Transitioning Contractors to Permanent

2012_Transitioning Contractors to PermWith the global economic climate being what it is and other drivers such as a need to retain intellectual property, many organisations are considering transitioning existing contractors into permanent roles.

Whilst ITCRA’s (IT Contracting & Recruitment Association) latest statistics show that the first 3 months of 2012 had a much higher percentage of contract placements (82% compared to just under 60% in the preceding quarter), many independent contractors are now being asked to consider the switch to permanent employment. This leads me to ask the question, how does one convert a contract rate to a permanent salary? And how does an organisation convince a contractor who is being paid an attractive daily rate to move into a permanent role?

Many contractors considering this move try to determine their worth by simply multiplying their daily rate by the number of working days in a year, minus 4 weeks’ leave: 240 days. This is a very simplistic and inaccurate calculation on which to base your conversion. This method can also lead to very unrealistic salary expectations; expectations that are often unattainable within most organisations’ internal salary banding.

To give you the best chance of securing this source of talent, it is very important that the conversation you have with your contractors points out the benefits of such a move from the outset. Some points for consideration may include:

Where is the contractor at in their career? Whilst contracting is certainly a great learning experience, and can give a person exposure to a variety of different environments, there may be a lack of career progression or a lack of the underpinning skills that would typically go with promotion if they were permanent. Considering how long a contractor has been at the same level (and I’m not referring to their rate, as this can vary depending on the market) and where they are likely to be in the future, can help you uncover other motivating factors that are not always apparent, even to the contractor.

Due to the transient nature of contracting, contractors rarely receive any professional development that isn’t paid for out of their own pocket, or undertaken at the expense of a day’s paid work. If your organisation has a learning and development strategy in place, this will provide significant leverage in the decision to go permanent.

What will the contractor gain by becoming a permanent member of staff? When discussing a permanent role with contractors don’t forget the obvious benefits like sick, carers, parental and annual leave. How important these things are will depend on the contractor’s own situation, but do not underestimate their value. For instance, how many contractors do you know who have allowed themselves a holiday this year? You probably think that’s one of the advantages of contracting, but in most instances you would be wrong. Many contractors have an anxious wait between contracts where they can’t really get away in case they are called up for a job interview. Or they fail to take a real break, one where they are not concerned about the loss of income or missed opportunities.

Setting aside holiday time with zero earnings is only one of the financial implications a contractor has to take into consideration. There is an old rule that a contractor ought to put away 30% of their earnings to cover themselves for holiday and sick leave, but in reality, how many of them actually have the discipline to keep that safety net in place? In addition there is the difficulty in securing mortgages or novated leases because you’re not ‘gainfully employed’; permanent employees no longer need to worry about BAS statements; insurance and other tax minimisation strategies while contracting via their own ABN.

How fantastic would it be to not worry about any of those things if you decide to take a holiday or if you fall ill?

On top of those obvious benefits there are others such as performance-based bonuses, share plans, training, discounts on services, products and fees. There are also the less tangible benefits such as standard hours, location and flexible working hours. I recommend that you explore the above considerations long before salary, and if in doubt call me and I will happily provide you with some guidance.

You can contact Leonie Jennings (Author) on 03 9963 4813 or
Leonie is an Account Manager in the Banking & Finance team based in Clicks’ Melbourne office.

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