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Contractor to employee

When to Transition Someone from Contractor to Employee Status

When you consider moving a contractor to employee status in your company, it’s often for legal reasons. There are penalties – which vary from state to state – that involve treating an independent contractor as a full-time employee without paying the required taxes or providing certain benefits, and business owners will of course want to comply with regulations. 

That being said, there’s far more to consider when making this decision than just the legal ramifications.

The transition from independent contractor to full-time employee is significant for both the company and the potential hire, and needs to be considered carefully to ensure the best outcome for everyone. Click To Tweet

In this article, we’ll take a look at when it might be appropriate and beneficial for a contractor to take the leap to fully employed – and how you can make the decision in a wise and informed way. 

Free Download: 7 Questions to Ask a Contractor Before Transitioning Them to Employee Status

The contractor has proved excellent on-the-job performance. 

It’s possible that the contractor has performed very well in the work they’ve done for your company, but that work may not have included everything they would need to do on the job if they were an employee. 

For example, you may use a contractor for creating video content that advertises your services. But has the contractor ever worked on a client account, or managed internal communications with other employees? They might be excellent at their field of contract work…but lack the aptitude and the skill to juggle multiple tasks that would be required on the job. 

If your contractor hasn’t worked on projects that are relevant to your business or frequently communicated with team members, then a well-designed simulation – paired with an in-depth interview – can give you powerful insight into whether or not they would be a good fit for employee  status.

A job simulation is a relatively short session designed to comprehensively mimic real-life, on-the-job experience at your company. It might involve working on dummy accounts that are similar in nature to real accounts at your company, and is typically timed. A simulation will not only show you how well your contractor will perform…it will give them an idea of how well they might actually like the job.

Contractor to employee

Finally, you’ll want to make sure that your contractor has an opportunity to interact and work with other team members. Smooth internal communications are critical to job (and company) success. As a contractor, they may not be accustomed to frequent communication with a team. On the other hand, they may thrive in a team environment, and communicate well with other employees. 

In any case, you’ll want to test out this aspect of the job role before making a decision. 

The contractor has embraced and implemented your feedback. 

There are specific legal boundaries around how much control you can exert over a contractor. A full-time employee is paid to do what is asked of him or her; a contractor is paid for a specific result. That being the case, exerting too much control over the contractor in the form of ongoing instructions or training, or by demanding regular status reports, could cause the government to view it as breaching the line between contractor and employee (resulting in potential penalties).

As long as you don’t cross legal boundaries, you’ll most likely have given the contractor some feedback on their work for your business. For example, your contractor might write landing page copy for your company website, and make regular updates to the back-end of the site. You’ll most likely want to give feedback on this kind of work. Or, your contractor might help clients with targeted advertising for specific campaigns – again, you’ll most likely want to supply feedback on the overall success of this targeted advertising. 

If you haven’t provided a great deal of feedback, now is your opportunity. Give the contractor a clear, actionable evaluation of their most recent work – and see how they respond. 

The degree to which the contractor embraces and implements this feedback is a great indication of how well they’ll work with you on the job. Are they a flexible, adept learner, willing to adjust to your company standards, workflows, and style? 

Likewise, you’ll want to consider how well the contractor learns from their mistakes. If they repeat the same mistakes frequently – even when given correction – that indicates they might not perform effectively on the job. 

You’ve had an honest, transparent conversation about their goals, preferences, & concerns. 

One of the most critical pieces of making a decision about whether to move a contractor to employee status is having an honest, in-depth discussion about their professional goals and preferences. You’ll also want to explore any concerns they may have about working as a full-time employee at your company, to see if those can be adequately addressed.

Contractor to employee

Here are some questions you’ll want to ask a contractor before transitioning them to full-time status:

  • What are your long- and short-term goals as a professional?

Your company should offer a growth path that aligns with the contractor’s goals. If not, you may want to explore how a role at your company might indirectly contribute to those goals, or contribute to their professional growth in a different way. 

  • If you were an employee at this company, what would make you want to stay long-term?

Ideally, you should be able to offer or provide the circumstances that would make the contractor a good long-term fit. After all, you don’t want to hire an employee that quickly churns and costs your company in time and resources.

  • If you were an employee, what would make you start looking for another opportunity?

Under what circumstances would the contractor look for different employment, or for a different professional opportunity? It’s beneficial to know this information upfront, so that you don’t get blindsided by resignation. 

  • It’s been a while since you’ve been an employee. How would it feel having a manager again? What about that might feel challenging or be a tough transition?

Many independent contractors are accustomed to working for themselves, with their own hours, scheduling, and ability to accept or deny projects. The contractor should be honest with themselves (and you) about how it might feel to transition back to employed status. 

  • What concerns do you have or what challenges do you imagine there might be when thinking about transitioning to being an employee of this company instead of a contractor? What do you think might change, and what do you think might stay the same as it is today?

If you’re unable to adequately address concerns that the contractor may have about working for your company, then you may want to think carefully about taking this person as a full-time employee. You don’t want the contractor to enter into an environment or situation that doesn’t align with their ideals from the get-go. 

The new arrangement would be mutually beneficial. 

Finally, consider whether or not taking the contractor on as a full-time employee would be beneficial for both parties. The interview described above should give you insight into whether or not the new job role would be a win for the potential hire. 

Now, you’ll want to consider whether or not the situation would be beneficial to you. What value would this hire add to your company? How much would you enjoy working with this employee (and would they enjoy working with you)? Be honest with yourself, and consider whether or not the new arrangement would be favorable to you personally or your company. 

A final note on legal factors. 

It may be the case that you have explored the contractor’s eligibility and fit for a role at your company, and found that both parties would be better off without making this transition.

That being the case, you’ll want to make necessary adjustments to their contractor status at your company to avoid legal ramifications. 

Here are some legal factors to consider that might result in penalties if gone unaddressed:

(Please note that these vary from state to state, and this is by no means a legal document.)

  • You want the contractor to use certain equipment or software.
  • You want the contractor to work specific hours or at a specific location.
  • The contractor performs work that is essential to your business.
  • The contractor works on operations rather than projects.
  • You provide the contractor with significant feedback on their work. 
  • The contractor isn’t doing this kind of work for any other business or client. 
  • The contractor requires significant training to perform work for your company. 

If your relationship with the contractor meets a combination of these requirements, then you may want to consider adjusting their status to stay legally compliant. 

Don’t forget: 7 Questions to Ask a Contractor Before Transitioning Them to Employee Status

Hiring a contractor as a FT employee with Scalability Solutions.

Scalability Solutions can help you to vet and test a contractor before taking them on as a FT employee by helping you design and implement insightful, high-value interviews and job simulations, and evaluating results If you’re interested in gaining greater insight into a contractor’s potential on-the-job performance before hiring, click here to learn more about how Scalability Solutions can help you.

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