Your Contract-to-Hire Guide: What It Is and How It Works

Looking for a new job means reading between the lines of job postings to spot which openings might be a good fit for you. One phrase you’ll probably see again and again is “contract-to-hire.” But what does that mean, exactly? Is it a good thing? A red flag? Should you apply for those positions or not?

Keep calm and read on. Here’s everything you need to know about contract-to-hire jobs and how to decide if one is right for you.

TABLE OF CONTENTS

What is Contract-to-Hire?
Contract-to-Hire vs. Direct Hire vs. Freelance
Pros of Contract-to-Hire
Cons of Contract-to-Hire
How Do I Get a Contract?
How Do I Turn a Contract Into a Permanent Role?
Can I Quit a Contract-to-Hire Job?
Do Contract-to-Hire Workers Get Health Insurance?
What to Look for In a Contract
Is Contract-for-Hire Right for You?

WHAT IS CONTRACT-TO-HIRE?

Contract-to-hire jobs are temporary roles that have the potential to become permanent once the contract ends. It’s like you and the employer giving one another a trial run. These jobs may also be called temp-to-hire, and can last anywhere from three months to three years.

In a company where culture and team chemistry are important, contract-to-hire gives the employer a chance to see how you fit in the role before making a permanent commitment. Some companies use temp-to-hire to fill newly created roles so they can fine-tune the job description before making a permanent hire.

As a worker, contract-to-hire jobs offer a way to build skills, gain experience, and test-drive roles and companies to see what kind of work makes you happy. They’re a low-commitment way to fill a gap on your resume while keeping your options open. And they can help you get your foot in the door at a company you’d like to work for long-term.

CONTRACT-TO-HIRE VS. DIRECT HIRE VS. FREELANCE

There are a lot of ways to classify a job, but it generally boils down to your employment terms and who signs your paycheck. Here’s what those classifications in job listings mean.

• Contract or temp – As a contract employee, you fill a role for a specific period of time, usually less than one year. Companies often use temps to fill short-term needs like covering an employee’s maternity leave or handling extra work during the busy season. At the end of the contract, the job ends or is picked up by a regular employee. As for your paycheck, contract employees aren’t actually employed by the company where they work. You work for a staffing agency like PEG, which issues your paycheck, provides your benefits, and takes care of things like withholding taxes.
• Contract-to-hire – At first glance, contract-to-hire looks a lot like contract. You work for a staffing agency and you fill a role for a specific length of time. But there is one very important distinction. Contract-to-hire is used to fill permanent jobs that will still exist once the contract is up. If you enjoyed the work and the company is happy with your performance, once your contract ends you can transition into becoming a regular employee in the same role. If, on the other hand, you decide the work or the company is not right for you, you can move on with no hard feelings or awkward conversations. You’ll have a great experience to add to your resume. And if future interviewers ask why you left the role, you can simply and honestly say your contract was up.
• Direct hire – A direct hire employee is hired directly by the company to fill a permanent position. A staffing agency might recruit candidates, but the company is responsible for hiring the right person, paying them, and providing benefits. As a direct hire, you can expect to work for the same company until you quit, you’re terminated, or the position is eliminated.
• Freelance – Freelancers are also called contractors, but they’re very different from contract employees or contract-to-hire. You may hear freelancers referred to as gig workers or 1099s (because 1099 is the tax form the IRS uses to classify them). Freelancers don’t work for a staffing agency or a company – they work for themselves. That means they’re responsible for their own pay, benefits, and taxes. Rather than filling a role for a length of time, companies usually hire freelancers to work on a specific project. Once that project ends, the freelancer moves on to the next one.

THE PROS AND CONS OF CONTRACT-TO-HIRE

For employers, contract-to-hire makes a lot of sense. Bad hires cost time and money. Trying out candidates on a contract basis first gives the boss a chance to see how you perform on the job and how you mesh with the culture.

For workers, contract-to-hire comes with both pros and cons. Whether it works for you is really a matter of your personal situation and what’s important to you.

Pros of Contract-to-Hire

• Flexibility. Contract-to-hire gives you the chance to try out a role or company you’re curious about without making a long-term commitment. When you’re navigating a life transition like planning a move, contract-to-hire keeps you working and building your skills while you decide what to do next.
• Self-discovery. It’s a bad feeling when you work hard to land a job only to discover you don’t like the company or role as much as you thought you would. Because contract-to-hire jobs have a defined endpoint, they’re a great way to try roles and companies on for size and see what jobs, tasks, and business types you enjoy.
• Develop your skills. Every job you have is an opportunity to build your skills. Contract-to-hire work gives you a chance to build skills fast, making you a more attractive candidate when you interview for a permanent role down the road.
• Fill gaps in your resume. Even if you’re looking for a long-term direct-hire position, contract-to-hire roles may be worth exploring. A short-term contract can bring in some income during your job search and can keep the unemployment gap on your resume from stretching too long.
• Expand your professional network. As a contractor, you could work for several companies in a relatively short period of time. Each placement introduces you to new people who can see your skills firsthand. You never know how valuable those connections may turn out to be.
• Demonstrate your value. As we said earlier, employers like to use contract-to-hire to see how a candidate does in the job. If you can dazzle them with an outstanding performance, when your contract ends, you’ll be in a good position to negotiate the pay and benefits package you want for the permanent role.

Cons of Contract-to-Hire

Contract-to-hire has a lot going for it, but it’s not the best route for everyone. Before you jump in, you should be aware of potential downsides.

• Lack of job security. What some people see as freedom, others see as instability. Taking a job with an end date or moving from contract to contract may stress you out. You might feel like you’re always in job-search mode, which can lead to burnout.
• No guarantees. You might take a contract and find you love the job and the company. But there’s no guarantee you’ll be hired on when the contract ends.
• Benefits discrepancies. Some staffing agencies, like PEG, provide benefits to contract-to-hire workers. But because they come through the agency and not the company where you work, your benefits will be different from your colleagues. Should you be hired at the end of your contract, you may be behind on earned benefits like vacation time because the time you spent under contract doesn’t count toward the accrual period.

HOW DOES CONTRACT-TO-HIRE WORK?

Here’s a rundown of some frequently asked questions about contract-to-hire.

How do I get a contract?

It all starts with a company hiring a staffing agency to fill a contract-to-hire role. You apply to and interview with the agency first. The agency will narrow down the field of applicants to the very best and send a shortlist to the company. You and the other top candidates will probably interview with someone at the company next.

Once the company decides who to hire, the agency negotiates the contract on your behalf. For the duration of your contract, you are an employee of the staffing agency. All of your benefits, onboarding and your paychecks will come through the agency.

How do I turn a contract into a permanent job?

First, do excellent work. Understand the requirements of the job and do your best to meet or exceed them. Ask your supervisor and coworkers for feedback to help you improve. Keep a record of your accomplishments and positive feedback.

Next, research the average pay range for similar jobs in the industry. When it’s time to negotiate a permanent hire, have an idea of the pay and benefits package you plan to ask for and of the minimum package you will accept.

Finally, as your contract draws near its end, let your supervisors know you’re interested in continuing on in the role. Highlight the achievements and positive feedback you’ve been collecting as proof you would be a long-term asset to the company.

Can I quit a contract-to-hire job?

Yes, you can quit a contract-to-hire job. There was a time when contracts might have included clauses with consequences for quitting before the contract term ended, but today you are considered an at-will employee.

That said, read the contract carefully before signing it. If there’s anything you don’t understand, ask your contact at the staffing agency to explain it.

Do contract-to-hire jobs come with health insurance?

Sometimes. Not all staffing agencies provide benefits like insurance and retirement accounts. At PEG, we provide contract-to-hire employees benefits after a brief waiting period. If it’s important for you to know what your insurance will cover and when it will kick in, be sure to ask your agency contact about that before you sign the contract. Understand what your benefit options are and if the job will affect your ability to buy insurance through your state’s health insurance exchange.

WHAT TO LOOK FOR IN A CONTRACT

Your contract-to-hire employment is governed by – surprise! – a contract. Before you sign it, be sure you understand exactly what you’re agreeing to. Get a written copy of the contract you can keep and refer to as needed.

Your contract should include:

• Start and end dates
• An explanation of what happens when the contract ends (Will you have the option to renew? Will you have the option to interview for a permanent role?)
• Time off and sick leave policies (Who do you call if you’re going to miss work? How much notice must you give? If you don’t qualify for sick leave, what happens if you get sick?)
• A clear and specific job description
• Compensation details, including how often you’ll be paid, whether you qualify for overtime, and whether your expenses are reimbursed
• Benefits details
• What happens if either party ends the contract early
• How labor disputes will be handled

The contract probably won’t cover all the information you need to know. To give yourself the best shot at success, make sure you ask your interviewer these questions:

• What are the goals of this role?
• How will my performance in this job be evaluated?
• What are the expectations of a permanent employee in this role?

IS CONTRACT-TO-HIRE A GOOD FIT FOR YOU?

Contract-to-hire can be a great way to try out a job and get your foot in the door. But it’s not for everyone. When deciding whether to apply for a contract-to-hire role, ask yourself these questions.

	Yes	No
Is long-term job security important to you?	Contract-to-hire might not be the best match. While the goal of the job is to bring in a contractor and eventually hire them to a permanent role, there’s no guarantee that will happen.	If you enjoy the flexibility of trying on a job without tying yourself down for the long term, contract-to-hire might be a good fit for you.
Do you prefer a flexible arrangement that keeps your options open?	Contract-to-hire may be a good choice for you. It keeps you working without tying you to a long-term commitment.	If you prefer the idea of working for the same employer for the long haul, you would probably feel more comfortable in a direct hire role.
Have you been out of work for a while?	Even if you’re looking for a direct hire role, you may want to consider expanding your search to include contract-to-hire jobs. A contract may lead to long-term, permanent employment. Even if it doesn’t, the work will fill your resume gap and give you an opportunity to build your marketable skills.	If you’d like to get back to work quickly, a contract-to-hire job is one way to do that.
Would you like to develop new skills?	Contract-to-hire jobs give you a low-commitment way to try out a role you’re curious about. If you enjoy it, it could lead to permanent employment. If you don’t, there’s no long-term obligation to stick with it. Either way, you’ve built marketable new skills.	You can find contract-to-hire roles that use your existing skills.
Is a benefits package a deciding factor for you?	Before taking a contract-to-hire job, be very clear on the benefits available under your contract and on the benefits that will be available if you transition to a permanent role. Know what they cost and how they may impact any state benefits you receive.	You have the flexibility to explore any type of employment that appeals to you, including contract-to-hire.

Contract-to-hire roles offer a rich opportunity to try new things, get your foot in the door, and build new skills. Check out the contract-to-hire jobs we have available