Template · Staffing agency documents
Contract-to-hire agreement
In short
A contract to hire agreement sets the terms under which a client can convert a staffing agency's temporary worker to its own payroll. It covers the bill rate during the contract period, the minimum hours before conversion, the conversion fee and how it declines over time, direct-hire solicitation rules, and who employs the worker before and after conversion.
Contract-to-Hire Agreement template
Contract-to-Hire Agreement
This agreement supplements the Master Staffing Agreement between the parties dated [Date]. Where the two conflict on contract-to-hire terms, this agreement controls.
1. Parties and assignment
This Contract-to-Hire Agreement (the "Agreement") is made on [Date] between [Agency Legal Name], of [Agency Address] ("Agency"), and [Client Legal Name], of [Client Address] ("Client"). Agency will provide [Worker Name] (the "Worker") to perform work as [Job Title] at [Work Location], reporting to [Client Supervisor Name], starting on [Start Date].
2. Contract period and employment status
The contract period runs from the start date until the earlier of (a) conversion under Section 5, (b) [Number] hours worked, or (c) termination under Section 8. During the contract period the Worker is an employee of Agency. Agency is responsible for wages, payroll taxes, workers' compensation insurance, unemployment insurance and any benefits Agency provides, and for Form I-9 verification. Client directs the day-to-day work and is responsible for safe working conditions, site-specific safety training and protective equipment at its premises.
3. Rates and invoicing
Client will pay Agency a bill rate of [$ per hour] for straight-time hours. Overtime hours, as defined by federal and state law, will be billed at [1.5 x bill rate], and [holiday / double-time hours] at [rate]. Agency will invoice [weekly] based on timesheets approved by Client's supervisor, and payment is due within [Number] days of the invoice date. Rates may be adjusted with [Number] days' written notice to reflect changes in minimum wage, payroll taxes or mandated benefits.
4. Minimum hours before conversion
Client may offer direct employment to the Worker without a conversion fee once the Worker has completed [Number, for example 520] paid hours on assignment with Client. Hours on other Client assignments through Agency count toward this total. Client will notify Agency in writing at least [5] business days before the intended conversion date.
5. Early conversion and conversion fee
If Client hires the Worker, directly or through another agency or a related company, before the Worker reaches the minimum hours in Section 4, Client will pay Agency a conversion fee based on paid hours completed at the date of hire:
- 0 to [Number] hours: [Percentage]% of the Worker's first-year annual base salary - [Number] to [Number] hours: [Percentage]% - [Number] to [Number] hours: [Percentage]% - [Number] hours or more: no fee
The fee is due within [30] days of the Worker's first day on Client's payroll. First-year annual base salary means the annualized base pay offered, excluding bonuses and benefits; for hourly roles it is the hourly rate multiplied by 2,080.
6. Direct hire without assignment and solicitation
If, within [6] months after the Worker's last day on assignment, Client or a related company employs or engages the Worker in any capacity, Client will pay the fee in Section 5 as if conversion occurred on the last day of assignment. Client will not solicit the Worker to leave Agency's employment during the contract period except under this Agreement. This section does not restrict the Worker's own right to seek or accept employment.
7. Conversion process
On conversion, Client becomes the Worker's sole employer from the conversion date, and is responsible for its own offer letter, onboarding, background screening and Form I-9 under its own policies. Agency will pay the Worker for all hours through the last day on Agency's payroll. Client will not require the Worker to pay any fee in connection with conversion.
8. Ending the assignment
Either party may end the assignment at any time with [Number] business days' notice, or immediately for safety, misconduct or legal reasons. Ending the assignment does not change the Worker's at-will status with Agency. Client will pay for all hours worked through the end date.
9. Replacement guarantee
If the Worker leaves or is released for performance within [Number] days after a fee-paid conversion, Agency will, at Client's choice, provide a replacement candidate or a [Percentage]% credit of the conversion fee toward a future placement, provided Client has paid the fee in full and on time.
10. General
Each party will comply with applicable employment, anti-discrimination and wage-and-hour laws. This Agreement is governed by the laws of [State]. Any changes must be in writing and signed by both parties.
[Agency Legal Name] Signature: ______________________ Name: [Name] Title: [Title] Date: [Date]
[Client Legal Name] Signature: ______________________ Name: [Name] Title: [Title] Date: [Date]
How to use this template
- Agree the bill rate, minimum hours and fee schedule with the client before the first candidate is submitted, not after the client likes someone.
- Fill in the worker, role, supervisor and start date for each assignment, or attach a per-assignment schedule if one agreement covers many workers.
- Set the minimum hours to match how long the client realistically needs to evaluate the role, commonly 320 to 1,040 hours.
- Write the conversion fee as a declining scale based on hours worked, with an example calculation in the cover email.
- Confirm with the client who will run background checks, drug tests and Form I-9 at conversion.
- Get both signatures, store the agreement with the job order and set a reminder in your ATS or VMS when the worker approaches the conversion threshold.
Who signs it and what it is not
This is a business-to-business agreement between the agency and its client. The worker does not sign it. The worker's own terms sit in their agency employment documents, such as a temporary employment contract and an assignment confirmation. Most agencies attach contract-to-hire terms as an addendum to their main staffing agreement, which already covers liability, insurance, indemnity and confidentiality. Keeping the conversion terms in a short addendum makes them easy to find when the client calls in week nine asking what it will cost to hire their favorite temp.
See the glossary entry on temp-to-hire for how this model differs from straight temporary staffing and direct hire.
Setting the conversion fee
The conversion fee compensates the agency for recruiting a worker it will now lose before it has earned its expected margin through hours billed. That is why the standard structure declines as hours accumulate.
A worked example: a light-industrial client converts a forklift operator earning $20 an hour after 300 hours. Annual base is $20 x 2,080 = $41,600. Under a scale of 20% for 0 to 260 hours, 12% for 261 to 520 hours and nothing after 520 hours, the fee is 12% of $41,600, or $4,992. Had the client waited another 220 hours, the fee would be zero and the agency would have billed the markup on those hours instead.
Typical thresholds range from 320 hours (about eight weeks) for entry-level hourly roles to 1,040 hours (about six months) for skilled or professional roles. Percentages commonly mirror the agency's direct-hire fee at the start of the scale. Pick numbers you will actually enforce; a fee schedule waived every time a client pushes back teaches clients to push back.
Clauses that cause disputes
Back-door hiring. The clause in Section 6 covers the client hiring the worker after ending the assignment, through a different agency or through an affiliate. Without it, an early termination followed by a direct offer two weeks later avoids the fee.
What counts as salary. Define it. Arguments about whether a sign-on bonus or shift differential is included are common.
Hours from other assignments. Decide whether hours at another site of the same client count. Most clients expect them to.
Pressure on the worker. Some states and many client policies prohibit agencies from charging workers a fee or restricting them from taking a job with the client. Section 7 says the worker pays nothing. Do not add clauses that bind the worker through this agreement, since the worker is not a party to it.
Co-employment and compliance
During the contract period, the agency is usually the employer of record and the client directs the work, which makes both potentially responsible under some laws as joint employers. Overtime is a common example: if the worker exceeds 40 hours in a workweek, overtime is owed under the FLSA whether or not the client approved it. Safety is another; OSHA expects the host employer to train temporary workers on site-specific hazards.
The agreement should be clear on who does what, but it cannot contract away legal obligations. Several states, including Illinois, New Jersey and Massachusetts, also have specific rules for temporary staffing firms. Rules vary by state, so have counsel review your template for each state you operate in.
Common mistakes
- Sending fee terms only after the client says it wants to convert someone.
- Calculating fees on hours worked without saying whether that means paid hours or billed hours.
- No tracking of hours against the threshold, so neither side knows when the fee drops.
- Fee scales that are so high clients simply let the worker go and hire someone else.
- Assuming the client will run a new background check or I-9 at conversion without saying so.
Frequently asked questions
What is a temp to perm agreement?
It is the same thing as a contract to hire agreement: the terms under which a client can move a staffing agency's temporary worker onto its own payroll, including minimum hours and any conversion fee.
What is a typical conversion fee clause?
A common clause charges a percentage of the worker's first-year base salary if the client converts before a set number of hours, with the percentage stepping down as hours increase and dropping to zero after a threshold such as 520 or 1,040 hours.
Does the worker sign a temp to hire contract?
Not this one. The contract to hire agreement is between agency and client. The worker signs their own employment documents with the agency and, at conversion, receives an offer from the client.
Can a client avoid the conversion fee by ending the assignment and hiring the worker later?
Not if the agreement includes a tail period. A typical clause applies the fee if the client hires the worker in any capacity within a set period, often six to twelve months, after the assignment ends.
Who runs the background check when a temp converts?
Whatever the agreement says. Often the client runs its own checks at conversion because its policies differ from the agency's. State it in the agreement so the worker is not left waiting on a check no one ordered.