Episode 41: Contractor to employee conversions

There are many occasions when it makes sense to bring in a temporary employee on a contractual basis. The reason may be that someone is on maternity leave, you may have a seasonal business, or you may be converting to a new computer system and simply need more hands for a month or two. Then, when their task is complete, you let them go as planned. Sometimes however, you decide that you really like the person and decide to convert them from a contractor, to a permanent employee. Sounds easy right? You like someone’s work, offer them a job, they say yes, they start working for you as a regular employee and all is well with the world. Right? Well, maybe. Many things can potentially make it very difficult or impossible to convert a person from a contracting/temporary role to a permanent position. To begin, let’s assume that you hired this contractor via a contracting company. These firms generally fall into one of the following four categories. • No Way • For a Price • For a Shrinking Price • No Problem The “No Way” firms set up a contractual agreement with the companies they work with, stating that you cannot hire their contractors. They also have the people they represent sign a “non-compete” contract stating that the employee will not accept a job at the companies where they were placed as a contractor for a specified length of time, typically a year. If this is the case, you’re stuck and cannot hire that person unless the contracting company owes you a favor. The “For a Price” firms let you hire their contractors for a price. Generally, after a certain amount of time, typically three months to a year, you can hire their contractor for a specified finder’s fee. The fee is typically based on a percentage of the contracting rate. This option gives you the flexibility to hire their people, but it can be very expensive. The “For a Shrinking Price” firms let you hire their contractors at any time for a fee. The advantage here is that the fee gets smaller over time and is eventually eliminated, usually after six months or a year. The rationale behind this arrangement is that it allows your company the flexibility to hire their people at any time, but allows their firm to be reasonably compensated for their efforts. This arrangement is fair to both companies and I like doing business under this type of contract. The “No Problem” firms let you hire their contractors as an accommodation to the companies they do business with. They ask you (either with a hand shake or contractually) to keep the person as a contractor for a specified length of time, typically three or six months before you hire them. This approach allows them to make a reasonable amount of revenue on the person before they are hired away. I typically like to work with the “For a Shrinking Price” and “No Problem” type contracting companies because as a manager, they provide me the most flexibility at the lowest price for my company. The primary advice and takeaways are to know that: • There are four types of contracting firms ranging from impossible to easy in regard to permanently hiring the contractors they provide • Before working with a contracting firm, read their contract and understand your ability to hire the contractors you like