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

Professional using a pen to fill out an employment contract

In recent years, the number of employers looking to hire contract and temporary employees has risen drastically. A recent poll conducted by National Public Radio (NPR) and Marist found that 1 in 5 American jobs are held by a worker under contract. Within a decade, contract hires and freelance positions are predicted to make up half the workforce.

So, what is contract staffing and why is it becoming increasingly popular? It essentially gives businesses the ability to “hire on-demand;” enabling them to meet their exact capacity at any given time with contract hires vs direct employees. This essentially provides limitless workforce options for both the short and long-term. The flexibility and scalability that contract staffing provides can help drive your business growth strategy.

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 the primary contract-to-hire pros and cons for your consideration.

What Does Contract-To-Hire Mean?

Contract-to-hire is when the employee (or contract hire) is placed in a short-term position for a set period of time, with the possibility of being brought on 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 Versus Direct Hire

The primary difference between contract-to-hire vs direct hire employment lies in payroll structure. Whereas direct hire recruiting immediately makes the new hire an employee of the end-user company, a contract hire 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: 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 is not 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.

Contract-to-hire recruiting 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 is also a drastic life change for the employee. It has 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 are not 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 are 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 are not enjoying the role or simply are not a culture fit, they can move on to something else after their contract has ended — without any lasting negative impact on either party.

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 hires 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.

If your 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 pro #4: Staffing flexibility

Being over-staffed and paying salaries and benefits for employees you do not really need is wasteful. At the same time, you do not want to risk being understaffed and unable to complete your current workload. Contract staffing allows your business to avoid these two extremes by meeting your exact capacity — especially when it fluctuates due to seasonal or project-based needs.

For example, if a client asks you to work on an especially large assignment or you have a unique one-time project, flexible staffing can help you fulfill those needs immediately. You will have access to the additional brainpower and hands you need to get the job done and will then be able to scale back once it has been completed. This method of staffing can also help your business combat seasonal ramp-up challenges, which are very common in the hospitality and retail industries. By bringing in additional employees you need specifically to handle the busiest shopping or travel seasons, they will not be sitting stagnant on your payroll once the slow season returns.

Contract-to-hire pro #5: Savings on specialized skills 

Oftentimes, completing a unique project will require skills you do not already have in-house. In this case, it would not benefit you to hire a full-time employee if you only require these skills to complete a short-term project. To combat this skills gap, employers are turning to contract workers.

Simply put, contractors can help you complete projects that require skills and experience your full-time staff does not have. This way, specialized jobs can be completed in a cost-effective way — you will not need to spend time and money training the employees you do have on additional skills they will only use once. Especially if you have a project that requires highly in-demand or very niche skills, contract workers can help you get the job done efficiently and effectively without having to pay them for more time than you are actually using.

Contract-to-hire pro #6: Accommodate growth 

You cannot always predict what the future will hold — especially in business. If you secure a new client, extend a project, or expand the scope of an existing contract, you may not be prepared to meet capacity. So, you may be wondering how to scale up your business on such short notice. One potential solution? Contract staffing! This is a solution that helps you stay productive during these times of unexpected growth by making it possible to quickly hire the help you need.

Even if you can predict when growth or expansion is coming, it can be difficult for your full-time employees to take on that additional work themselves. After all, they already have a full workload. When this occurs, you can leverage contract staffing and freelance positions to complete any extra work necessary during times of rapid expansion. This way, if your business is expanding into a new territory or introducing a new product or service, you can fill immediate capacity gaps — then scale back down once start-up tasks have been completed and the dust has settled on that big new project or offering.

Contract-To-Hire Cons

Contract-to-hire con #1: Thepossibility 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 is 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 is not happy with a contract hire, there is a good chance the employee was not happy with them either. In this case, it is best for both parties to find a better fit for the future than sticking with someone who is not 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 will 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 is not 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 are 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 hires, 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?

To see success with contract-to-hire positions, it is vital that you are 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 more than a decade, our experts have exemplified this candidate-focused and client-driven work ethic. We help businesses in the Central Florida area and beyond to 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.

Pete Newsome

About Pete Newsome

Pete Newsome is the president of 4 Corner Resources, the nationally acclaimed staffing and recruiting firm he founded in 2005. His mission back then was the same as it is today: to do business in a personal way, while building an organization with boundless opportunities for ingenuity and advancement. When not managing 4 Corner’s growth or spending time with his family of six, you can find Pete sharing his sales and business expertise though public speaking, writing, and as the host of the Hire Calling podcast.