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Here’s the Deal with Contract to Hire Positions

Contract to hire…
If you’ve been in the job market lately or have had a recruiter reach out to you, it’s likely that you’ve heard the term contract to hire recently. What is a contract to hire position? What does it mean for you as a job candidate and how should you approach a scenario that involves contract to hire roles.

We get to it all below.

But first, who am I and why should I even be discussing contract to hire positions with you. Well, my name is Rob Paone and I’m a former technical recruiter who has written this article, which is sponsored by CareerBloom.co The No.1 Professional Resume Writing Service of 2017.

You see I’ve placed countless professionals in contract to hire scenarios in my past career, before moving into the software sales world.

The fantastic thing about being a former recruiter is that I’m not here to feed your BS about “how great contract to hire positions are!” or how they give job candidates all the flexibility in the world.

I’m here to shoot you straight with the facts, so if that’s what you’re interested in, let’s get started.

In today’s current economic environment, the utilization of 3rd party staffing agencies is increasing at a significant rate. Many companies either prefer to use staffing agencies instead paying for large, in-house recruiting teams, or their internal recruiting teams can’t get the job done so they hire outside help.

When you’re in the process of evaluating jobs through a 3rd party staffing or recruiting agency, a term that might be spoken about quite often is the “contract to hire” or “contract to permanent” placement scenario. It’s something that you might not be familiar with now, but trust me, it’s time to get familiar because it’s not going away.

Using my past experiences, let’s look into exactly what a contract-to-hire (or contract to permanent) position is and the potential outcomes that can result for them. Definitely read through this before you ever sign on the dotted line of a contract to hire contract.

What is a contract to hire position?

A contract to hire position is a term used in the staffing world to describe a position where you are placed at a company, initially as a contractor making an hourly rate. Following a specified time period, typically three, six or twelve months, your employment is evaluated and you are then made a permanent full-time employee. Once a full-time employee, you no longer have any ties or connections to the recruiter company that placed you.

With a contract-to-hire position, you are placed with the INTENTION of going from a contract employee to a permanent employee, although neither the recruiting agency, potential full-time employer or yourself are under any contractual obligation to make sure you convert to permanent employee status.

Contract to hire can be a great thing for an employee and an employer, or it can really hurt an employee. Let’s be clear here. The employee is the one taking the risk in a contract to hire, not the employer. That’s why the employer is finding this employee as a contract to hire, to “try before you buy” and find out if you are as great as you say you are, before paying you a nice salary.

The employee also gets the benefit of “trying before buying”, however, he/she is taking on a much greater risk in the process than the future employer.

Doesn’t sound all that great for a potential employee, does it? Well, it depends on the outcome of your situation. And in the case of a contract to hire position, there are really only 3 distinct possibilities that can eventually occur. Let’s break them down.

1. You convert permanent:

This outcome is obviously the one that occurs in the ideal world. In this scenario, you’ll go in and do a great job at your position and the employer will be pumped to bring you aboard as a permanent employee.

I’ve placed contract-to-hire workers, absolutely KILL IT at their jobs, and get brought aboard permanently before their original conversion date.

In this scenario, you’ll go from making an hourly rate on contract and then seamlessly get switched over to a salaried, full-time employee on a Monday, typically after working your last day as a contractor on Friday.

2. You stay on an extended contract:

Let’s say you signed on for a 6 month contract-to-hire and the 6th month comes around. You’ve been expecting to convert to a permanent employee, but your boss let’s you know that’s not going to happen.

It’s usually because you’re either very average at your position and your employer doesn’t need you in a full-time role, or because the company is going through internal changes and doesn’t have the money to allocate to another salary.

This isn’t the ideal situation because you don’t receive the benefits of a permanent salary position, but if you’re still working as a contractor, you’re still making money and there’s always a chance you’ll still go full-time.

This isn’t necessarily a positive outcome, but it could be worse as we’ll find out below.

3. The contract is not extended or you’re fired:

Worst case scenario, duh…

Typically this happens for two reasons, you’re really bad at your job or the company is going through some type of internal change and you unfortunately have the least amount of baggage for the employer to let go.

When it comes to firing a contractor, it’s a pretty easy thing for both the end-employer and staffing agency to do, so you have to make sure that you try your best to make a great impression.

Judging from my own experiences though, the people that get fired in a contract-to-hire position are the same people that would have been fired if they were permanent employees. These are the useless employees; the ones that literally sleep on the job, show up 2 hours late day after day, lied about their resume, etc. Getting fired in this scenario is something that’s your fault, not the fault of the employer or staffing agency.

For even more details on what the heck contract to hire is and how it relates to you as a potential source of employment, I’ve created this video below to walk you through the subject at a high level.

Why do companies use contract to hire

After going through the potential outcomes of a contract to hire job, you might be wondering why it is that a companies use this method? There are a few main reasons. Often times, contract to hire is pushed by the recruiting agency that a company is working with because it can be more profitable than simply placing someone directly with the company and charging a percentage of their salary.

Additionally, some companies like the flexibility of contract to hire because the burden of paperwork, benefits, and firing an employee all lie on the recruiting firm, not the employer.

This makes their lives a bit easier, especially if they’re looking to bring someone into the building quickly, or kick them out of the building equally as fast.

Concluding Advice

In today’s working environment, contract to hire is a pretty common thing. The idea of “try before you buy” for employers isn’t going anywhere in the near future and it will likely increase in prominence in the coming years.

My best piece of advice for anyone thinking about a contract-to-hire position or currently working in one is to bust your ass every single day of employment as a contractor. You can’t give your future full-time employer a reason to not bring you on permanently, you have to show them every day why you’d be an awesome asset to their team. If you’re not willing to do that, I would advise against taking a contract-to-hire position.

Don’t take anything for granted, don’t slack off. If you go in every single day with a bad ass attitude and kill your job during the contract period, you will get brought on as a permanent employee 90% of the time. I’ve seen this and I know this to be true.

Do you have any questions about your own scenario? Drop it in the comments section below. If you’re in this position now, it also might be good to see how you can negotiate with recruiters in a contract-to-hire position!

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21 Responses
  1. Wiley Post Wilson

    I’m in IT and have been offered a c2h position after a subcontractor I worked for went under. That company recruited me heavily after only a year at a prior job. Now it looks on paper like I’m job-hopping which can be a death sentence to a good career. So let’s say I’m one of the 10% who gets cut from a c2h position due to circumstances beyond my control. I just don’t trust the process…it seems like giving too much to an already untrustworthy business climate.

  2. Babs

    Other than working my ass off, which is pretty much what I’m doing, what else can I do to influence the decision to convert to full time. In my case I was told the contract term is 6 months with possible conversion to full time or extension. My employer has already told me they would like to extend me (my contract expires in Jan 2017) and they don’t want to lose me. I was less than enthusiastic when they told me that although I faked a smile and tried my best to hide my disappointment. They told me I didn’t need to answer right away and to think about it.

    1. Brian

      This is a tough situation and I feel like I’m going through something similar. I’ve been at my contract to perm type of job for now 7 months and I have been doing a great job. They keep saying that they like me and all that. They had me interview for the full time role starting around the 6 month mark, instead of giving it to me. I had my 2nd and final interview role and depending on if they bring me on full time, I will have to make a decision on what my future is.

      Honestly, if you have been at the place for at least 6 months and that’s how long your contract was, I would start looking at other places if they decide to not bring you on full time. Find a job that’s actually a full time opportunity, if they don’t appreciate you enough to bring you on full time. Still stay at your current job, until you find a new one. I might do that myself if they decide to hire someone else for the full time role. I should hear by Monday if I’m being brought on full time.

  3. Brittany Marie

    Rob,

    Regarding pay…I’ve been in a contract to hire for two months. The company has made room for me and opened a permanent role during an alleged hiring freeze. My direct manager stated, “You’re an asset to the company plus we’ll SAVE so MUCH money by not paying the fee beyond the aquisiton costs for breaking the contract”). I want a raise. I’ve lrrady saved the company $12,500.00 by teaching the PM how to negotiate; I’ve created a new software platform for collaborative work, and I’m worth it. Any thoughts on how to find out what they were paying the recruiting vompany to try and get the total fee they were paying.

    Thank you,

    BK

    1. Greg

      Usually it’s almost a 40% premium these staffing agencies charge. Don’t forget though, the staffing agency saves the company from paying for benefits and overtime, which eats into that 40%.

  4. Siobhan

    You’re missing something pretty big in #3:

    Many “contract” positions have the rule that you will bill hourly, not more than 40 hours per week. However, many companies using these contractors, expect that the contractors will be at their beck and call for free around the clock, and working-but-not-billing on evenings and weekends. While exploitative and illegal, this is a common scenario in at least one large company in my city due to the inherent imbalance of power.

    I have had a VP scream in my face that he would have me deported if I didn’ t work for free all weekend. I asked him how that would work given that I was born here in the US. I have known fellow contractors to be called racial slurs, have stuff thrown at them, and worse if they won’t work for free.

    Several weeks following this incident, I was told my contract would not be extended. I still see these coworkers socially, including my Director, who gives me truthful glowing references.

    My fault?

  5. Bob

    this article misses a couple of points. A) contract-to-hire or even just contract positions are rampant in USA IT departments, and still growing in number, therefore there must be a business sense to it that was not discussed. for example, how do IRS requirements for the hiring company differ for full-time perm employees than for contractors? B) regardless of how much or how little you get paid, you have no more security in your position than the high school aged kid who cuts my grass. you are completely at the mercy of the company who “contracted” for you, but you have no say in the terms of the “contract”, so for you it is not a contract at will; C) there is MUCH abuse of these kinds of contractors with little to know hope for permanent employment regardless of your fantastic performance in that position. United Airlines is a well-known abuser, but there are many others, and it shows just how non-existent are our labor laws for these types of workers. Company X was paying company Y $140/hour for my services and finally decided to offer me the same job but as a full-time permanent employee, unfortunately, they were only willing to offer $45/hour — yes, with benefits, but do the math before you respond. So you see, the money is available. Company X just refuses to share it with their employees. And after turning them down, I am still a contractor to Company X !! Go figure.

  6. Thanks so much for your advice about not taking anything for granted and not slacking off when you’re working on a contract that you hope to turn into a permanent position. I would imagine that any employer who hires contract laborers with the potential to turn into full-time employees would be looking for a strong work-ethic to make their investment worthwhile. Assuming the position is yours and letting your work go a little bit sounds like a surefire way to avoid getting that permanent position.

  7. Mat

    I am in bit different situation. If anyone can suggest what my options are . I am on contract to hire position in IT via recruiting agency. It was 6 months contract to hire. They attempted to hire me after 3 months by looking at my work but I asked for my desired salary instead of the silly contract I signed with recruiting company and negotiation did not go through. I told them I can work as contractor as long as you need. They kept me after 6 months and now it’s been 2 years me working there as contractor. Now they want to bring me on board with my desired salary but my priorities have changed and I do not want to go on board. What is my option? Would I be still obligated to go on board. They are really trying to identify indirectly why I don’t want to go on board and I told them I don’t want to settle. I can work here until you guys need me than you let me know. I went up to a point that i will not drop a ball on you and will at least provide advocate notice. Recruiter also want me to go on board so he gets finders fee. I am curious if Recruiter can claim loss if i don’t go on board from me.

  8. Teresa

    I had 2 contract job offers come in and took the one that seemed had a better chance for going permanent, when the recruiters said that the client wanted me to consider the job as an interview for a permanent position they had available on the same team. However, on my first week, the client was already interviewing to fill that role. Then a second position became available the second week and they were already trying to fill that too. Same job titles as mine. And I am the only contractor on their team. Feel bad that I wasn’t asked to at least interview for those spaces. To find out that I was contacting for a lady going on maternity leave and that she was not coming back, yet they were already interviewing full time candidates for that role the 2nd week I was there.

  9. Jane

    My exsperiance working as a temp to ” perm ” employee has been beyond anything I could have imagined.
    It has been almost a year , I was turned down with a generic letter from HR about 4 months in for a permanent position. The turnover for the same position I am still doing for permanent employees hired then fired or quoting exceeds 15 and the temporary employees at least 20 come and gone . I am the only one left standing. The company has had desperate campaigns looking for employees to hire to do the job I have faithfully, compliantly and adherenltly at 75 % the wage , no benefits as my new co workers .
    I have sat in a seat while a newly hired temps were given gifts during an appreciation week for employees while not receiving any after 8 months there only to watch these values employees be fired within the first two weeks of there employment.
    My temporary agency does not answer my calls , changed my tax allocations to the negative for me without permission and extended me with one day notice by a congratulatory email for 31 days .
    All while the company made several temps that just started when they show up permanent employees:)
    I have no way out , no paid time off , no answers stuck making next to minimum wage as a temporary worker with no record of the hard work , dedication and knowledge I’ve gained over the past two years – as my temporary agency stated they are not your employer no reference or work history will exist for them .
    Knowing what I know now I would advise against temporary employment at least in my venue if you are someone who possesses “old school ” work ethics and treats your job as if it was your own , you may feel a hard hit realization that the world is not quite in line with your values.

    1. Terry Ruby

      Jane
      Keep your Chin Up.
      You never have a rainbow
      Till u have the RAIN.
      Jane,
      I’ve been there there last3 yrs
      Temp services
      Got hired this past Fri.
      Permanent

  10. L

    Something you forgot to mention is your contract salary vs. your permanent salary. They’ll know you want the position, but in no way are they contractually obliged to pay you the salary you were making as a contractor. So you could take a deep pay cut going permanent because they know you’ll have nothing else to leverage. I’m currently being offered a contract to hire and I’m thinking of not taking it. I don’t like the idea of the unknown in three months.

  11. Rob

    Like much of you, I disagree with much of the assumptions of this article. It presumes that companies who engage in Contract to “hire” will fulfill their promise at whatever designated time. But here are my lessons from my experience in Contract and C2H.

    1 * In my experience you don’t get full time unless you are invaluable after said time and you make sure they know it.

    I started from college in temping and managed to secure my first C2H after 6 months in healthcare only by being a bad-ass at the job and forcing their hands. One person was leaving and I reminded my manager every week in person (and the HR lady) of my intent to fill that role. I was a P.I.T.A. Persistence works…mostly.
    But the lesson is: if you have no leverage, you aren’t worth fighting for. If they know you blew past the “hire” date and haven’t left by then… you’ll never leave. So no reason to convert someone who doesn’t value themselves.

    2 * Learn all you can from your current contract and DOMINATE your job along some semi-related or unrelated ones related to the business.

    In the event they do hire you, you’ll have an impressive HR interview and could negotiate your salary well. Just in case they don’t deliver, LEARN ALL YOU CAN from the start, re-title your job if need be to market standards, and move on to greener pastures. USE THEM as much as they planned on using you and go out to advance your career to a better job. You’ll be pursued more and maybe get full time out the gate from a better company.

    3 * Don’t fool yourself into thinking a specific industry will hire a generic office worker.

    My experience in Oil and Gas told me that they never want to hire anyone that isn’t a CORE asset to the business (Scientist, Banker, Trader, Engineer, Chef… etc.)
    You can tell who they would retain by the background of your manager & VPs. If you work as an assistant or IT guy and your managers are O&G Engineers… forget it. They value Engineers and Scientists (or whomever) like them more than generic business labor. So bust your ass like #2 and seek better prospects.

    4 * If they treat you poorly (like a redheaded stepchild) or don’t deliver on their promises, take the money and keep looking.

    Their dirty little secret is, it’s better to keep you off the Administrative budget and essentially reclassify you as an instrument instead. Yes, I have been in the position of C2H but was told “It wasn’t a good time to convert” due to budgeting. Yea….budgeting in terms of balance sheet accountability. I saw exactly what they were laying out for me bi-monthly and it was insane. But only because there was a separate account to fund it. Faced between justifying a ballooning HR budget and buying office equipment… I was essentially the copier they kept around for several renewals.

    4 * Another thing… If they didn’t hire you the first contract… don’t try them again.

    Network like your life depended on it. Keep in contact with everyone who liked you at work and school friends. If they tell you a company is bad for X or Y reason, listen. You can avoid heartache and a bad career move unless you’re broke… in which case #2 again. And if they offer you another C2H or just pure contract… STAY AWAY if you can.

  12. Temporarily Travis

    Love my temp job! I slack off all the time and they extended me from 6 months to 12. It is awesome not having to buy into the twisted “company culture” because hey, it’s not my company and I don’t care. I honestly may never have another “permanent” (no jobs are really permanent, anyway people!) job ever again. Temp work is the good life!

  13. Kendall

    Rob, thanks for the helpful article. I also really appreciate the real-life feedback from the Commenters. I’d like to get some insight. Here is the background:
    Tomorrow, my hubby is doing his third interview for a 6 mo C2H position for a newly formed cyber security co from acquisitions. Like Rob mentioned, 90% of recruiters contacting him are about C2H opportunities.

    The agency recruiter has let him know he’s the ONLY applicant – internal or external, so unless the interview doesn’t go well, or he doesn’t want it, it should be “go”. This situation could go be great or not so much. During his phone interview w/a Sr Exec, he realized the role is far greater, with more responsibility than the req is written – or he’s being paid. He came away thinking he should be paid double. The recruiter is being squirrelly about $ and salary conversion. Lastly, he just got called for a direct hire dream job w/a 30 day interview cycle.
    So – here are some questions:
    1) Since the employer & the recruiting agency are under no obligation to hire or extend him, etc, does he have the same options?

    Is he contractually bound to stay the 6 mos? This article started “before you sign…”. If he isn’t contractually bound, he could theoretically be available to interview for a direct hire. Thoughts?
    2) Is the recruiting agency 40% mark-up standard? He’s going to get $75/hr.
    3) Who negotiates the conversion salary, the agency or the ? Since he believes the role is larger than spec’d to the agency, which the employer may have done to restrict fee to agency – he doesn’t want to be locked into a salary.
    Thoughts?
    5) Has anyone been a C2H WITHOUT a billable limit of 40/hrs a week?

    Am I missing anything? Thank you!!

  14. Matt Morgan

    I’ve been with a Company for 7 months as a Temp. I was told by both the company and temp agency that I’d be brought on full time after a 3-month period. Then it was 6-months. Last week I found out that they’re not bringing me on because of “Budget Constraints.” I’ve busted my ass for this company, haven’t taken any PTO (because I don’t accumulate any) and don’t see why I should stay on. They say that they’re considering their needs and I’m calling bullshit on that one.
    It’s a sorry situation and I’m not going to stick around to see what happens next. While the pay is really good I don’t get to enjoy all of the benefits that all the full time employees enjoy. And one more thing, I’m the *only* temp employee (Windows SysAdmin/Oracle DBA/Weblogic DBA) in the company currently.

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