Is Contract-to-Hire a Good Option?
Contract-to-hire is gaining in popularity, particularly in the IT world. Today’s technology innovation requires increasingly more skills. Not many people are proficient with every legacy and emerging technology, creating a gap in the skills needed and capable resources. An Indeed report found that the tech sector still has a smaller pool of candidates per job opening that those in the broader economy. If an organization is lucky enough to have found a Jack (or Jill) of all trades, they’ll likely have to pay a pretty penny to hire and keep them from moving elsewhere.
For some, the pressure is too much and the budget is too little. To fill the gap, they look at what skills are necessary to complete a project, then cherry-pick talent for those particular skills. But here’s the rub: not every project needs that specific skill, at least not right now. That’s where contract-to-hire comes into play.
Benefits of Contract-to-Hire
Unlike a pure contract hire that is brought in for a particular time period for a particular project, a contract-to-hire scenario is more flexible for both the contractor and the hiring company. Typically, the company hires the contractor to fill a position requiring a certain skill set, and the intention is the contractor will be converted to a permanent employee at the end of that contract duration. It’s a “let’s see how this thing goes” type of thing for both parties. Not a bad option when you think about it.
Let’s dig into some of these benefits to contract-to-hire for an organization. Keep in mind, it’s likely a good idea to balance your contractors with full-time employees for a more solid foundation. Startups are notorious for establishing a permanent executive contingency and then hiring a slew of contractors to get the ball rolling. While this may speed staffing and provide the budding company with a wide variety of skills on the cheap, it can build a shaky foundation. Contractors come and go, disrupting projects and creating inconsistencies in quality and the customer experience.
Find the right mix, however, and you can keep your IT department humming.
Benefit #1: Longer Trial Period
There’s a funny thing that happens when you hire a permanent employee: you’re stuck with them, at least for a time. From the candidate’s perspective, they may be thinking the same thing. They get into the door after being told of their position, only to find out the job wasn’t what they expected. Stuck. Sure, both employer and employee can look elsewhere, but the search and hiring process is exhausting and expensive. Many simply make do until they something better drops into their lap or they can somehow eke out a little value from the deal.
As stated earlier, with a contract-to-hire gig, both the employer and the employer can feel things out a bit before a commitment is made. Both parties are fully aware that if the job doesn’t go as expected, there’s an easy way out. Similarly, if things do go well, a permanent position is ripe for the picking. No onboarding. No training. No culture clashes. Just a change in paperwork and pay, typically a benefit for the contractor.
Benefit #2: Role Flexibility
We’ve all been there. A project gets slated, resources are assigned, budget is allocated, and then things change. It’s also common to hire someone for a particular role, only to discover they have other skills that can benefit the organization. Maybe they’d be more valuable elsewhere. Change is the only constant, so they say, and contract-to-hire often allows for more wiggle room than a permanent hire.
In these circumstances, a company can define that role clearly during the contract-to-hire phase, then shift that role during contract renewal or upon hiring. Further, many contractors are more willing to make those shifts in order to secure future employment. There is often less friction when asked to take on a new role. In this way, organizations are better able to quickly adapt to change, allocating and reallocating resources where they are most needed.
Benefit #3: Budget Friendly
Budget always comes into play with hiring. Contractors are typically less expensive than full-time employees. If a full-time headcount is not in the budget but outside service spend (OSS) is, contract-to-hire is a great option to fill the gap until that full-time headcount budget is available.
Related: The True Cost of Hiring Talent
As Kimberlee Leonard says in her Small Business – Chron.com article, “Salaried Vs. Contract Employees”, “The costs factored in with salaried employees includes fringe benefits such as health care and retirement, plus sick time and vacation time. There is also office overhead and general and administrative costs. These costs can take the hourly cost of a $40-per-hour employee and make the effectively hourly cost $80 per hour. If you are paying a contractor $60 per hour to do the same job, with little or no overhead, you are saving money.”
Additionally, companies often hire contractors to satisfy a particular role for a period of time. They are only paying for that resource as needed. Even with the contract-to-hire scenario, companies can be more selective on who they hire, which projects those contractors are placed, and how long they will be there. If the contractor proves their worth, particularly if they demonstrate broader skills that can be utilized elsewhere, they may be hired and get a bump in pay if the budget allows. If, on the other hand, they aren’t a good fit after all, the company may decide not to hire at the end of the contract and simply hire another contractor (at a cheaper price).
The Benefits of Working with a Staffing Agency
For some contractors, the lack of benefits provided in a contract-to-hire position can be off-putting. They want the flexibility of a contracting job but the security of a regular paycheck and healthcare benefits. There’s a solution for that, too, at least with some staffing agencies who are willing to foot the bill. “We offer our contractors full benefits, including healthcare, so they can remain a W-2 employee while working for their potential employer,” says Jeff Anderson, CEO and co-founder of Zilker Partners, a leading IT and digital staffing agency in Austin and Denver. Candidates who work with agencies willing to provide those benefits have the best of both worlds.
By removing a major disadvantage of contract work and extending the length of the contract period, candidates have more freedom to make sure the company, culture, boss, colleagues, project, etc. are a good fit. For the hiring company, partnering with a staffing agency has its own benefits. The hiring company can be more certain that their contractor is more likely to want to stay at the end of the contract. Good staffing agencies will only recommend contractors that they’ve already vetted and aligned with the company’s mission, goals, culture, etc. Instead of the company hiring a contractor solely based on a skill, hoping they’ll be a good fit, they can trust their staffing agency to select only those contractors who can ease right into the job and quickly become part of the team.
How Long Is The Typical Contract Before Hiring?
The recommended contract-to-hire term is six months. Many employees won’t leave a permanent or contract position for a contract of fewer than six months. If the contract is less than six months and the person is unsure if they’ll convert to a full-time employee, they will always be looking during this phase. Not exactly to the employer’s advantage.
Employers should set proper expectations. By communicating to the contract-to-hire employee that six months is the longest the conversion to a full-time employee would take, they may be able to relieve some anxiety. Oftentimes, the conversion happens in a matter of weeks or a couple of months if the contractor and employer feel like it’s a right fit. Even though the employer will have to fork over more budget for a full-time salary and benefits, if the contractor is delivering measurable value, they’re a real asset that mustn’t be lost.