3 Contract-to-Hire Pros and Cons You Need to Know

April 18, 2019 4 Corner Resources 4 Corner Resources

In recent years, the number of employers looking to hire contract and temporary employees has risen drastically. In fact, nearly 85% of companies are planning to add contract-to-hire positions to their future workforce structure, with nearly 30% having already done so.

Wondering if you should join this trend and leverage contract-to-hire positions in your business? There are numerous pros and cons of contract employment. To help you make the most informed decision, our team of recruiting experts have covered the contract-to-hire basics and compiled three primary contract-to-hire pros and cons for your consideration.

What Does Contract-to-Hire Mean?

Contract-to-hire means a candidate is placed in a short-term position for a set period of time, with the possibility of being hired as a full-time, direct employee at the end of the contract. Contract-to-hire positions should not be confused with independent contractors who are self-employed. A contract-to-hire employee is still under contract to work for a company, but is technically employed by the staffing agency that recruited them.

How Does Contract-to-Hire Work?

When leveraging a staffing agency to fill contract-to-hire positions, they will handle many of the front-end recruiting tasks, such as sourcing candidates, reviewing resumes, and conducting initial screenings. Once a candidate has moved through these stages of the process with the staffing agency, they will be passed along to the client for any final interviews. The end-user company will then make the final decision, with insights and guidance from the staffing agency if needed. Once a candidate has been selected and their offer has been accepted, they will begin their employment contract on the staffing agency’s payroll rather than the client’s.

The duration of a contract-to-hire position can vary from as short-term as one month, to being indefinite, but they most commonly run from three to twelve months. In nearly all situations, the client will have an opportunity to convert the contractor to a full time hire in a manner that meets their unique needs at the time.

Contract-to-Hire vs Full Time

The primary difference between contract-to-hire vs full time employment lies in payroll structure. Whereas direct hire recruiting immediately makes the new hire an employee of the end-user company, a contract-to-hire employee will be on the staffing agency’s payroll for the duration of their contract. If a full time hire offer is made at the end of the contract, the employee will be transferred to the client’s payroll at that time.

Contract-to-Hire Pros

Contract-to-Hire Pro #1: An Expedited Interview Process

The hiring process can be incredibly time-consuming and tedious — and HR departments are often so busy with other tasks that dedicating ample resources to making strategic hires can be difficult. This is why more employers are turning to staffing agencies to help them place contract-to-hire employees, as it eliminates many stages of the hiring process. The staffing agency will handle all of the time-consuming legwork of finding and vetting a contract-to-hire candidate.

Making a contract-to-hire vs full time offer is perceived as less risky because the employer isn’t committing to paying a salary and lofty onboarding expenses off the bat. This often reduces the length of the interview cycle, meaning contract-to-hire candidates can start working and producing value for your company sooner. The takeaway? Contract-to-hire may be the right option for your business if you need to add talent to your roster quickly to fill an immediate need or capacity gap.

Contract-to-Hire Pro #2: The Ability to Experience a Trial Run

Hiring a new full time team member is a big commitment for your organization, and it’s also a drastic life change for the employee. It’s happened to every employer: you go through a lengthy hiring process, use valuable time and resources training a promising new employee, only to realize they aren’t going to be a fit long-term. A major benefit of contract-to-hire is the ability to minimize this risk by “trying before you buy.” The contract-to-hire process is essentially a trial run to ensure that a candidate lives up to their resume and interview, meaning fewer poor hires that lead to further costs when their replacement must be hired and onboarded.

The benefit of contract-to-hire also extends to the candidate. The modern employee wants flexibility in their work life — and no one wants to be stuck in a job where they’re not a good fit. The short-term nature of a contract-to-hire position gives the employee a trial run of both their position and the company. If they aren’t enjoying the role or simply aren’t a culture fit, they can move on to something else after their contract has ended — without any lasting negative impact to either party. The takeaway: if you feel like you need that additional time to assess an employee’s skills and personality before committing to a full-time arrangement, contract-to-hire positions may be a solution for your hiring needs.

Contract-to-Hire Pro #3: Budget Flexibility

When working with a restrained budget, contract-to-hire positions can offer a monetary advantage. A major benefit of contract-to-hire positions is that they can give companies the time they need to work a new full time employee into the budget while still getting the work done. Employees in a contract-to-hire position typically do not receive benefits, and will not be eligible for a healthcare plan or retirement savings contributions until they become a full time employee at the end of the contract. Additionally, contract employees are typically only paid for the specific hours they work rather than receiving a fixed salary.

If you think this will deter top talent from applying to contract-to-hire positions, think again. The upside here is that for many candidates working with a staffing agency, contractors are able to receive benefits through the agency if working as a W-2 employee. Make sure the staffing agency your organization is working with will alert job seekers during the interview process if benefits will be available to them during the term of their contract. The takeaway here? If budget is one of the major factors deterring you from committing to making a full time hire but you need a role filled or have capacity gaps, a contract-to-hire position can minimize upfront hiring expenses.

Contract-to-Hire Cons

Contract-to-Hire Con #1: The Possibility of Starting Over

While one of the greatest contract-to-hire benefits is the ability for both the employer and employee to experience a trial run, there’s always the chance that it may not go so smoothly. If the employer decides the contractor was not a successful fit and does not extend a permanent employment offer at the end of the contract period, a new search must begin. However, if the employer isn’t happy with a candidate, there’s a good chance the employee wasn’t happy with them either. In this case, it’s best for both parties to find a better fit for the future than sticking with someone who isn’t the exact right fit.  

Contract-to-Hire Con #2: Perceived Lower Job Security

Some job seekers may be hesitant about accepting a contract-to-hire position simply based off expectations or assumptions. For example, if a candidate is too worried that they’ll lose their position after the contract ends and have to start the job hunt all over again, they may prefer to look for a direct hire position. This will depend on the preferences and mindset of each individual candidate, so it isn’t something to stress about — but is something to keep in mind when considering leveraging contract-to-hire positions. The key is to ensure that your staffing agency partner is clearly relaying timeframes and expectations to the candidates they’re interviewing for your contract-to-hire positions.

Contract-to-Hire Con #3: Limited Candidate Pool

Typically, employment benefits such as paid vacation time, sick days, health insurance, and retirement savings plans are reserved for direct employees. For contract-to-hire employees, they would only be eligible for these perks if and when they receive a full time position at the end of their contract. For this reason, some candidates may not be interested in a contract-to-hire position, meaning your staffing agency could be working with a slightly more limited candidate pool than they would be for a direct hire position.

Why Partner with a Recruiting Agency for Contract-to-Hire Staffing?

Partnering with just any recruiting agency or headhunter that isn’t passionate about and dedicated to your needs means that you may have to go through multiple contractors before finding the best fit. To see success with contract-to-hire positions, it’s vital that you’re working with recruiters who have taken the time to understand your company and its culture so they can place candidates who have the most potential to be aligned with your long-term workforce goals.

For 13 years, the experts at 4 Corner Resources have exemplified this candidate-focused and client-driven work ethic. We help businesses in the central Florida area and beyond attract, qualify, and screen a large pool of potential candidates. As a nationally-recognized staffing agency, our adaptive and flexible style makes it easy for our clients to accomplish their staffing goals, whether that includes contract-to-hire or more traditional direct hire roles.

Have you decided that contract-to-hire employment is right for your business, or need additional guidance to reach a conclusion? Get in touch with our staffing experts today and experience the 4 Corner Resources difference when it comes to filling your contract-to-hire positions.


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