Contract to Hire

There are so many horrible hiring practices commonly used today one hardly knows where to begin. One of the most obviously poor is the concept of “Contract to Hire” positions.  The concept is simple: You hire someone on a temporary contract and, if all things work out well, you hire them on as a full time employee.  The idea being that the firm can “test drive” the employee for six months and make a sound hiring decision.  Maybe on the surface this feels like a huge win for the employer and the employee, of course, gets to test drive the employer.

But if we look at the idea from an employee’s perspective the misguided nature of this approach becomes very obvious.

There are essentially two types of workers: consultants and traditional employees.  At least people who desire to be one or the other.  Consulting is a unique way of working and a certain percentage of professionals prefer it.  Most workers want to be employees with all of the stability and benefits that that implies.  Very few people desire to be consultants.  It is a very high stress way to work.  This doesn’t mean that people don’t change over time, it is common for young professionals to like consultant work and desire to change to full employment at some later point in their careers.

The description above shows the problem with the contract to hire approach.  Which person do you hire?  The thought is that you will hire the later, the person wanting to be a long term employee with good stability and benefits who seeks out the contract to hire position in the hopes of becoming an employee.  One problem there, however, and that is that people who want to be stable employees don’t want to contract first.  Everyone knows that contract to hire means “contract with little to no chance of being hired afterwards.”  So workers seeking regular employment will only turn to contract to hire positions if they are unable to find regular employment leaving the employer with a strategy of only hiring those that are failing to find work anywhere else – a weak strategy at best.

The other risk is that consultants will take contract to hire jobs.  In these cases, the consultants take the position with no intention of accepting an offer at the end of the contract.  The company may spend six months or even a year training, testing, nurturing and convincing the consultant to love their job and when it comes time to hire them, they get declined.

There is no positive scenario for the contract to hire.  At best you hire a consultant who’s work style opinions are changed by the amazing nature of the work environment and magically they don’t get restless after accepting a position.  But this is far more rare than contract to hires actually attempting to hire someone at the end of the contract.  In the real world a company engaging in this practice is reduced to either hiring the least hireable or consultants with little to no intention of entertaining the “bait” offer.  This also leave the company with the belief that it has a carrot to dangle in front of the consultant when they in fact have nothing special to offer.

It is a case of an employer looking to take advantage of the market but, without thinking it through clearly, is setting themselves up to be taken advantage of.  The best employee candidates will bypass them completely and full time consultants will see the opportunity to strike.

The idea is simple and applies to all hiring.  Don’t hire a person based on factors that don’t apply to the actual job.  Hire employee types for employee positions, consultants for contract positions.  The same as you would not attempt to interview engineers for marketing positions – in theory someone has crossover skills but you eliminate almost any chance of every finding the right person.  Hire honestly to meet your needs and many problems will be eliminated.

5 thoughts on “Contract to Hire”

  1. “The best employee candidates will bypass them completely and full time consultants will see the opportunity to strike.”

    So true. I’m in the school that would NEVER apply to a contract to hire position. I’m sure most of us have also hears stories of Contractors taking the jobs and when offered a full time position, demand a stiff Salary increase using the leverage they have being trained and on board. Just a terrible idea altogether.

  2. Yes exactly, companies that think that they are going to get a bargain at the end of the contract period because the soon to be employee will be lazy and desirous of standing still will often be surprised to find a contractor happily ready to move on to another contract with the added experience (the length of a contract to hire is generally enough to warrant a normal pay increase) and / or they will find a contractor in the unique position of knowing, without any doubt, his value to the company and being in the completely advantageous position of being forced to set his value fresh – something that normal employees effectively never have happen – at which point the cost of keeping him will be far higher than the cost of acquiring him fresh at the beginning of the contract period. The employee ends up in the most extreme of bargaining positions with the company prompting the initiation of the negotiations for which they are not prepared.

  3. I agree with many of the points, but these can be mitigated by structure and execution. First, CTH terms should never be less than 6 months. If a company can’t commit to that long, I would argue that it’s not an “open” permanent FTE position at all and should be straight contract from day one with no hire expectation.

    Next, define compensation both during and following the contract period up-front and be firm. If there is any push-back or “leverage” attempted when it comes time to hire, that’s not the type of person I want working for me anyway and they get launched based on acceptance up front and acting in bad faith later. Trust is earned and that is anything but…

    Last, a firm 60-day notification as to hire intent. Employer notifies contractor that they intend to hire on the date at end of contract term with compensation already defined. No mystery or negotiation and if the contractor balks or disagrees in any way, the employer has at least some time to find a replacement instead of being under the gun at the end of the term when an offer is presented and rejected.

    As with anything, think ahead, deal openly and honestly with people throughout the term (be the “adult” and get rid of childish people that tend to stomp their feet and expect to get their way), absolutely stand firm on defined terms, and it will become very clear whether they should be a part of your organization.

    CTH is a viable option in the right situation, as long as it’s managed well. If you make it about skills and money, huge mistake… evaluate the person, not the resume and the path to the eventual hire gets much easier. How many idiots do you know working for companies that tolerate them? It’s no accident… it was allowed, or even encouraged, every step of the way.

  4. Even with all of that said, and you make good points, CTH still leaves the fundamental mismatch of getting a person who either wants the contract portion and isn’t going to be happy with the employment portion or wants the employment portion but isn’t good enough to get that in the current marketplace. Fundamentally, the CTH concept is flawed. It can work, but it’s never ideal.

    And even many of the things you recommend, like firm intents to hire with certain notification periods, that is fine, but both companies and individuals remain at will for work. Just because intent isn’t given, a company can always decide to make an offer. An employee can always decide that they’ve demonstrated better value than expected and demand more money. Or find a better offer elsewhere and leave prematurely or simply not accept the employment offer.

    It is not bad faith for a potential employee to demand renegotiation of employment that has not yet been offered. You may desire not to hire them out of bitterness for having chosen poorly by using CTH to opening yourself up to them not accepting, rather than quitting, when you can’t pay them at their expectation, but it is not bad faith any more than attempting to pay them based on rates negotiated during an “unknown” state when the actual employment will now happen in a “known” one.

    CTH is, at its heart, a poor attempt to take advantage of employees who don’t understand the system or may have little alternative. It isn’t a good tool for companies seeking the best people. And there are more honest ways to hire people who aren’t easily able to be hired elsewhere.

  5. I think the key here is… people who want to be paid what they have demonstrated that they are worth are not people that you want to hire. This implies that you only want to hire the desperate – those without the leverage to get what they are worth. That was essentially the point of the article. There are better ways to hire the desperate, ways that are honest.

    How you describe the CTH process is exactly why I think that it is bad. It is used to attempt to remove all risk from the company and is based solely on the belief that employees have no other options and will tolerate being abused because what else can they do. This is why CTH only gets the workers that other companies weren’t willing to hire. It is quite rare that a serious professional will even speak to companies listing CTH as their plan. Companies doing CTH don’t necessarily realize this as the best people don’t even apply for their jobs.

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