Would like an explanation of contract-to-hire roles and recruiters

Mide · July 2015

So I've always been a direct hire with bennies on day 1 wherever I worked. Not sure if this was normal or abnormal, but the process was usually straightforward in that I applied, got called for a phone interview, in person interview, then offer. In another thread I mentioned that I was applying to positions in another city in my same state (9 hrs away) but I have mainly been contacted by recruiters of jobs that I had already applied to direct. So for example I would apply online to Company 1 through their website. Company 1's HR team would never contact me, but occasionally some random recruiter would find my info on Dice and ask to submit my information through their system. Ironically sometimes I will get a phone interview through the recruiter but would not get anything through my direct submission.

So first question is, how does the whole relationship between the recruiter and the company work? I would expect that a company would save more money by just interviewing me directly and then hiring me vs dealing with a 3rd party recruiter. The position was listed as a regular FT job through the company's website, but when dealing with the recruiter it somehow turns into a 3-6 month contract to hire. This is also confusing.

Second question is what it the deal with contract to hire work itself? I live in a right to work state so either side can **** the other at any time. My understanding is that if I took a 3-month contract to hire job. If for any reason they didn't like me or my work, they could just tell me to not come in the next day and then I would be out of the job, just like a temp. On the other side of that coin, if I was working as a contract worker, what is to stop me from working only long enough to find a real direct-hire job? I mean I may enjoy working for the company, but if another company comes along and wants to hire me FT with bennies out the door, I would have no incentive to stick with the contract to hire position. If I did jump early the recruiting company would not get paid so both the recruiter and company loses.

"Contract to hire" to me seems like "they don't want to give you any health insurance benefits" and "they want to test you out but can show you the door right quick". It seems like such a bad deal for the employee...but at the same time I find it odd that these companies aren't calling back with direct hire/perm positions. Have you heard of companies that "only" hire via a contract-to-hire method vs direct hire?

As an aside I also find it humorous that random recruiters will call me and ask if I want to do some job that is super easy or ones that I'm not qualified for, for a fixed 3-6 months in some random place in Montana, Ohio, or South Dakota. Why would anybody with a stable, FT job uproot themselves to go take on a random, short-term contract-only job?

adam220891 · July 2015

OP,

I agree with your points completely. I will patiently await responses to see what I'm missing.

lsud00d · July 2015

First of all, companies hire contractors for several reasons:

As you mentioned, they are expendable
The company (the customer) does not have to provide benefits
They envision only a short term need for a position

Increasingly, more and more companies are hiring contractors, which is creating a different revenue stream/business of companies that provide contracting/consulting services. The better ones will offer you benefits and if you are good they will work to line up contracts so you have continual work (read: they can continue to make money off of you by billing you out). If you're not working on a project you're "riding the bench", and unless you're worth it (read: they can make money off of you in the very short term while you cost them money not working), you'll get dropped like a sack of potatoes.

Recruiters fit into this equation of hiring temps, full-times, or contract-to-hires (which is an out-sourcing of in-house HR-as-recruiters type staff). The concept of contract-to-hires is as you imagine although from what I've seen, more often than not the person (again, if they are good/financially worth it) will get hired on full-time. Just remember that just as you need to be good in your field to advance, so do recruiters. If they provide bad workers/place workers poorly, they will not get hired for future placement jobs for said company. That said, many recruiters work on the 'shotgun' technique of placing cold calls/emails to see who will bite. Don't be surprised when this happens--it's the same outcome as when you see guys using terrible pickup lines. Why do they keep doing it? Because if it works 10% of the time, they're still batting better than 0.

I've been contracting/consulting for half of my career now (8 years professionally) and I've made much more money and gained much more experience by doing contracting/consulting than by being in-house IT staff. There is much more freedom to work with new products, new projects, and have more expected of you. I don't anticipate ever going back to a traditional IT structure as I will be going independent within the next few years because that's truly where the money is.

Mide · July 2015

Thanks for the reply. So what do you do for health insurance? Do you buy your own from the healthcare.gov and just keep on paying? Additionally do you charge "more" hourly through the contract position to cover said lack of insurance and retirement?

lsud00d · July 2015

If you're not covered for benefits then yes, you buy your own health insurance. And to clarify, healthcare.gov is just a platform, you don't actually get insurance through it--it connects you to insurance companies that service your area. If you're independent it's easier to negotiate your hourly rate, and there is still some leeway in more senior-type contract roles, but lower-to-mid contract positions are typically a set $/hr.

If you're interested in a role that someone pings you about, your first question should always be "what's the budgeted range?" or "what's the pay rate?" That way you can factor in if the position is a "good deal" for you and if you anticipate re-countering to include what would offset benefits in a normal FTE position. I always ask this question even when I'm not on the market and frame it in a way that I might be able to connect them with someone in my network if the fit is right. 90% of the time the recruiter will tell me the range. You're in the drivers seat and never forget that.

That brings up a whole 'nother conversation of understanding benefits and what they're worth. Note that when an employer offers medical benefits, they are subsidizing X amount. For example, if you pay $70/mo, they might be subsidizing $130/mo (but they're not paying that because they get tax breaks/credits for employing you) as a comparable $200 plan.

In addition, don't forget about retirement. If you strike it solo or don't have benefits, set aside a certain amount a month towards an IRA, or retirement account of some sort. Sure, employer contributions to a 401k are cool (401k was never meant for a retirement plan BTW), but if the vestment period is 5 years and you're not going to be there that long, their contribution never really existed and there's very few benefits aside from tax-sheltering to come out ahead on.

Long story short: start an IRA if you plan to advance rapidly in your career and only start a 401k with a new company if they have a quick/immediate vestment period that you plan on meeting. Always have health insurance even if you have to pay out of pocket.

Mide · July 2015

Excellent advice on the retirement and hourly rates. I've never don't the whole independent/contracting thing, but I would need to deal with all of the health insurance stuff if I went down that road. I haven't noticed much of an increase in hourly rate in a contract position vs what that would be as a FTE with salary + bennies though. I'm sure this goes with the whole negotiation thing, but the range specified by recruiters seem to be lower..

ImThe0ne · July 2015

With the larger recruiting firms, they typically offer you benefits as you are technically an employee of theirs. The benefits they offer are typically bare minimum, no holiday/vacations, no sick days, basic health coverage as required, and some have 401k, but is pointless as it's meant to be a temporary position until you are brought on as an FTE or moved to something else.

My current position was a contract-to-hire. It's one of those things where, as long as you know you are good at your job and understand the circumstances, you shouldn't be scared of a contract-to-hire. To be honest, in my current position I was making a lot more in hand cash when I was a contractor than I am as an FTE, but know as an FTE I have 5 weeks of vacation, good insurance, retirement, etc. So it actually costs them a lot more in the long run than I was as a contractor.

It make a lot of sense for both parties too, but as with anything there are downfalls as well. From the companies stand point, it's great. We just had a contract-to-hire employee on my team and he didn't last 3 weeks before we had to get the recruiter to come and get him. It was a lot cleaner cut than it would have been if he had been FTE and it saves my team from having to deal with the nonsense.

Blackout · July 2015

Number one thing, Contract to hire is a try before you buy. That being said Cisco has a tendency to use contract to hire for persons who don't necessarily have all the experience they desire for a blue badge role, essentially they are saying......Impress us.

Now Contract to hire does come with a lot of downside.

1. Your doing the exact same job as perm employees, but with zero of the benefits, high cost medical insurance, almost no PTO.
2. Your going to be treated like a contractor, most of these contract to hire are a revolving door, sometimes your going into a role that they had 3 unsuccessful candidates before you, and some people will treat you like crap because of it.
3. Your expendable, as soon as they do not need you anymore, your gone.

Contract to hire is a Risk, but sometimes the reward can be worth the Risk, places like Cisco, Google have ridiculous benefits for their perm employee's and contractors are trying to get those perks.

Would like an explanation of contract-to-hire roles and recruiters

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