Why do companies do "contract to hire"

Question

What is the purpose of companies doing a contract to hire position? Why not just do direct hires? Is it protecting them in some way?

Answer 1

It is a way to test out people and you don't have to worry about severance packages or being sued

Answer 2

Try before you buy.

Hiring employees is easy. Firing employees is very hard.

Rather than waste vast sums of money committing to a particular employee, paying them benefits packages, severance, etc.. you can work with them for long enough to get a feel for their strength before fully committing to that employee.

Answer 3

I dunno how it works in the states, but in Australia, they tend to do it for 2 reasons:

1. It's very difficult to fire someone once they are employed full time. "Firing" a contractor basically means not renewing their contract so if it doesn't work out, you don't have any obligation to keep them on.

2. Sometimes you're not sure exactly where the person will fit into the organisation or there isn't a position currently available but you contract to hire in anticipation of a position opening up. Again, it comes back to my first point, but if the person doesn't work out you have no obligation to renew their contract.

Answer 4

Companies are also generally more sensitive to fixed costs (hires) vs variable costs (contractors). Taking on contractors increases your variable costs but you can terminate the contracts if business conditions suffer. Generally though salaried employees are regarded as fixed costs.

Salaried employees can also be regarded as liabilities (financially) because at the time of termination the employer will typically owe them money (redundancy, unpaid leave, etc). So they impact the balance sheet. Contractors can be held off the balance sheet.

The downside to contractors is that they cost more per day and tend not to stay around quite as long.

Answer 5

It's also a matter of budget allocation. An employee goes on the wage and salary bill, a contractor goes on the regular expenses budget for the departement. In big companies those two budgets are discussed separately :-)