Direct Hire vs Outsource Contract
Last updated: February 2025
Quick Comparison
| Aspect | Direct Hire | Outsource Contract |
|---|---|---|
| Control | Full control over the individual's work | Control over outcomes via SLAs, not how work is done |
| Cost structure | Fixed costs (salary, benefits, overhead) | Variable or fixed service fee; costs can flex with demand |
| Risk | Employer bears employment risk | Provider bears delivery risk within SLA terms |
| Capability | Limited to internal talent | Access to provider's specialist resources and scale |
| TUPE implications | Not applicable | TUPE may apply when outsourcing an existing function |
What Is a Direct Hire?
Recruiting an individual as an employee or contractor to work directly for your organisation under your management and control.
Key Features
- • Full control over the individual's work and priorities
- • Direct employment relationship with associated rights and obligations
- • Investment in recruitment, onboarding, and retention
- • Builds internal capability and institutional knowledge
Best For
- • Core business functions requiring ongoing commitment
- • Roles needing deep integration with your team
- • Situations where control and IP ownership are critical
What Is a Outsource Contract?
Engaging a third-party provider to deliver specific functions or services, typically managed through SLAs and a commercial contract.
Key Features
- • Third party delivers defined services or functions
- • Provider manages their own staff and processes
- • Governed by SLAs, KPIs, and contractual remedies
- • Client focuses on outcomes, not how work is performed
Best For
- • Non-core functions such as IT support, payroll, or customer service
- • Scaling quickly without recruitment overhead
- • Accessing specialist capabilities not available in-house
When to Use a Direct Hire
Hire directly for core business functions where control, IP ownership, and team integration are essential. This is the right choice for roles that define your competitive advantage.
When to Use a Outsource Contract
Outsource non-core functions where a specialist provider can deliver better quality at lower cost. Ensure your contract includes clear SLAs, exit provisions, and consider TUPE implications.
Which Does Your Business Need?
Most businesses use a combination. Hire directly for core, strategic roles and outsource non-core functions to specialist providers. The key question is whether the function is a source of competitive advantage (hire) or a commodity (outsource).
FAQ
Does TUPE apply when outsourcing?
Yes, TUPE (Transfer of Undertakings Protection of Employment) Regulations 2006 may apply when you outsource an organised grouping of employees. Affected employees transfer to the new provider on their existing terms. Due diligence and employee consultation are required.
What should an outsourcing contract include?
Key provisions include: detailed service descriptions, SLAs with measurable KPIs, pricing and payment terms, governance and escalation procedures, data protection clauses, TUPE provisions, exit management and transition assistance, and step-in rights for critical failures.
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