Eddy’s HR Mavericks Encyclopedia
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Contract to Hire
There are many different kinds of hires and it is important to understand each one. In this article we will explain what a contract to hire is and their pros and cons.
What Is a Contract to Hire?
A contract to hire is an employee hired for a certain period of time. Typically, the length of employment will be specified in a contract prior to the employee starting work. Often, contract hires are used as a trial period for an employer and employee to decide if it is the right fit for both parties. This is often referred to as “temp to hire” as well. If an employer finds their contract to hire employee through a staffing agency (which is most common), they also pay them through the agency. The employer pays the agency, which in turn pays the contract to hire employee. It’s important to note that agencies charge extra fees on top of the employee’s normal wage—this helps them cover the costs of recruiting and make a profit themselves. It’s up to you to decide if this additional cost is worth the money you’ll save with a much shorter hiring process. If you're currently hiring, see how you can save hours a week on your hiring processes with Eddy!
The Difference Between Contract and Contract to Hire
Contract to hire workers are not the same as independent contractors (a type of contingent worker). The main difference is that contract to hire workers are considered employees of the staffing agency that recruited them. They are on the payroll of the staffing agency, and they sometimes receive benefits (though not always). In contrast, independent contractors are technically self-employed. They work for companies on a project basis, are not eligible for benefits, and are responsible for paying their own taxes. In addition, independent contractors aren’t looking to end up with a full-time position with any of the companies they work with.
Should Companies Have Contract to Hire Positions?
Whether or not a company should have contract to hire positions depends on the nature of the business and what kind of job it is. Ultimately, it is something that each business decides. Most often, organizations use staffing agencies to find contract to hire workers.
Pros of Contract to Hire
Every type of hire has pros and cons. Contract to hire is no different. What works for each business is going to be unique, so it’s important to be aware of the pros of contract to hire positions.
- Easy hiring process. When you hire an employee as a contract to hire, there is typically little to no onboarding needed, as the employee might be with the employer for only a few months. This usually means little training is needed, which saves the employer time and money.
- Trial period. One of the biggest benefits of contract to hire positions is that they allow both parties a chance to see if employment will be a good fit long term. You are not locking yourself into anything, because it’s the expectation that the employee might only be short-term.
- Flexibility. Contract to hire positions allow more flexibility for both parties. Often it is easier to reach workable terms for the employer and employee that can be outlined in the contract. You don’t need the same guidelines or expectations you might have with other types of employees.
Cons of Contract to Hire
Just like other hires, there are also cons of a contract to hire. It is important to weigh the cons with the pros to see if this employment model will be beneficial for your business.
- Lack of commitment. Due to contract to hire positions being temporary, it can lead to a lack of commitment among employees. Temporary employees might be short-sighted on the company’s direction as opposed to looking towards the future.
- Culture. Contracted employees might not feel as much a part of the team as other employees. This can affect the culture of the team and company. Extra effort should be made to ensure that contracted employees feel connected and integrated as much as other employees.
- Potential for a breach in the contract. One possibility to consider when hiring a contract employee is the potential legal ramifications if either party breaks the contract. This can include terminating early, doing more or less work than what was agreed upon, misclassification of employees as independent contractors, etc. Every state has legal requirements when it comes to contract for hires. If an employer is found guilty of misclassifying an employee, that employer will be responsible for all past payroll taxes, unemployment taxes, plus interest and penalties. This can end up being quite costly for the employer, and it needs to be considered mindfully when deciding to hire someone for contract.
Components of a Contract to Hire Agreement
Just like any other contract, a contract to hire agreement is a legal, binding agreement and should be evaluated by a legal team. Generally, staffing agencies have generic contracts they use for all their contract to hires. If you are going to use a unique contract for each contract hire, be sure to consult a lawyer.
Compensation
In a hire agreement, be clear on how much the employee will be paid for the entirety of a contract. That should be broken down by how often they will be paid. Contract to hire workers are usually paid hourly, meaning that if they put in over 40 hours a week, they must receive overtime pay. The contract should make it clear whether the contracted hire will be reimbursed or paid more for any business expenses that occur while doing the job.
Length of Contract
It is important to specify in the contract how long the contract is for. Some contracts might allow for some flexibility depending on how long they think the job will take, but there should be a clear timeline for how long the employee will be contracted.
Severability — Getting Out of the Agreement
The agreement should specify what will happen if either party ends the agreement early. Depending on the kind of work being done and how the employee is being paid, some work-for-hire agreements will be more complex than others. Therefore it is important to be clear about what happens if either party terminates the agreement early.
Job Expectations and Guidelines
The contract should clearly state the type of work that will be done, the expectations of the job and any other relevant information to give the employee a clear idea of their expectations for the duration of the work.
Confidentiality or Arbitration
Each agreement will be different, so in some cases confidentiality or arbitration may not be needed, but it is important to consider if the work to be done needs to be kept confidential. If either confidentiality or arbitration is necessary for a contracted hire agreement, consult a legal team.
Reasons Companies Use Contract to Hire
Some of the main reasons companies consider a contract to hire is they can be cheaper, they give employers a trial run with the employee, and the hiring process can be quicker.
Contract to Hire Can Be Cheaper
Contract to hire employees can be cheaper as you don’t have to pay for taxes, unemployment insurance or worker’s comp for them. All these expenses are taken care of by the staffing agency. Contract to hires are also cheaper because little to no money and time are spent on the training or onboarding of these employees.
It Gives the Employee a Trial Run
Contract to hire allows a company to do a trial run with an employee to see if the employee and company are a good fit for each other. Hiring can be expensive and take a lot of time, so doing this can save time and money for both parties before they fully commit to something.
The Hiring Process Is Quicker
When a company decides to hire someone for contract work, they usually use a staffing agency, a recruiting agency, or someone they already know and want to hire for a job. All of these options make for pretty quick hires. When using a staffing or recruiting agency, there is typically a database of employees for different lines of work. This allows a company to find someone quickly for contract work. See the section below for more information on how to find a contract to hire employee through a staffing agency!
How to Find Contract to Hire Candidates
The best way to find contract to hire candidates is through a staffing agency. These agencies are experienced in dealing with the logistics of contract to hire, and they’ll do the heavy lifting of finding people for you to employ. Let’s review a few steps of the process.
Step 1: Choose a Staffing Agency
As you look for the right staffing agency, do some research to find an agency you’d like to work with. There are a few questions to consider.
- Is this agency experienced and credible?
- Are they familiar with my company’s industry?
- What fees do they charge?
- Do they offer benefits?
- Do they manage employee time off?
- How do the agency and company work together to correctly pay employees?
- Does this agency meet my company’s specific needs?
Step 2: Discuss Your Company’s Needs
Once you’ve chosen an agency you’d like to work with, they’ll spend time getting to know more about how your company works. Though they won’t know the culture as well as a full-time employee, they’ll strive to understand it as much as possible.This is when you fill the agency in about the positions you’d like filled. Give them as much information as you can: job title, required responsibilities and skills, company policies, and more. Recruiters from the agency will use this information to find candidates well-suited to each role.
Step 3: Let The Agency Do the Heavy Lifting
Thankfully, most steps in the recruiting process are completed by the staffing agency! If they’re already working with people who would be a good fit, they recommend them. If not, they advertise the job post, screen candidates, and conduct initial interviews.
Step 4: Interview Candidates and Decide Who to Hire
Once the agency has narrowed down applicants into a smaller group of qualified candidates, the company conducts final interviews and makes a hiring decision. From there, the company and new hire both sign the employment contract, and the new employee starts work! The staffing agency takes care of necessary paperwork (such as tax forms).
Topics
Tanner Pierce, PHR
Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.
Frequently asked questions
Other Related Terms
Eddy’s HR Mavericks Encyclopedia
Contract to Hire
There are many different kinds of hires and it is important to understand each one. In this article we will explain what a contract to hire is and their pros and cons.
What Is a Contract to Hire?
A contract to hire is an employee hired for a certain period of time. Typically, the length of employment will be specified in a contract prior to the employee starting work. Often, contract hires are used as a trial period for an employer and employee to decide if it is the right fit for both parties. This is often referred to as “temp to hire” as well. If an employer finds their contract to hire employee through a staffing agency (which is most common), they also pay them through the agency. The employer pays the agency, which in turn pays the contract to hire employee. It’s important to note that agencies charge extra fees on top of the employee’s normal wage—this helps them cover the costs of recruiting and make a profit themselves. It’s up to you to decide if this additional cost is worth the money you’ll save with a much shorter hiring process. If you're currently hiring, see how you can save hours a week on your hiring processes with Eddy!
The Difference Between Contract and Contract to Hire
Contract to hire workers are not the same as independent contractors (a type of contingent worker). The main difference is that contract to hire workers are considered employees of the staffing agency that recruited them. They are on the payroll of the staffing agency, and they sometimes receive benefits (though not always). In contrast, independent contractors are technically self-employed. They work for companies on a project basis, are not eligible for benefits, and are responsible for paying their own taxes. In addition, independent contractors aren’t looking to end up with a full-time position with any of the companies they work with.
Should Companies Have Contract to Hire Positions?
Whether or not a company should have contract to hire positions depends on the nature of the business and what kind of job it is. Ultimately, it is something that each business decides. Most often, organizations use staffing agencies to find contract to hire workers.
Pros of Contract to Hire
Every type of hire has pros and cons. Contract to hire is no different. What works for each business is going to be unique, so it’s important to be aware of the pros of contract to hire positions.
- Easy hiring process. When you hire an employee as a contract to hire, there is typically little to no onboarding needed, as the employee might be with the employer for only a few months. This usually means little training is needed, which saves the employer time and money.
- Trial period. One of the biggest benefits of contract to hire positions is that they allow both parties a chance to see if employment will be a good fit long term. You are not locking yourself into anything, because it’s the expectation that the employee might only be short-term.
- Flexibility. Contract to hire positions allow more flexibility for both parties. Often it is easier to reach workable terms for the employer and employee that can be outlined in the contract. You don’t need the same guidelines or expectations you might have with other types of employees.
Cons of Contract to Hire
Just like other hires, there are also cons of a contract to hire. It is important to weigh the cons with the pros to see if this employment model will be beneficial for your business.
- Lack of commitment. Due to contract to hire positions being temporary, it can lead to a lack of commitment among employees. Temporary employees might be short-sighted on the company’s direction as opposed to looking towards the future.
- Culture. Contracted employees might not feel as much a part of the team as other employees. This can affect the culture of the team and company. Extra effort should be made to ensure that contracted employees feel connected and integrated as much as other employees.
- Potential for a breach in the contract. One possibility to consider when hiring a contract employee is the potential legal ramifications if either party breaks the contract. This can include terminating early, doing more or less work than what was agreed upon, misclassification of employees as independent contractors, etc. Every state has legal requirements when it comes to contract for hires. If an employer is found guilty of misclassifying an employee, that employer will be responsible for all past payroll taxes, unemployment taxes, plus interest and penalties. This can end up being quite costly for the employer, and it needs to be considered mindfully when deciding to hire someone for contract.
Components of a Contract to Hire Agreement
Just like any other contract, a contract to hire agreement is a legal, binding agreement and should be evaluated by a legal team. Generally, staffing agencies have generic contracts they use for all their contract to hires. If you are going to use a unique contract for each contract hire, be sure to consult a lawyer.
Compensation
In a hire agreement, be clear on how much the employee will be paid for the entirety of a contract. That should be broken down by how often they will be paid. Contract to hire workers are usually paid hourly, meaning that if they put in over 40 hours a week, they must receive overtime pay. The contract should make it clear whether the contracted hire will be reimbursed or paid more for any business expenses that occur while doing the job.
Length of Contract
It is important to specify in the contract how long the contract is for. Some contracts might allow for some flexibility depending on how long they think the job will take, but there should be a clear timeline for how long the employee will be contracted.
Severability — Getting Out of the Agreement
The agreement should specify what will happen if either party ends the agreement early. Depending on the kind of work being done and how the employee is being paid, some work-for-hire agreements will be more complex than others. Therefore it is important to be clear about what happens if either party terminates the agreement early.
Job Expectations and Guidelines
The contract should clearly state the type of work that will be done, the expectations of the job and any other relevant information to give the employee a clear idea of their expectations for the duration of the work.
Confidentiality or Arbitration
Each agreement will be different, so in some cases confidentiality or arbitration may not be needed, but it is important to consider if the work to be done needs to be kept confidential. If either confidentiality or arbitration is necessary for a contracted hire agreement, consult a legal team.
Reasons Companies Use Contract to Hire
Some of the main reasons companies consider a contract to hire is they can be cheaper, they give employers a trial run with the employee, and the hiring process can be quicker.
Contract to Hire Can Be Cheaper
Contract to hire employees can be cheaper as you don’t have to pay for taxes, unemployment insurance or worker’s comp for them. All these expenses are taken care of by the staffing agency. Contract to hires are also cheaper because little to no money and time are spent on the training or onboarding of these employees.
It Gives the Employee a Trial Run
Contract to hire allows a company to do a trial run with an employee to see if the employee and company are a good fit for each other. Hiring can be expensive and take a lot of time, so doing this can save time and money for both parties before they fully commit to something.
The Hiring Process Is Quicker
When a company decides to hire someone for contract work, they usually use a staffing agency, a recruiting agency, or someone they already know and want to hire for a job. All of these options make for pretty quick hires. When using a staffing or recruiting agency, there is typically a database of employees for different lines of work. This allows a company to find someone quickly for contract work. See the section below for more information on how to find a contract to hire employee through a staffing agency!
How to Find Contract to Hire Candidates
The best way to find contract to hire candidates is through a staffing agency. These agencies are experienced in dealing with the logistics of contract to hire, and they’ll do the heavy lifting of finding people for you to employ. Let’s review a few steps of the process.
Step 1: Choose a Staffing Agency
As you look for the right staffing agency, do some research to find an agency you’d like to work with. There are a few questions to consider.
- Is this agency experienced and credible?
- Are they familiar with my company’s industry?
- What fees do they charge?
- Do they offer benefits?
- Do they manage employee time off?
- How do the agency and company work together to correctly pay employees?
- Does this agency meet my company’s specific needs?
Step 2: Discuss Your Company’s Needs
Once you’ve chosen an agency you’d like to work with, they’ll spend time getting to know more about how your company works. Though they won’t know the culture as well as a full-time employee, they’ll strive to understand it as much as possible.This is when you fill the agency in about the positions you’d like filled. Give them as much information as you can: job title, required responsibilities and skills, company policies, and more. Recruiters from the agency will use this information to find candidates well-suited to each role.
Step 3: Let The Agency Do the Heavy Lifting
Thankfully, most steps in the recruiting process are completed by the staffing agency! If they’re already working with people who would be a good fit, they recommend them. If not, they advertise the job post, screen candidates, and conduct initial interviews.
Step 4: Interview Candidates and Decide Who to Hire
Once the agency has narrowed down applicants into a smaller group of qualified candidates, the company conducts final interviews and makes a hiring decision. From there, the company and new hire both sign the employment contract, and the new employee starts work! The staffing agency takes care of necessary paperwork (such as tax forms).
Topics
Tanner Pierce, PHR
Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.
Frequently asked questions
Other Related Terms
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