As a small business owner, you’re generally more susceptible to risk than larger businesses are. A common risk area is losing a lot of money, time, and effort when you hire the wrong employee. This is especially true if you’re in a highly competitive industry or are hiring for an entry-level position.
What if there was a way to work with a new employee on a trial basis? Oh, wait - there is! Temp-to-hire, also called contract-to-hire, can be a great option for small businesses. It can also have some drawbacks.
At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. We’ve seen temp-to-hire done right and done wrong, and we know the benefits and potential problems. Here, we cover:
- What is temp-to-hire, and how does it work?
- What are the pros of temp-to-hire?
- What are the cons of temp-to-hire?
What Is Temp-To-Hire? How Does It Work?
Temp-to-hire is done through a staffing agency. Small businesses - not limited to any industry - sign a contract with an agency that hires a worker and places them with the business for a time frame (usually 3-12 months). Many of these details will depend on what the contract says.
After the contracted time is up, the business can choose to hire the worker internally, extend the contract with the agency, or even stop working with the contracted worker and the agency.
While temp-to-hire is short for temporary-to-hire, and it’s also called contract-to-hire, it’s not the same thing as a temporary employee or an independent contractor.
Temp-To-Hire vs. Temporary Employee
Temp-to-hire is often confused with temporary employment. The ultimate goal of a temp-to-hire position is to hire them internally in the end.
Meanwhile, temporary employees are never intended to be permanent hires. They may have been hired for seasonal or project-based help.
Contract-To-Hire vs. Independent Contractor
Contract-to-hire workers are also often confused with contractors. The contract involved with contract-to-hire (also known as temp-to-hire) workers is between a business and an agency.
You cannot hire an employee as a contractor for a few months and then make them a permanent hire. A contractor is more of a consultant; they don’t work for you.
The Benefits of Temp-To-Hire
The list of pros of temp-to-hire for employers include:
- Less risk (in many areas)
- Less effort in the hiring process
- Little-to-no effort or funding required for attracting applicants
Don’t commit to hiring a worker who’s a bad fit for your company if you don’t have to! During your contract, the agency is the one who may offer healthcare and other benefits to the worker - not you. Plus, it won’t affect your unemployment rate if they don’t work out.
Not to mention, hiring new workers isn’t easy or cheap. The agency you work with might already have a pool of qualified applicants, and they usually do the advertising and interviewing for you.
The Problems of Temp-To-Hire
The list of cons of temp-to-hire for employers include:
- Paying higher wages to the agency during the contract
- Paying a finder’s fee if you decide to hire the worker permanently
- Limited potential candidate pool
While your contract is on with the agency, you will pay extra (often hourly) for the worker. This money is used by the agency to fund the worker’s benefits and to keep the agency running. You also pay the premium finder’s fee to hire the worker internally, and you may be subject to other fees - depending on what your contract says.
In the pros above, we mentioned that your agency might have a large pool of qualified candidates. However, that’s not true of every agency, and it’s possible that the candidate pool can be smaller because some workers don’t like the risk of not having a permanent job at the end of a temp-to-hire contract.
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Ultimately, temp-to-hire (contract-to-hire) can be worth it if you don’t have the budget for an HR professional. Plus, it’s even lower risk if the job you’re hiring for requires a lower skill level. This is a great trial run for both you and your worker; the pros outweigh the cons.
If you’re struggling to make decisions because you’re worried about following employment laws and managing your payroll, why not consider working with a small payroll provider? They can help, and they often offer much better customer service than the big, national providers.
CSI Accounting & Payroll has worked with small businesses for over 50 years, and we diligently stay on top of the laws. Plus, we even have an add-on HR service for payroll clients if you want to expand your HR capabilities without hiring an internal HR professional.
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