Temp-to-Hire

How temp-to-hire works, step by step

The client places a job order with a staffing agency and flags it as temp-to-hire, not pure temporary staffing. The agency recruits, screens and onboards the worker, and the worker becomes the agency's W-2 employee. The agency runs payroll, withholds taxes, pays unemployment insurance and workers' compensation, and invoices the client an hourly bill rate.

The worker shows up at the client's site and is supervised by the client's manager like anyone else on the team. At the end of the agreed period, the client chooses one of three paths:

1. Convert the worker to its own payroll with a regular offer.
2. Extend the assignment because the manager is not sure yet or the headcount is not approved.
3. End the assignment, and the agency redeploys the worker elsewhere.

Most contracts set a minimum number of billable hours, commonly 480 to 520 hours (about 12 to 13 weeks full time). Convert after that and there is no fee. Convert earlier and you pay a conversion fee that usually declines the longer the worker has been on assignment.

What temp-to-hire costs

You pay the agency's bill rate for every hour worked during the trial. For light industrial, warehouse and clerical roles, the markup over the pay rate is typically 30% to 60%, so a $18 hourly worker might bill at $24 to $29. Skilled trades, IT and healthcare roles run higher.

The conversion fee is where buyers get surprised. Common structures include:

• Hours-based waiver: free after the minimum hours, a sliding fee before.
• Flat fee: for example $1,500 to $5,000 for hourly roles regardless of timing.
• Percentage of salary: often 15% to 25% of first-year pay if converted on day one, reduced for every month worked.

Read this clause before you sign. A manager who loves a temp in week three will want to hire them immediately, and that impulse can cost more than the whole trial.

Temp-to-hire vs direct hire vs contract

With direct hire, the agency finds the candidate and you put them on your payroll from day one, paying a one-time placement fee. You get no trial period through the agency, though many employers use their own probationary period.

With pure temporary or contract staffing, there is no plan to convert. The assignment ends when the project or season ends.

Temp-to-hire sits in the middle. It costs more per hour than hiring directly, but you only commit to the people who prove themselves on the job. It works best when performance is hard to predict from an interview (attendance, pace on a production line, how someone handles a 10-hour shift) and when you can live with some churn during the trial.

Why high-volume employers use it

Warehouses, manufacturers, call centers and logistics operations convert hundreds of temps a year. The reason is simple: for hourly roles, the strongest predictor of a good hire is how they actually showed up for the last 60 days. Attendance, punctuality and safety record are visible in the timesheet.

A plant hiring 40 assemblers a quarter might bring in 60 temps, convert the 35 to 40 who hit attendance and production targets, and release the rest without the paperwork and unemployment claims of a termination. The agency absorbs the screening workload and the early attrition, which in these roles can run 30% or more in the first 90 days.

The trade-off is that some of the best candidates will not accept temp work. Someone with two direct offers will take the one with benefits on day one. If your fill rate on temp-to-hire orders is dropping, that is often the reason.

Common mistakes

• Keeping workers in temp status for a year or more. Long assignments raise co-employment and joint-employer questions and damage morale. Set a conversion decision date and stick to it.
• Promising conversion you cannot deliver. If headcount is not approved, say so. Temps who were told "you'll be hired in 90 days" and then extended twice tend to leave.
• No defined conversion criteria. Agree up front on what earns an offer: attendance threshold, production rate, safety record, supervisor rating.
• Converting at the same wage. Workers often expect a raise or at least benefits on conversion. If the offer is the same rate with a benefits deduction, take-home pay drops and some will decline.
• Ignoring the fee clause. See the cost section above.

Legal and compliance notes

During the temp period, the agency is normally the employer of record for payroll and tax purposes, but the client usually has duties too. Under OSHA, host employers and staffing agencies share responsibility for temporary worker safety. Under federal anti-discrimination law, both can be liable depending on control over the work. Wage and hour rules apply to all hours worked regardless of which payroll they run through.

For benefits, the trial period does not automatically count toward your own benefits waiting period, but check your plan documents and, for applicable large employers, how the ACA employer mandate treats hours worked through the agency. Rules vary by state, so confirm details with counsel for your locations.