I have been getting a lot of recruiters calling me since I went on the job market and many of them have been pointing me towards contract to hire positions.
Each recruiter assures me that if I get the contract then future employment is "pretty much set in stone" but this seems a little fishy to me.
What are the major differences between direct hire and contract to hire, and how can I be sure the company doesn't want to simply use me for a few months to get some task done then not hire me?
Contract to hire people do not get the employee benefits provided by the employer to which they are contracted. The contracting house might provide nominal benefits.
Contract to hire is usually a W-2 so you wouldn't need to pay the employer's part of your taxes as opposed to a 1099. (If you're not in the US.)
It gives the employer and yourself a trial period to see if they want to keep you, and if you want to stay. It tells you that there is a FTE position and it's yours to win. A regular contract position tells you that there is no FTE position at the end of the rainbow.
I got my current job by starting out as a contract to hire. The company I work for only brings in IT through contract to hire because they like the tryout period, and the opportunity to see how you fit in with the rest of the group. Also, my employer only has two people in the HR department, and the managers are busy,and they don't have time to sift through a bunch of resumes.
The recruiter may get a reward if you stay, but who cares? It doesn't come out of your pocket. The recruiter did the work for the company, and for you to find the match, so why shouldn't they get rewarded. The recruiter provides a service to the company that benefits you. They sifted through the resumes, sought candidates, and did the initial round of interviews.
Direct hire may not seem as risky as contract to hire. Most recruiting firms I've worked with in the US set things up where you are a full-time employee of theirs. They manage the contract with the other firm until you are switched over.
This seems to be more and more popular in the technology field. I see it as more of a trial period. Although more firms are hiring, they are able to take advantage of the job market and be a little more demanding.
I see a big disadvantage is missing out on 401K and any other retirement or seniority benefits during this temporary period. There are always people out their trying to scam, so you may want to make sure the company is solid. Another indicator would be how many of their current full-time employees had to go this route.
Contract-to-hire has become very popular. Here is how your hourly rate translates to salary:
If you are W2 then your "recruiter" will handle your paycheck and deduct federal and state income taxes and all of that. Most recruiters will not offer benefits. No PTO! So here is the ballpark annual conversion math:
Your hourly RATEx2080 equals the number of dollars you would gross if and only if you worked 40/week for 52 weeks a year. Now, from that you have to pay yourself (subtract from gross) 80 hours for 2 weeks of vacation plus 40 hours for sick leave plus another 80 hours for 10 holidays per year.
So that's what? (RATE*2080) - (RATE*200) or just (RATE*1880).
So since there are 26 pay periods you need to escrow RATE*7.7 hours. Now, you can comfortably assert you make the equivalent of RATE*1880 a year plus 2 weeks of paid vacation, 1 week of sick leave (or 3 weeks of PTO) and 10 paid holidays per year.
Your mileage may vary, but those are the major things. Health care is something you have to pick up, but honestly you can do it for about as much as would be deducted from your full time direct hire pay check.
Contract to hire has several risk factors involved.
First, you may get no benefits or reduced benefits. Sometimes the hourly rate is increased to allow you to pay for your own health insurance. This means the eventual offer from the company for a permananet postion may involve a lower pay rate than you get as a contractor. You may not get paid holidays or fewer holidays than the permanent employees get.
Second, you need to be able to impress the company fairly quickly to be converted. So this type of hiring is often not a good idea for someone inexperienced and is much riskier for them than for someone experienced enough and capable enough to produce good to excellent results in less than 3 months. If you are not already an excellent performer, the job becomes much riskier.
Third, contract employess at many businesses are treated worse than regular employees. Be prepared for people to not bother to learn your name, for instance, until you are brought on board for real. You may also be assigned to worse work spaces.
Fourth, these things take time and things can change for the company in the meantime. Sometimes the three months stretches to 9 or 10. Sometimes the funding for any new permanent hires disappears especially if it is the government. Sometimes the whole project is killed. Be prepared to pay for your own benefits for longer than you estimated.
All that said, you have to evaluate the risks for yourself. Balance the risks against your current situtation. Remember nothing will keep you from looking at other positions during the contract period. Many people do successfully get hired in a contract to hire situation. And sometimes it is the only way to get hired in a particular company you may want to work for.
Keep in mind also that the company may end up not being able to offer you a direct hire position. I took a chance on a contract to hire in 2012, and they did want to keep me. They extended my contract several times, but there were several organizational changes, and they were told they couldn't hire anybody. Right after I left, a person transferred out, and they didn't replace the position.
