The Advantages of Contract to Hire Employment
In contract-to-hire employment, a contractor works for a company as if he were a regular employee, but with an agreement that his time there is limited to the term of the contract. Most companies seek out these contractors through temporary staffing agencies, and a contract may last a day, a week, or TFN -- until further notice. In some cases, though, a contract-to-hire arrangement takes place directly between a contractor and the company. Contract-to-hire arrangements, when properly implemented, have advantages for both company and contractor.
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No Commitment
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For both company and contractor, a contract-to-hire position allows you to try one another out with no strings attached. Contractors can check out a company's atmosphere, employee satisfaction, work load and other intangible factors that can make the difference between a miserable job and a great job. Companies can decide whether the contract worker is a good fit, whether she is worth her salary and whether they need a full-time long-term position filled.
Flexible Staffing for Special Projects
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For certain special projects, an employee's performance is key to whether or not a position is created to begin with. For instance, a nonprofit may want to create a new staff position. This staff position is dependent upon whether a grant is successful. The nonprofit may use a contract-to-hire process to bring on a staffer who could fill that position and who can also develop the necessary grant. If the grant is successful, the contractor might get hired on to fill the position if she was found suitable during the contract period.
Other companies may have serial special projects or other projects they need extra staffing for but are not sure whether the projects will be ongoing or long-term. A contract-to-hire arrangement allows them to bring on a person who will accrue valuable experience while they are making staffing decisions.
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Lower Overall Costs to the Company
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The company is bringing in a contractor, not hiring a full-time or even part-time employee. Therefore, there is no requirement to extend a full benefits package. This means the company's costs are much lower. In addition, the company doesn't have to pay several other bills for that worker if the contract is written correctly, like Social Security or unemployment insurance.
This is not necessarily a disadvantage to the contractor. A direct contractor may demand a higher rate of pay to compensate in part for decreased benefits. In the case of a contractor who does not need fringe benefits, contracting may be more lucrative than being a full-time employee.
Legal and Tax Advantages
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Hiring a contractor reduces an employer's exposure to several types of lawsuits. This includes, but is not limited to, lawsuits under the Americans with Disabilities Act, the Family and Medical Leave Act and Title VII of the Civil Rights Act of 1964. In addition, certain legal restrictions kick in when you have a minimum number of employees; for instance, the FMLA affects most businesses when they have 50 employees. If you are not ready for this additional burden on your business but need the extra help, hiring a contractor may be the best step while you are preparing to transition to a larger size.
In these cases, it is always wise to consult with a good human resources attorney. The IRS and the Department of Labor use very specific tests to determine whether your contractor should be classified as an employee; a failure in either test could be costly to your company in the form of penalties.
Experimentation
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Using contract-to-hire workers allows a company to experiment. For example, a manager may believe that an additional programmer on a project will expedite the project, enabling the company to meet tighter deadlines. By bringing in a contractor, the manager can prove or disprove the theory and can hire the contractor if the theory is proved. Contract-to-hire arrangements also allow companies to take on additional clients that may not pan out long-term and allow companies to free up time for employees to work on creative ideas that could benefit the company later.
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References
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