Published: 4 November 2026 · Last updated: 4 November 2026 · By Ameer Hamza
A CV and three interviews only tell you so much. Contract-to-hire lets you see someone do the real job for a few months before you offer a permanent role. It lowers the risk of a bad hire, but only if you understand how the hourly bill rate, the conversion fee and the contract terms add up.
The short answer: contract-to-hire means a worker joins through a staffing agency on a fixed trial period, often around 3 to 6 months, and you can then hire them permanently. During the trial you pay the agency an hourly bill rate (pay plus a markup that, as an industry estimate, often runs about 25% to 75%). When you convert, there may be a conversion fee, which usually falls the longer the person has worked through the agency. Local rules limit some of these fees.
How a Contract-to-Hire Works, Week by Week
Stage | What happens |
|---|---|
Week 0 | You agree the role, pay rate, bill rate, trial length and conversion terms with the agency. |
Weeks 1–2 | The agency shortlists screened candidates; you interview and pick one. |
Trial period | The worker is on the agency's payroll. You manage the daily work and approve timesheets. |
Mid-point review | You check progress against agreed goals and give feedback. |
End of trial | You offer a permanent role, extend the contract, or end the assignment. |
What It Costs: A Worked Example
Example only, for a role paid $25 an hour with a 50% markup and a 13-week trial at 40 hours a week:
Line (example) | Calculation | Amount |
|---|---|---|
Bill rate | $25 + 50% markup | $37.50 an hour |
Total billed in the trial | $37.50 × 520 hours | $19,500 |
Of which the worker's pay | $25 × 520 hours | $13,000 |
Of which the agency's share | Employer taxes, insurance, payroll, recruiting and margin | $6,500 |
Conversion fee (example) | 10% of a $52,000 salary, or $0 if the contract waives it after the trial | $0–$5,200 |
Compare that with a direct-hire fee of, say, 20% of $52,000 ($10,400) paid up front with no trial. The markup is not all extra cost: during the trial the agency carries payroll, employer taxes and the risk that the hire doesn't work out.
Conversion Fee Rules You Should Know
Where | What the rules say |
|---|---|
UK | Under the Conduct of Employment Agencies and Employment Businesses Regulations 2003, a transfer fee term is only enforceable if the contract also lets you choose an extended hire period instead. A fee can't be enforced if you hire the worker after the "relevant period": 14 weeks from their first day with you, or 8 weeks after their last day, whichever ends later. |
Ontario, Canada | A temporary help agency generally can't charge a fee when a client hires an assignment employee directly, except during the six months starting on the employee's first day with that client. |
USA | Conversion fees are set by your contract. Read the fee schedule and how long it applies before you sign. |
Contract-to-Hire, Direct Hire or Temp?
Choose | When |
|---|---|
Contract-to-hire | Skills are hard to judge in interviews, the role is new, or you want to test fit before committing |
Direct hire | The role is permanent and well understood, and you want the lowest total cost over time |
Temporary or contract staff | You need cover for a project, a seasonal peak or leave, with no plan to keep the person |
Not sure which agency model fits? Read staffing agency vs recruitment agency.
6 Terms to Agree Before the Trial Starts
Pay rate and bill rate, and what the markup covers.
Trial length and when you can convert.
Conversion fee schedule, including when it drops to zero.
Overtime and holiday billing.
Notice to end the assignment early.
Replacement if the worker leaves during the trial.
Make the Conversion Go Smoothly
Set clear goals for the trial in week one, so the decision is based on results.
Confirm the permanent salary range up front, so the offer doesn't surprise anyone.
Give feedback at the mid-point, not only at the end.
Plan the switch to your payroll, benefits and contracts before the last week of the trial.
Remember that someone working for you directly should be paid as an employee if the work looks like employment. The IRS explains how to tell an independent contractor from an employee.
Frequently Asked Questions
What does contract-to-hire mean?
A worker joins through an agency for a trial period, then you can hire them permanently if it works out.
How long is a contract-to-hire period?
Often about 3 to 6 months, but it is whatever you agree in the contract.
Do I have to pay a fee to hire a contract worker permanently?
Often, depending on your contract and local rules. In the UK and Ontario, the rules limit when such fees can be charged.
Is contract-to-hire more expensive than direct hire?
The hourly markup costs more during the trial, but you avoid paying a full placement fee for someone who might not work out.
Does the worker get benefits during the trial?
They are employed by the agency during the trial, so the agency's pay and benefit terms apply.
Sources and Further Reading
Regulation 10: restrictions on charging transfer fees (legislation.gov.uk)
Temporary help agencies, Your guide to the Employment Standards Act (Government of Ontario)
This article is general information, not legal advice. Rates and fees in the example are illustrative.
Try Before You Hire
Vortexian Tech's contract and temporary staffing service supplies screened workers for trial periods, projects and peaks, and handles contracts and pay while they work for you. When you're ready to hire permanently, our permanent recruitment packages run from 50% to 100% of one month's gross salary, each with a replacement within one month.
Tell us the role and trial length at info@vortexiantech.com or request a contract-to-hire quote, and we'll send the bill rate and conversion terms in writing.
