In a tight labor market, contract-to-hire agreements have become a popular employment strategy for businesses.
We have seen more and more of this type of work arrangement, as a viable temp staffing solution for small business owners.
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What is a contract-to-hire agreement?
In simple terms, it is a contract with the promise of a permanent position at the end of a certain period.
In such an arrangement, a business provides temporary employment to a contractor to complete a certain task and his/her success in said task determines if the business will employ him/her on a long-term basis upon completion of the job at hand.
Advantages of a contract-to-hire
A contract-to-hire arrangement can be extremely beneficial to a business in the following ways:
1) Little training is required
A contract-to-hire tends to be task specific as mentioned above so very little training is required to bring a contractor up to speed with the ins and outs of the job in question.
With a full time employment scenario, however, businesses often offer extensive and thereby expensive training. So the fact that a contractor can hit the ground running at minimal cost is advantageous to not only the company but also the contractor himself/herself.
2) Low Human Resource expenses
Permanent employment comes with a lot of HR requirements e.g. leave management, payroll management, and 401 (K) benefits among other nitty-gritty. Contract-to-hire arrangements meanwhile have few HR requirements which means they consume little resources.
What’s more, in the event that a business decides to terminate the contract for whatever cause, it can do so no questions asked without paying out severances or without risking any legal backlash.
3) Employers get a trial run
Finding the right person to fill a certain role in a business can become an uphill task but contract-to-hires offer an effective trial period to help the employer separate the wheat from the chaff.
The company gets a view of the contractors’ skills and effectiveness and can decide to hire or let them go if they feel they are not a good fit. Whether or not candidates make the cut will depend strictly on what they bring to the table.
4) Contract-to-hire can provide stability
Vital roles in a business can become vast voids that take quite some time to fill in the event that the employee in place leaves.
Finding the right fit can be time and resource consuming but with the convenience of a contract-to-hire employee standing in, other company initiatives can keep up with normal operations even during this searching period when the business is looking for the best pick of the bunch.
Contract-to-hires accelerate initial onboarding and also quells any problems of instability.
Disadvantages
As with pretty much everything else, there is another side to the coin of contract-to-hire agreements. Some of its drawbacks include:
1) The process can become frustrating
The business might have to repeat the process over and over again as it is not often the norm that it will land the best candidate at the first go.
As the company kisses more toads than princes, it can start to lose faith in the process and the strategy can become frustrating.
2) Businesses can get two-faced employees
Arguably the most devastating of the drawbacks is that a company is at a risk of hiring employees who end up being unfruitful in the long run.
People will always put their best foot forward during the trial phase but once they get through the door of permanent employment, their entire persona changes drastically and so too does their work input. In a nutshell, it is not the best way to get top-notch personnel.
3) Many good employees are put off by contract-to-hire agreements
Truth be told, not many are interested in working for a company part-time and this is especially true for the talented or skilled employees who often prefer the financial security of a permanent placement.
This is not to say there aren’t any skilled labor with contract-to-hires. That said,how companies have treated contract-to-hire employees in the past will determine the caliber of candidates a business gets. Those with high success rates will attract the better candidates, while those with high turnover rates will not be very appealing.
When is a contract-to-hire agreement ideal for a business?
Whether or not a business should use contract-to-hire agreements depends upon a number of factors. While it might be perfect for some kinds of businesses, in other cases, it can become an ineffective means of procuring labor. At this juncture, we’ll be discussing the former.
1) It is a great strategy for a company with fluctuating labor demands
Those businesses that tend to require varying amounts of labor throughout the year-e.g. agricultural ventures where more hands are required during certain periods- benefit the most from contract-to-hire arrangements.
Instead of employing people on permanent terms only to lay them off when the job is at an end, these companies can hire extra personnel during the most intensive seasons of the year and let them go without having to pay hefty terms that come with permanent contract violations.
2) It is also excellent for small businesses with little resources
As discussed previously, permanent employment often comes with numerous incentives and conditionals. So for a business with a constrained budget that is just finding its feet in the industry, contract-to-hire agreements are the best way to go.
It allows small companies to cut down on human resource efforts among other related costs.
So is a contract-to-hire deal appropriate for your business? Well, that depends on the resources you have at your disposal and the nature of labor requirements in your company.
Simple tasks can be handed out on a temporary basis but more complex jobs require experienced professionals you can hire for the long haul. All in all, weigh the pros and cons of the strategy and you should find the way forward for your company.
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