I have a scenario I'm not sure how to handle and was looking for some insight. The long and short of it is I did some adhoc recruiting for a company I have a personal connection with and in my early naivety, I did not put an agreement in place with them. I have had a contractor working for one of their clients for months and they've been paying me the agreed upon rate which is great.
We're now at the point where they've decided they want to hire the contractor full-time. How do you normally handle contract to hire situations? Do you give them a discount because they've already been paying you for contracted services (in my case since October 2011) or do you treat them as completely separate transactions and bill your full rate for the FTE hire?
Thanks so much for your input!
My company pays a mark up on the hourly rate for contractors - that's how you make your money, right? We do not pay any extra after 640 hours (about 4 months). We can hire the candidate with no penalty.
We don't do much contract employment and don't do any of the backend of contract employees, but the majority of time we calculate what our fee would have been and subtract out what they paid during the time of contract employment when they switch the person to permanent. If they already met the amount the permanent fee would have been, no charge. Ex.: Candidate is hired on a contract basis, employer is paying them an hourly amount based on the 100k salary they would offer on perm placement. Say this is $50.00/hr to the candidate, we get 25% or $12.50/hr. 6 months down the road, the candidate has earned $48,000.00 and we earned $12,000.00. Our fee for a permanent placement would have been $25,000.00. We take out the $12,000.00 and bill the rest. We do not put a time frame on when they could make the switch to permanent, it depends on when we receive what we would have for the original permanent placement. But it's so rare for us, that this may not be a usual way for recruiters to handle this.
I do the same thing Amber does. Take the markup amount for the full time they have been there. If it is less than the fee they would paid for a perm hire in Oct. bill the difference. If more than it would be tell them thank you and no charge.
Some firms charge a small "conversion" fee of about $500.00 when a long term contractor goes perm.
I'd tell the client:
That you feel great that they like your candidate so much they want to hire him.
And that while your standard fee for a full time employee is XXXXXX given the circumstances you would like to give them a 25%discount.
Then I'd ask them for more buisness.
I deal in FT placements but have done a few consultant-to-perm deals to meet a client's particular timing/budget needs. In those cases I have done exactly what Amber and Sandra described. It's fair for all parties.
I am also familiar with Amy's model. I was on the client side of that approach when I was running my last business. The only difference is that her approach puts an effective cap on the fee, but also guarantees that the agency can potentially get paid for up to 4 months on a contractor. Sharing risk (within reason) is never a turnoff for me.
Good luck with the client conversation. Should be pretty straightforward based on your description.