Contract to Hire: Definition, Advantages

and Disadvantages
There’s quite a lot to think about when deciding whether a contract to hire is the best route
to take when recruiting.

Within this article, we discuss what a contract to hire means, the advantages and
disadvantages to the employee and employer, and when it might be the best option.

What Is a Contract to Hire?

In simple terms, hiring somebody on a contract-to-hire basis involves the employer

appointing someone (the ‘contractor’) to do a short-term job.

Usually, the purpose of a contract to hire is to allow both the employee and employer to
test the waters to make sure that the job is suitable before committing to a full-time role.

It’s very similar to ‘temp to hire’, in that the contract to hire outlines how long the contractor
will work for the employer and what their responsibilities are.

Then, once the contract-to-hire period ends, the contractor and employer may seek to
make the role a permanent, full-time position.

Under a contract-to-hire arrangement, the contractor is normally temporarily employed by

a recruitment agency (an intermediary company) but is under contract to work for a
specific company (the commissioning company).

So, technically, the contractor is not officially ‘on the payroll’ until they are offered full-time
employment.
As you’d expect, there are some professions where contract-to-hire jobs are more
prevalent than others.

Normally, this is for roles where one or more of the following apply:

The workload may fluctuate dramatically

There is a short-term need
A person’s skills are difficult to identify from resumes and interviews alone

Although not an exhaustive list, here are a few jobs that frequently start as a contract-to-
hire role:

Sales executive
Business development manager
Project manager
Designer
Health or social care professional (also known as temp-to-perm locum work)
Business administration assistant

In fact, the list of contract-to-hire jobs is quite long. The important thing to remember,
though, is that when a person is hired on a temporary basis, there is normally an
expectation of full-time employment at the end of the contract, as long as the job has gone
well.

The exception to this might be if a job is seasonal or where the commissioning company
needs additional capacity for a short amount of time – in this case, the role would be a
temporary contract rather than a contract-to-hire position.

Most contract-to-hire jobs last between three months to a year, although in positions
where there is a specific contract or project, the contract may span a couple of years. This
is entirely dependent on the type of role and longevity of work.

Advantages and Disadvantages of Contract-to-

Hire Jobs for Employees

As an employee, there are plenty of benefits to joining a company on a contract-to-hire

basis, but there are a few potential drawbacks that you need to be aware of when deciding
whether short-term work is for you.

Advantages of Taking a Contract-to-Hire Role

Fast-Track Your Experience

How many times have you applied for a full-time role, only to be told you do not have
enough experience?

Well, taking a contract-to-hire position can give you the chance to build up the experience
you need. In fact, many graduates may take temporary research or project-management
roles as a way of gaining real-life commercial experience and adding to their resume.

Determine if a Role Is Right for You

As much as a contract-to-hire arrangement is a chance for the employer to try before they
buy, it’s also an opportunity for you to decide whether a role is right for you before
committing to a full-time position.

Working on a trial basis, you can get a good feeling about whether the company will
support you in your career ambitions. You may also find that there are specific aspects of
the contract-to-hire role that you would prefer to specialize in.

Increase Your Employability

In any contract-to-hire job you take, you will learn new soft and hard skills.
Since the role usually fulfills a specific business need, you’ll be handed a series of tasks to
complete.

Very quickly, you’ll be expected to get to grips with new systems, technologies and ways
of working, which may require some additional training. As you refine your skills to focus
on the tasks at hand, you can add your experience to your resume.

Broaden Your Professional Contacts

It can be tough breaking into a new sector or landing full-time employment.

You may not even be fully settled on what type of business you want to work for yet.

So, one of the attractions of being a contract-to-hire employee is having the opportunity to
widen your professional network. The more contracts you have under your belt, the
greater your employment opportunities.

Disadvantages of Working in a Contract-to-Hire Job

All the advantages sound great, so what are the potential downsides to working to a
contract-to-hire agreement?

Lack of Full-Time Equivalent Benefits

This may not bother you if you are only looking to take a contract-to-hire job for a short
amount of time.

However, it is something to think about as contract-to-hire employees do not have access

to all the usual employment benefits such as healthcare cover, sick pay, paid leave, bonus
schemes, pension contributions and more.
Even if you eventually join the commissioning company in a full-time role, the time you
spent under contract will not count towards your entitled benefits. Your accrual of benefits
will start on the first day of your permanent employment.

Less Job Security

Although it is often the aim of a contract-to-hire job to offer a full-time position at the end of
the contract period, this does not always happen. Therefore, there is an element of
unpredictability.

That’s why it is a good idea to have a clear indication within your written agreement of the
start and end date of your contract and the termination terms.

No Severance Packages

If your contract-to-hire job becomes redundant through no fault of your own, you will not
be entitled to the same severance packages as an equivalent full-time member of staff.

You may also be the first person to be let go since you will be less expensive to
compensate.

However, it’s unlikely your contract to hire will end abruptly as most employers hiring on
this basis are financially stable and know what their hiring needs are.
Contract to Hire: Definition, Advantages and Disadvantages

Advantages and Disadvantages of Contract-to-

Hire Jobs for Employers

As an employer, there are many reasons to hire someone on a contract-to-hire basis, but
as with all employee relationships, there are a few things you must be aware of when
considering the advantages and disadvantages.

Advantages of Employing Someone on a Contract-to-Hire Basis

Extended Trial Period

If you are unsure whether a candidate is a good fit or perhaps the role is a brand new one,
a contract-to-hire position can function as a type of extended trial period to avoid hiring
errors.

Knowing that they’re on a ‘trial’ period, the employee will also want to impress, leading to
greater productivity.
Lower Cost to Hire

Although it’s not always the case, contract-to-hire employees typically cost an employer
less since the employer only pays the person for the time that they are in position.

There’s also no upfront commitment to long-term employment, which can be an

advantage if you’re not 100% sure about your hire.

Plugging Skills Gaps

All companies will have skills gaps, so many engage in a contract to hire as a way of
plugging skill shortfalls.

This can be particularly useful when a very specific role needs to be filled that requires
expert knowledge.

Let’s use the example of a marketing department. The marketing executive has a basic
knowledge of graphic design, but they cannot create the wireframes for a new website and
do not have the budget to outsource the project to a design agency.

Instead, they decide to hire a UX designer on a contract-to-hire basis to complete the

project with a view to keeping them in post to maintain the website and work on other
projects. In this scenario, it makes far better sense to bring in the right skills rather than
training the marketing executive.

Resourcing Project Work

Some projects are just that – projects.

There is an endpoint for a set piece of work that quite often requires specialist skills. In
that case, appointing someone on a contract-to-hire basis makes complete sense.
Let’s take an example of a big software integration project.

Your internal IT team have an excellent working knowledge of your systems and IT
networks, but they do not have the same awareness of the new software.

A project manager specializing in software integrations will have this knowledge, so it

makes sense to hire them to oversee the project in a contract-to-hire job role.

Disadvantages of Employing Someone on a Contract-to-Hire Basis

Of course, the benefits must be weighed against the possible negatives of employing
people on a contract-to-hire basis. So, what are the disadvantages?

Lack of Commitment Within In-Demand Sectors

If you operate in a sector where the demand for suitably qualified, experienced members
of staff is high, appointing people to contract-to-hire positions is not without risk.

A contractor may well have their head turned by another employer part way through their
contract and could feel less obliged to stay with you as the commissioning company.

Less Incentive to Perform

If there is a full-time employment opportunity at the end, or the contract-to-hire employee

is working on a set project, it’s unlikely they’ll lack motivation.

However, you may find that the contractor may not be as motivated to perform their best in
less-skilled jobs.

Ongoing Intermediary (Agency) Fees

Contract-to-hire agency fees are not cheap, and there’s a good reason for this. They are
the ones who take on the sourcing, administration, and even onboarding process.

This means that the hourly rate for a contract-to-hire employee may be higher than that of
a permanent member of staff.

However, it all depends on how long you intend to hire the person for, what the
intermediary’s rates are and whether there’s a ‘finder’s fee’ if you decide to keep the
person on as a full-time member of staff.

Final Thoughts

Whether you’re the employer or the employee, a contract-to-hire arrangement is an

opportunity to get to know each other.

After all, full-time employment is a big decision so if you can dip your toe in the water to
see how a position could work, contract to hire is a great option.

Just remember to check in with each other, though – to make sure that the other party is
happy and getting what they need from the role.

Having open communication channels will almost certainly lead to a successful contract-
to-hire relationship.