Conversion Fee

How conversion fees work

In a temp-to-hire arrangement, the client gets to evaluate the worker on the job before committing. The agency earns its return through the markup on hours billed. If the client hires the worker early, the agency loses that expected billing, so the contract sets a fee for early conversion.

Most agreements use a sliding scale. A common pattern: full placement fee if hired in the first 160 hours, declining in steps, and no fee after 520 hours. Others charge a flat fee (for example $2,500 before 90 days, nothing after) or a number of weeks of bill rate spread. Agreements for professional roles more often start at the agency's full direct hire rate; high-volume light industrial and clerical programs often waive the fee entirely after a set period, since temp-to-hire is the point of the program.

What the worker costs in the meantime

Clients often wait out the free-conversion threshold to avoid the fee. Do the math first. If a temp earns $20.00 at a $28.00 bill rate, the spread is $8.00 an hour. Waiting another 260 hours costs $2,080 more than paying the worker directly would (less the client's own burden and benefits cost). If the fee to convert now is $1,800 and the risk of losing the worker to another offer is real, converting now is often cheaper and safer.

When the fee applies

Conversion fee clauses usually apply when the client, or an affiliate, hires the worker directly, hires them through another agency or payrolls them through another provider, within the restricted period. Most also apply for some months after the assignment ends; for example, a fee is due if the client hires the worker within six months of the assignment ending. Clients get caught by the second agency rule: a former temp reapplies through a different agency, the client hires them, and both agencies invoice.

Agencies cannot generally prevent the worker from taking the job; the fee is a commercial term between agency and client. Contracts that restrict the worker directly face more legal scrutiny and vary by state.

Negotiating conversion terms

Clients running high-volume temp-to-hire programs should negotiate the schedule up front in the master service agreement, not hire by hire. Good terms include a free conversion threshold matched to the real evaluation period (520 hours is common for hourly roles), a fee capped at a flat amount for hourly positions, and a short post-assignment tail. Agencies should make sure the schedule reflects their recruiting cost; a program that converts 60% of temps at 160 hours with no fee is running a direct hire program at temp margins.

Common mistakes

• Not tracking hours to the threshold, so conversions happen a week before the fee drops to zero.
• Ignoring the post-assignment tail and rehiring a former temp three months later.
• Hiring a temp who applied directly online without checking whether they were placed by an agency recently.
• Letting hiring managers make verbal offers to temps without telling HR or the agency.