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Summary: Direct employees offer stability and long-term growth potential, but they come with challenges. Explore their role, impact, and how freelancing is changing the hiring landscape.
Let’s start out by defining just what a ‘direct employee’ is. The basics of it is a direct employee is someone that you hire to work for your company. But doesn’t that just define everyone that works in your company?
Not necessarily.
Do You Need Direct Employees and Just What Do They Do?
When you refer to a direct hire or employee that means you’ve hired that person onto your team and put them on your payroll. They’re a permanent employee because your goal is that you’re going to keep them on your team indefinitely (or even permanently).
These are people who are engaged in the entire business. That doesn’t mean they have to be doing all of the different tasks, but what they are doing is part of the business as a whole. They might be in the finance department or the production department, but their employment is not based on a single project.
Direct employees do not get paid by someone else to work for you. For example, someone who is hired through a staffing agency might actually work for the staffing agency primarily and the staffing agency actually pays them. These are not direct employees but indirect employees.
Someone who is hired in to work on a single project or a single task and whose job will be complete once that task is complete is also not a direct employee (in most cases). These would be freelancers, independent contractors, or other types of contract employees. Their job is not considered permanent or long-term.
But that doesn’t necessarily mean that any type of employee is better or worse. It means that you’re going to have to take a look at what your options are and what your needs are. From there … well, you’ll be able to make a decision that will help your business to move forward in a positive direction (and hopefully a decision that’s good for your employees as well).
What Does it All Mean?
So, what does it mean to have direct, indirect, or contract employees? Why do you need to know which one is which or how they interact with your business?
Mainly because there are different rights and responsibilities for both you and the employee depending on what type of employee they are. The highest level of protection is afforded to direct employees, while the lowest level of protections are generally provided to contract employees.
This means it’s more work and more responsibility on the employer to hire direct employees, but there are some benefits to this as well.
Why You Should Hire a Direct Employee
Let’s take a look at some of the biggest benefits to having a direct employee and what they can do for your business.
Long-Term Commitment and Defined Roles
Direct employees are hired into the company for a role that needs to be done on a long-term or permanent basis, which means they have a set job description and tasks to complete. They are then responsible for doing those things every day, which means the employer doesn’t have to seek out someone new to do those things the next time.
Enhanced Loyalty and Team Integration
Direct employees tend to be more loyal to their employer than contract or indirect employees. Because they are getting all the benefits of working for the company they feel more like a part of the team and are more likely to do what they can to benefit the company.
Employer-Directed Work Structure
Direct employees work where and when and how the employer tells them to. They do the tasks that are assigned as they are assigned and work in the office (or out of the office) or any other location that the employer assigns. Contract and indirect employees may be able to work in other places and also have the opportunity to set their own hours (in some instances).
Company-Controlled Hiring Process
Direct employees are hired directly by the company, which means that the company has final say on everything that happens in the selection process. They set the rules and what qualifications they want and employees must fit their requirements. There may be some leeway on these things with contract or indirect hires.
Why You May Not Want to Hire a Direct Employee
Now, these are all benefits and good reasons that you might want to hire in a direct employee. But there are some reasons that you might want to consider not hiring a direct employee. In some instances, it may actually be better for you to hire an indirect or contract employee.
Payroll Management and Complexity
Direct employees are paid through the company payroll, which can add more time, effort, and complexity to the process. The process of paying indirect or contract employees is different and not done directly through the same payroll system.
Legal Protections and Employer Responsibilities
Direct employees are afforded certain protections under the US Department of Labor. As a result, employers might have more responsibilities to provide set wages, hours of work, health and safety protections, and other types of compensation. These are not generally afforded to indirect or contract employees.
Access to Employee Benefits
Direct employees often have different types of benefits such as sick days and holiday pay that are not offered to indirect or contract employees.
Cost and Permanence Considerations
Direct employees are hired on a permanent basis, which means the employer does not need to find someone else for the task at any point in the future. If the task is one that doesn’t occur frequently, however, it might be more expensive to hire someone on a permanent basis rather than hiring someone on a contract or indirect process for as-needed work.
What All This Means for You
So, what does it mean to you when it comes to hiring someone new for your business?
It means you need to weigh out the options and decide which is going to be the best way to go for you. That way, you can make a decision that works for your business, the rest of your team, and more.
When considering whether you want a direct employee or not consider:
- How long is the job/task they will perform going to be needed?
- How much will it cost to hire them on a permanent basis versus hiring someone on an as-needed basis?
- What kind of wages/salary/bonuses/benefits will you need to offer a direct employee that you don’t have to offer a contract/indirect employee?
- How much time/effort will it take to hire a direct employee versus hiring a contract or indirect employee?
- Are there special skills or qualifications that are absolutely necessary for this task/project or could someone with less specialized skills perform it?
- What kind of legal requirements would you be required to follow under the US Labor Department if you hire a direct employee versus an indirect or contract employee?
Keep in mind the fact that direct employees tend to have more loyalty to the company they work for. They’re likely going to interact directly with your team and build relationships there. They will likely feel more capable of offering suggestions and support within the team.
Overall, there are going to be a lot of benefits that you won’t find with other types of employees. But if the questions above don’t seem to support the idea of a new hire … well, you still have the option of an indirect or contract employee.
Shifting Work Trends: The Rise of Flexibility and Contract Employment
Once upon a time just about everyone worked for an employer as a direct employee. Not only that, but they also stayed with that same employer for their entire working life.
But that’s not the case anymore. At least, not all the time.
Nowadays many people jump from one job to the next quite frequently. They find better hours, better benefits, better pay or they just decide they want to try something new. And for any of these reasons (and any others) they decide to move on.
Not only that, but people are now looking for more and more freedom when it comes to their employment. As a result, they’re starting to look for more flexibility in the job they take on, which is where more and more people are looking at contract employment.
Where indirect employment often benefits the employer (employees then are required to find new jobs when the old contract ends and often don’t have a lot of protections), contract employment often benefits the employee.
Why Contract/Freelance Employment is Rising
Many potential employees are starting to look at contract or freelance employment as a great option because it gives them so much more freedom. What’s so great about it for the employee?
- Set their own hours.
- Pick up more or less work when they want to.
- Take on assignments/projects they want and refuse those they don’t.
- Work from anywhere.
- Set their own hourly/salary rates.
- Short-term assignments.
All of these things can make for a great opportunity for a potential contract or freelance worker. But they can be a bit of a drawback for employers.
Employees being able to set their own hours to do the work means you may not have as much direct communication or oversight into what they’re doing or when. You can set a deadline for the project but can’t easily require that it be worked on between 9am and 5pm, for example.
You’re also not the only employer that this individual is working on, which means that while you may be able to contact them anytime throughout the day your project may not be what they’re doing at that time. Your job is being done alongside several others and may have higher or lower priority.
When your employee doesn’t directly work for you they also aren’t tied to a specific location. You can’t require them to live in a local area, which means you may never actually meet them face-to-face or it might be difficult to schedule even Zoom meetings because they might live in a different time zone. Communication may be strictly through text means.
You can choose to hire or not hire specific individuals to work with you on a contract/freelance basis, but each individual is able to set their own hourly rates. You can then accept or refuse that rate, but that doesn’t mean you’ll find someone at a rate that you want. Or find the person you want at a rate you want. You may be forced to pay more than you wanted for the worker you get.
Finally, these tasks are all short-term. That means you’re hiring someone to work on a specific task. But next time you need that same task completed you’ll need to go through the process of finding someone all over again and that person might not be available. Also, they tend to have less loyalty to the employer because it’s a short-term assignment.
Should You Hire Direct?
So, it all comes down to the big question, should you be hiring direct employees or should you be hiring contract employees?
That’s not a question that we can answer for you. Rather, that’s something that you’re going to have to answer for yourself by taking a closer look at all of the information that’s contained in this article, as well as any information about your business directly.
Think about what’s best for your business, including whether you’re going to need this person over the long-term, how much it’s going to cost you to hire someone new each time you need the task completed, what kind of benefits you’re going to have to offer, and what requirements are involved to complete this type of task.
You want to know that you’re hiring someone who can do the job, do it well, and be a benefit to your company, no matter what type of employee you choose to hire.
A direct employee might be the best way to go. But on the other hand … going contract/freelance just might be the best option for you and your potential hire.