argentus blog, you’re aware of how more companies are leveraging this model – and you’ve maybe even considered it for your own organization.

There are some roles – and situations – where permanent hire makes sense, and others where contract makes sense. They offer different strategic benefits to an organization. For example, a senior Supply Chain role for a scaling startup, tasked with standing up a new Supply Chain organization, setting up a culture, and building a team? That’s likely perm. But a senior Supply Chain role in an existing organization who will go in and execute a digital transformation? That might make more sense as a contract role.

As recruiters specialized in Supply Chain, we’re always offering our clients – and anybody else who will listen – our advice on these matters. We’ll sometimes consult with them about their big-picture talent strategy, and when it makes sense to hire on contract, and when it makes sense to hire on perm.

And here’s the biggest piece of advice that we often give in these discussions:

While you might see contract and permanent as two sides of the same coin, they really aren’t.

Sometimes, companies are a little cavalier about changing a search from contract to perm, or visa versa. They might go to market with a permanent role, and then change the role to a six month contract. Sometimes, they might treat their hiring process exactly the same way, as if the only difference is whether the role is for a fixed term, or open ended.

That might be the most obvious difference, but the fact is permanent and contract searches are two very different beasts, even for roles that are superficially similar (e.g. a Buyer search).

Here’s our breakdown of why, with some tips about how to set your talent strategy around these various modes of hiring.

Permanent and Contract searches access very different marketplaces of talent.

Let’s say you’re hiring a Procurement Specialist for indirect categories (e.g. IT, travel, professional services, marketing, office spend, etc.). When you’re recruiting, there’s a fixed pool of candidates who have the right experience in your desired location. Some number of these candidates are actively looking for jobs using LinkedIn, Indeed, Monster, etc. (or a recruitment firm like Argentus). We call these “active candidates.”

Some number of these candidates aren’t actively looking for jobs, but might be a great fit for the role. We call this latter group “passive” candidates, and they’re often some of the strongest performers. The way we put it is, passive candidates are often people who are too busy being good at their jobs to look for a new one.

The thing is, these passive candidates are unlikely to make the switch from a permanent role to a contract role, unless the organization is a massive draw or compensation is wildly better. That’s the big difference in the talent pool. The body of Indirect Procurement Specialists willing to work on your contract role is necessarily much smaller – in our experience, about half the size.

But that doesn’t mean that you have to settle for a weaker candidate. There are a number of high-performing contractors we work with in Supply Chain and Procurement who choose to work on contract for the independence, work/life balance, tax benefits and other reasons. In their survey on the gig economy, McKinsey called these people “free agents” – distinguishing them from the “reluctant” contractors who are just waiting for a permanent role.

These “free agents” can be great fits for a contract role, but they won’t work on a permanent opportunity. Oh yeah, and McKinsey estimated there were 49 million “free agents” in Europe and the U.S. in 2016. Since then, the number has grown.

So here’s the upshot: The talent pool for permanent and contract has less overlap than you might think. A tactical hiring manager will just “flip the switch” between setting a role as permanent and contract. They’ll wonder why they aren’t getting as many candidates for a contract role. But a strategic hiring manager will recognize these different talent pools, and adjust their approach accordingly.

So how do you adjust your strategy?

The decision to hire on permanent or contract should impact your hiring process. If it doesn’t, you aren’t benefiting from the advantages of each approach.

Hiring on contract is a great strategic option in part because it’s faster. The “free agents” we discussed above are primed to jump into a role, and make an impact – for example, to conduct a Procurement transformation, implement a new ERP system, or work through a backlog of Procurement projects. Also, the company isn’t their boss. You’re their client, and there’s more of an arms-length relationship. They’re paid for results, and they shouldn’t need to be trained.

All of this means that the companies hiring most strategically hire their contractors faster than their permanent employees. But too many companies insist on multi-stage interviews with every contract candidate, as if it’s a permanent search. For a permanent search, it makes sense to “cross every T” and dot every “I”. But a contractor should be a pre-qualified resource. If they don’t produce the results, the process to terminate the contract – and find another qualified replacement – should be faster. Companies that recognize this are the ones who really reap the strategic benefits of hiring on contract.

For permanent searches, you should be targeting passive candidates, with “active” candidates as a backup. For contract searches, you should be targeting these “free agents,” with “active” candidates as a backup. And if you identify a good one, take the plunge. When you’re setting this strategy up front, recognize that contract vs. permanent will dictate the types of candidates that you see, as well as how many times you need to see them before making an offer.

Whether you hire on permanent or contract, treat the differences seriously.

This is the main takeaway here. It doesn’t pay to be cavalier about setting a role as permanent or contract. If you go to market, see candidates, and then change a permanent role to contract at the 11th hour, you might as well start from square one. Requirements change, and sometimes you can’t help that. But the earlier you set your strategy around permanent vs. contract, and the more you understand them as two discrete modes of hiring, the better.

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