Companies do contract to hire as a benefit to both themselves, and the candidate they are hiring. Companies spend lots of resources when hiring a new employee (much as candidates spend lots of resources finding a new opportunity). In most cases, the hiring process moves fairly quickly. Companies have needs, and perspective employees want to move to a new job, or secure a job. The vetting process, while trying to be thorough, usually moves too fast for both the company and the candidate to get a true sense of what both have to offer. The company is trying to get the best candidate possible, and will present the opportunity in the best light. The candidate is trying to get the best opportunity, and present themselves in the most positive way possible. Within the interview process, it is hard for both parties to get a true sense of one another. Contract to hire gives both the company and the candidate a window, after starting the job, to get comfortable with all that each party has to offer. For the company, it is an opportunity to see the candidate in action, and understand how they work and fit in to the organization. For the candidate, it is a period that they can start the job, and make sure they are comfortable with all that the organization stands for, and is trying to accomplish.
The real benefit for each party is this: For the company, if the candidate is not the right fit, they can make that decision within the contract time frame, and move on. For the candidate, if the job isn’t what they expected or wanted, they can make that decision within the contract period, and put on their resume that it was a contract position (as opposed to trying to explain in the next interview why they left a “permanent” position in such a short time frame). It really is a benefit to both parties, as everyone is looking for the best they can get…the best candidate, and the best opportunity. The best benefit for the candidate? If they do a great job in the contract period, they have some ammunition to get a better permanent offer.
Cost Analysis-Contract VS Direct-hire
Direct hire costs (Based on a Software Engineer making $120,000/year:
- Monthly salary: $10,000
- Burden rate of 17% (unemployment taxes, fica, social security, etc)…$1,700
- Benefits 10%(medical, dental, 401k): $1,000
- Total tangible expenses for full-time employee: $12,700
- Total potential intangible cost of bad hire:
- Lost productivity
- Recruitment costs
- HR issues
Cost of contractor-to-hire (based on $120,000 a year Software Engineer with a total conversion cap of 20%):
- Hourly bill rate $90: $14,400 a month
- Conversion fee decreases the longer contractor is billing: Maximum is 20% of annual salary
- Flexibility: If contractor is not working out a replacement will be provided within 24-48 hours
- Benefits: Solutions provider covers all benefits including employee burden costs
- Human Resources: Solutions provider is responsible for all HR related issues
In the example above the monthly spread between a full-time employee and contractor is $1,400.00 a month in tangible costs. A beneficial way to look at this is similar to an insurance policy. You pay a slight premium up-front, however, in the event that the contract-to-hire employee does not work out you can have a replacement resource in-seat within 48 hours. In addition, both you as a potential employer and the candidate have a chance to work together for a certain amount of time to test each other out and make sure it is a good fit for both parties. Finally, since the client is not the employer they are not responsible for any employee related costs or Human Resource responsibilities.