The LLoyd blog: hidden talent.

The Strategic Benefits of Utilizing Contract-to-Hire Employees

Contract-to-hire strategy

More and more employers are increasingly turning to innovative staffing solutions to maintain flexibility while ensuring top-tier talent acquisition. Among these solutions, contract-to-hire employment arrangements have emerged as a strategic choice for navigating the competitive market terrain.


Understanding Contract-to-Hire

Contract-to-hire is a recruitment model wherein an individual is initially placed on assignment on a temporary or contract basis by a staffing firm such as Lloyd It is understood that there is the potential for a permanent position at the end of the contract period. This approach allows employers to evaluate the candidate’s skills, performance, and cultural fit before extending a permanent offer, while providing workers with an opportunity to showcase their capabilities in a real-world setting. Similarly, workers also get a chance to experience the organization’s culture and see how comfortable they feel in the environment and with the work itself.


Contract-to-hire. Source: American Staffing Association

Why Employers Choose Contract-to-Hire

What’s driving employers toward this strategy? Let’s break it down:

  • Flexibility
    Contract-to-hire arrangements provide unparalleled flexibility for employers. They allow companies to scale their workforce up or down swiftly in response to changing business needs, market trends, or project demands. This flexibility is invaluable in today’s business environment, where agility can mean the difference between seizing an opportunity or falling behind.
  • Savvy Talent Acquisition
    Leveraging contract-to-hire opportunities enables employers to assess first hand a candidate’s skill set, work ethic, and cultural fit before committing to a permanent hire. It serves as an extended trial period, allowing both parties to evaluate mutual compatibility. This mitigates the risk of making a poor hiring decision and ensures that only the most suitable candidates transition into full-time roles.
  • Cost Efficiency
    From a financial standpoint, contract-to-hire arrangements offer significant advantages. Employers can avoid the upfront costs associated with permanent hires, such as recruitment fees, onboarding expenses, and benefits packages. Instead, they pay only for the contracted period, reducing overhead costs and head count, while maintaining operational efficiency.  In instances where the contract worker was referred by a staffing agency, the individual typically converts after an agreed upon period if both parties want to make the arrangement permanent. Until this conversion to the organization’s payroll, the temporary associate is the hourly employee of the staffing firm who is the employer of record assuming all the costs and burdens associated with employment.
  • Specialized Expertise
    Contract-to-hire employees often bring specialized skills and expertise to the table. Employers can tap into this talent pool to address specific project requirements or fill skill gaps within their teams. Whether it’s IT development, marketing strategy, or financial analysis, contract-to-hire workers offer a versatile solution for accessing niche competencies on a temporary basis.


Other Recruitment Options


An alternative recruitment strategy to contract-to-hire is direct hire placement. With direct hire placement (also done through a staffing agency), the candidate is hired directly as a permanent employee of the company from the outset. The staffing firm takes on the employer’s search for a candidate for a defined role and assists with the recruiting and hiring process, but does not have any ongoing involvement in the employment relationship once the candidate is hired.

While temp-to-hire or contractor-to-hire arrangements provide flexibility and risk mitigation for employers, offering permanent positions from the outset can attract different candidates – those who prioritize stability and long-term career growth. One key difference between the two methods is that direct hire often engages “passive” candidates. These are individuals who are not actively seeking new opportunities, but possess valuable skills and experience. These candidates may be more inclined to consider a career change if presented with an attractive offer that aligns with their professional goals and lifestyle preferences. Lloyd always encourages our client partners to share if they are planning to use a temporary position as a means to hiring because knowing so, allows us to screen candidates who may be better suited to such an arrangement. Not everyone who temps is seeking a full time job, many enjoy the versatility and flexibility of the work arrangement.


Cost Considerations

Employers must weigh out the costs between the two strategies and consider budget along with their hiring time frame (time to fill) and overall performance goals.


Contract-to-hire employees typically command higher hourly rates than their permanent counterparts to compensate for the temporary nature of their employment. The billing rate for a contract worker includes allocated resources for administrative tasks such as payroll processing, contract management, and compliance with labor regulations, as well as onboarding expenses.

For direct hire placement, the staffing firm typically charges a one-time placement fee usually a percentage of the candidate’s first year annual compensation. This fee is usually higher than the conversion fee in a temp-to-hire arrangement since it covers the entire recruiting and hiring process from sourcing to pre-screening, to salary negotiation and pre-employment credentialling.


Engaging a Staffing Agency

Many staffing firms, such as Lloyd, offer both contract-to-hire and direct hire placement services to their clients. This allows companies to choose the option that best suits their hiring needs and preferences. Using the same staffing firm for both services can provide continuity and consistency in the hiring process and overall relationship management. It allows the staffing firm to gain a full understanding of their client’s hiring patterns, skill needs, and to build a pipeline of candidates who may be ready for either permanent hires or available on demand for contract engagements. Online research will identify potential partnerships who are located geographically near you (search for “staffing agencies near me”) or look for those who have specialized niches in specific industries. Positive Google and LinkedIn reviews and ratings from both clients and candidates will indicate reputable firms with quality service solutions and a core workforce of available contractors, as well as candidates who have been successfully placed.


Is it right for your organization?

Contract-to-hire arrangements remain one of the more strategic advantages in today’s competitive market where agility dominates. By embracing the versatility of contract work and harnessing the expertise of a contract staffing agency, employers can unlock their full potential in the pursuit of success. In the end, all companies are best advised to utilize multiple recruitment channels to reach the broadest audience of potential candidates. By adopting a comprehensive talent acquisition strategy that incorporates various recruitment tactics, employers can maximize their access to top-tier talent while accommodating the diverse preferences and needs of today’s candidates.


Are you seeking new employment and want to use working temp-to-hire as a means to find a new position?
Visit our Job Board to apply for one of our current searches.
Need Lloyd to Help You Hire?
If you have a current recruitment challenge that might benefit from a contract-to-hire conversion or a direct hire search, we will identify candidates who will meet your expectations and organization’s mission.
Complete our Request Talent query to launch your search and we will have one of our Lloyd recruitment professionals reach out to you.


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