Understanding A Contract To Hire

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What Does Contract to Hire Mean?

Contract to hire means a job that is offered as a short-term role but has the opportunity to turn into a permanent, full-time job when the contract ends. Also called "temp to hire," contract-to-hire positions typically last from around three months up to one year, though some contract-to-hire jobs may last for closer to three years.

Today, contract-to-hire positions are becoming more and more prevalent. Common industries that use contract-to-hire workers include:

  • Accounting
  • Administrative support
  • Graphic design
  • Information technology
  • Marketing
  • Project management
  • Sales
  • Seasonal retail

What Is a Contract-to-Hire Position?

A contract-to-hire position is a job in which a candidate is hired temporarily at first. However, the intention is that the worker will become a permanent employee if they perform well during their temporary status.

This is a unique type of job on the spectrum of hiring possibilities. Contract-to-hire jobs are neither permanent, regular roles nor freelance gigs. They are also not independent contractor positions. Instead, contract-to-hire jobs are W-2 positions, and the employer deducts the necessary taxes from a contract-to-hire employee's paycheck and submits those taxes to the government on their behalf. Contract-to-hire employees often have the same standing as full-time or part-time employees in a company.

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Is Contract to Hire a Good Idea?

Contract-to-hire jobs sometimes have a negative connotation. After all, they don't come with benefits or guarantees for the workers, and the short-term contracts seem like they can't do much to build someone's career. However, contract-to-hire jobs can actually help you during your job search, letting you test out companies and roles without making a long-term commitment. The flexibility that contract-to-hire jobs bring offers advantages for employers as well as employees.

Benefits for Employers

A business may hire contract-to-hire employees when they don't have the capability to hire full-time employees but need help to grow a small business that's just starting out or regrow a business after a period of economic hardship. Businesses may also use contract-to-hire positions to ensure they have the right person in the right job.

Benefits of contract-to-hire jobs for the employer include:

  • Businesses can evaluate a candidate's skills: A contract-to-hire position is somewhat like an extended job interview, except the employee has the perk of getting paid during this period of time. Employers want to be sure that an employee can deliver on what they claim during an interview. A bad hiring decision can be an expensive mistake for a company, and a contract-for-hire position lets the business make sure that the employee really does know how to do the job well before they make a long-term commitment.
  • Businesses can assess a candidate's fit: These temporary jobs are not just about making sure a candidate knows how to do a job well. A contract-to-hire position also lets employers determine if the candidate is a good fit for the company culture.
  • Contract-to-hire positions allow for budget flexibility: Budget often plays a key role in hiring contract-to-hire positions. Before bringing on an employee for full-time work and paying them a salary as well as benefits, employers want to make sure that they have the allocated funds for a given project secured. By hiring employees on a contract-to-hire basis, businesses get the time they need to get a budget in place a couple of weeks or months in the future while still making sure that they can maintain productivity in the meantime.

Benefits for Employees

Job seekers may be hesitant to look for contract-to-hire jobs because they think that the setup only benefits the business hiring for the position. However, contract-to-hire positions also offer various benefits for the worker accepting the job.

Advantages for employees hired for a contract-to-hire position include:

  • Employees can assess a company's fit: Most people don't want to get themselves stuck in a culture they don't fit into or a job they don't enjoy. Just like a contract-to-hire position allows employers to make sure that the person they want to hire fits in well, employees can use the role's short-term nature to do the same. You can accept a contract-to-hire position to take the role and the company for a "test drive" without worrying about making a longer commitment to a job you don't know if you'll actually want or like.
  • Contract-to-hire positions can fill in employment gaps: If you have been out of work for a long time, a contract-to-hire position can help fill in that gap. Even if the role doesn't end with a permanent job offer, it makes it easier to explain unemployment when going back on the job market. Workers can also show that they stayed professionally active and kept up their essential skills by taking on short-term jobs. Here is an article with further information about employment gaps.
  • Contract-to-hire positions can help you grow a professional network: Every person you work with during a contract's duration adds a connection, so these jobs can help you expand your professional network. Although those connections might not immediately lead to a permanent role in the business, those people could have other connections that can help you get a permanent job in another place. For example, if a worker makes a good impression on an employer that can't offer a full-time position, the employer can still provide references, recommendations, or referrals. Here is some further reading about job references.

Disadvantages for Employees

Contract to hire means less stability for an employee, and these jobs do have some drawbacks that may make a potential employee hesitate to take this kind of position. Disadvantages of contract-to-hire jobs include:

  • There's no guarantee for future employment: An employer can decide not to extend an offer for permanent employment at the end of the contract for any reason, such as financial constraints. Employees then have to start their job search again.
  • A contract-for-hire job offers less financial security: If the contract expires and the employer doesn't offer a permanent position, the contractor does not get any severance.
  • Benefits and health insurance are not guaranteed: Contract-to-hire jobs obtained via a recruiting agency often offer health insurance through the agency itself. However, contract-to-hire jobs contracted directly with a business may or may not offer health insurance during the contract.

Components of a Contract-to-Hire Agreement

A contract-to-hire agreement should have a few key components to protect both the employer and employee. While a contract-to-hire position is typically a W-2 position, these employees may not be eligible for the same kind of benefits as normal full-time workers unless the contract specifically outlines these benefits.

Most contract-to-hire documents will include:

  • Start date
  • End date
  • Job description
  • Explanation of what could happen when the contract ends, for example:
    • Hire employee for a full-time position
    • Let the employee go
    • Sign a new contract-to-hire agreement
  • Explanation of what could happen if the employee wants to leave a contract early, for example:
    • Any penalties for leaving early
    • Required notice
  • Details about time off, including:
    • Paid time off
    • Sick leave
    • What happens if an employee gets sick but isn't eligible for time off
  • Any other benefits

It's important to work with an experienced contract lawyer when creating or signing a contract-to-hire document to ensure that you understand this kind of job's details and expectations.

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