May 4, 2021

Maybe Contract-To-Hire Isn’t Dead?


Episode Highlights

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When 2020 began, we had 2.5% unemployment and contract-to-hire was (unofficially) dead.

What a difference a year makes. Contract-to-hire has come back in a big way, but that’s not all bad. Jeff Smith and James Hornick will discuss what companies unfamiliar with this hiring method need to know, and what advantages job seekers actually have in these scenarios.

Episode Transcript

 Okay, the 10 minute talent rant is live.


I’m James Hornick joined by Jeff Smith. We are on the clock. The 10 minute talent rant is our ongoing series where you break down things that are broken in talent acquisition, hiring and maybe even pitch a solution or two. This week’s topic, maybe contract to hire isn’t dead. And I think I need to give some, a little bit of a, why we’re even talking about this.


Because I think a year ago I said on LinkedIn at some point in time, that contract to hire was dead. And of course I was talking in specifics to tech recruiting mostly, but a lot of areas. There’s some areas where it’s still kind of, in design and some of those functions it’s still very popular. But I always get this question too.


Why am I such a hater on contract to hire? So let’s give some background here on this one. Let’s back up to when the economy is normal and when the economy was two and a half percent unemployed and tech unemployment was zero. Maybe that’s not normal anymore. I don’t know. But in those days, first off, I’m not talking about contracts that happened to convert.


I’m talking about people who set out, they want to hire perm employees but they want to try before they buy and that’s kind of their intention. Two reasons why I don’t like it. One, the pool is incredibly small. You’re never going to attract people who are actually perm hire employees already, who are permanent employees somewhere by giving them just a contract to start. You’re whittling down the people who you could hire to this many.


Second, I still  think that if this is a perm hire position you want, but you want to try before your buy, that’s just a terrible way to start a relationship.  I’d rather see companies actually vet out their interviewing process and start things off on a better note because it does leave a sour taste in some people’s mouth.


It’s just not how you want to start things. But anyways, these are not normal times. So things are a little bit different. We have seen a pretty significant uptick in this space and it’s not completely worthless. There are some things that are good about it, both for companies and for candidates. So I did want to mention that. Jeff, let’s talk about the company side. What do you got?


First let’s all remember the time that James admitted that he posted something that would, that he could contradict. Company side, listen, there’s more candidates than there used to be. COVID did have its impact on a variety of sectors, all of which we’re impacted. So there’s more people that are going to be open to this.


The pool’s a little bit bigger. The quality of that pool is a little bit bigger. I think you stated the obvious caveat that just because that pool is bigger, does it ultimately change what a candidates motivations are? You still have to ask about that stuff, but it is that, there’s more candidates out there that are willing to discuss this as an option. On the company side


I mean, I feel for all companies that don’t have a lot of money right now. There’s a lot of places that they have important projects they want to get done and they just don’t necessarily, they can’t justify the headcount. They don’t have the budget for that, but they do have project budget. And I like the idea if you need to get some projects done, setting things up where you’re banking on the fact that your company is going to improve, you’re going to have more money in 2021. Let’s get people started on a contract to hire or use some of that project budget and then set yourself up. I do think that’s a positive the message versus just hiring a consultancy, not to throw shade at that. But I think it’s a reasonable way to bring people on board right now, knowing that things will hopefully improve for you in the future and it’s a reasonable expectation to set. And maybe it’s just, maybe it’s not even contract to hire per se. I mean, just when the conversation is occurring, like, Hey, this is contractual job. This is something where we have a finite amount of money now, that might change in the future and we hear and recognize you candidate, that your ultimate goal is potentially to gain full time employment. Yeah. Candidate side, what do you think here? Cause there are benefits and there are things that I like about this.


Like I said still not my favorite, but what do you got? Yeah monetarily, I mean you can become your own advocate. You should be getting paid a premium, you know, since there isn’t a longterm commitment. And I think that you have a lot more flexibility via you engaging directly with that employer or if you’re using an agency, you do have a lot of firepower there to negotiate an hourly rate that’s going to make it worth your while.


So financially speaking, it can be pretty lucrative. The trade off is that there isn’t a lot of security to it but that’s the situation a lot of people are in right now. I think not only is it, and this is for anyone who’s never done contract before- if you’ve been a permanent employee somewhere in the past, you should expect to get a higher hourly rates.


So just putting that in your head. Your ask should be a little bit higher than just chopping up your normal salary you would expect it into hourlies, but it does put you in a better negotiating position for, you know, if things do work out well and you love it there and they want to bring you on board, it’s easier to negotiate once you’ve already proven your value. Once they know that you do a kick ass job, they’re not going to want to go back to the drawing board. You definitely have the ability to ask a higher salary amount once because you have proven yourself at this point, then maybe you would have three or six months ago when the entire arrangement started.


And the flip side too, but the other reason why I don’t hate it right now is because everyone’s remote and because everyone’s remote, like if it sucks, you can keep interviewing. I hate to say it, but we’ve seen, and this is not specific to contract to hire but seen a lot of situations where just interviewing in general, people have more time to do more interviews, you know?


I think historically your interview time was limited by how many times you could get away from your office to do interviews. So most candidates can only take on so many things at a time, but right now that’s not the case. Right now you can interview all kinds of places because everything’s over Zoom.


But if for some reason, if you get into a contract to hire scenario, it’s not good it’s much more feasible for you to keep looking for other things in the meantime to find something that’s better versus in normal times where that just might not be possible. So I think for that reason, it’s decent.


Look, at the end of the day a contract to an employee can represent a lot of things. It can be, we mentioned the financial component that there should be some, given the risk, there’s some financial incentive there and you want to calculate that. But when you’re in a contract situation, there’s a specific problem that company XYZ is trying to solve, right?


 You’re acquiring in a lot of cases, new skills, you’re refining skills that you already have. All of that’s useful out on the open market. So like you said, you become instantaneously more valuable if you do a kick ass job internally, but marketability wise coming out of the back end of it. You’re basically saying, “Hey look, I took project,  X, Y all the way to Z and here was the outcome.”


And you’ve got a tangible kind of story to tell that’s recent, relevant and shows that you’re willing to, you know, that you can acquire these new skills. Alright. Takeaways.  I got one thing I want to mention.  Do you have anything in particular you got in mind here? No,  like I said, this is a risk reward thing.


I think that everybody has to determine how much of a pain threshold they have for it. But I think the opportunity for both sides to be open about things is there and there’s opportunity. I will just close by saying when this all ends and this will all end someday, someday we’ll be out of quarantine, some day the job economy will fully recover .When that happens to what I said previously a year ago, contract to hire is going to suck again and I would just urge companies, if you have success doing this in the short, don’t be the last one still doing it when things recover because that’s when things are going to completely flip again.


And once again, it’s going to be very hard to bring good talent on board or convince talent to leave other organizations when you’re not doing permanent hire situations to start. So don’t want to see people miss out or struggle. Anyways. That’s a wrap for this week. We’re short on clock. Thanks again for tuning into the 10 minute talent rant, which will always be available for replay on the Hirewell YouTube channel, as well as the talent insights podcast on Apple podcasts, Google podcasts, Spotify and YouTube.


Jeff pleasure as always. Thanks for tuning in. Everyone out there, we’ll see you soon. 


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