How to know when it’s time to convert a contractor to a full-time employee

Officially converting a contractor to an employee.

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Working with an independent contractor rather than hiring someone full-time appeals to companies in many different situations. Still, there are times when it makes sense for the company to change that relationship into full-time employment. Officially converting a contractor to an employee is more than a recognition of their success and continued relationship with your company—failing to do so may lead to extensive legal battles and hefty fees that can cost your business significantly. 

To help you avoid that issue, here are some of the signs that you should make an independent contractor to permanent employee conversion

5 signs it’s time to convert your contractor to a full-time employee

1. When there’s a risk of misclassification

Taking on contractors, especially international contractors, comes with certain risks. The rules governing the hiring of independent contractors can vary greatly from one location to another. Even if you consider someone as an independent contractor based on your local laws, the laws in their country may deem them an employee. 

Misclassifying an employee as an independent contractor can expose you to serious legal complications. Try Oyster’s misclassification analyzer to determine whether your company is at risk. If you have misclassified an employee as a contractor, your best bet is to convert them to a permanent employee.

Not sure if you should bring on your next all-star as a contractor or employee? Wondering if you need to convert an existing contractor to full-time employment? Find out using our Contractor vs. Full-Time Analyzer.

2. When the contractor perfectly fills a talent gap in your company

Finding talent is tough. Opening applications to a global pool expands your options, but finding the right people for your team can still be challenging and time-consuming. If you have a contractor who is the perfect fit for a role in your company, you might want to think about persuading them to join your team full-time.

A contractor’s job is typically to complete projects as needed. Any independent contractor who proves themselves capable of playing an active role in supporting and growing your business over time is someone worth trying to convert into a full-time employee. Otherwise, you risk losing out on that top talent at any point. 

Keep in mind that an employee position may involve additional responsibilities that the contractor didn’t previously handle. In that case, you should check that the contractor has all the skills and expertise needed to complete these extra duties. Don’t assume that the contractor’s strength in one area indicates other capabilities. That can be a costly mistake, even after in-house training. If it seems the contractor does have all the vital skills for the role and fills a talent gap, a contractor to permanent employee conversion is often the right choice. 

3. When you want them to work for your company exclusively 

Independent contractors have the freedom to work with multiple companies, completing projects and offering their expertise. If you’ve had a positive experience working with your contractor and want to ensure that they’ll only work for you (and not your competitors), you should consider hiring them as an employee. 

While it is possible to have non-compete agreements with contractors, they aren’t enforceable in all jurisdictions, and are even outright forbidden in some. 

A better way to keep your contractor from doing excellent work for your competition is to hire them as an employee. Non-compete agreements for employees are effective, so you can simply include one in your independent contractor’s employment contract upon hiring them. 

4. When a long-term relationship develops

If you find yourself hiring an independent contractor time and time again, that’s a clear sign that the relationship has developed beyond the usual company-contractor arrangement. In that case, it may be time to make a contractor to permanent employee conversion. 

Plus, hiring your contractor as a full-time employee will likely save you money in the long run since the amount paid to contractors is usually higher than wages for comparable employee roles. 

5. When you want to offer the contractor benefits

Contractors are rarely entitled to benefits like health insurance, paid vacation time, retirement saving options, and education credits. If you want to reward an independent contractor’s hard work for your business with benefits, you will likely need to make them an employee. 

One of the advantages of making that transition with an independent contractor is that great benefits can play a key role in retaining top talent. Holding on to your contractor will be much easier if you convert them into an employee and offer a quality compensation package. 

Final thoughts

Deciding whether to convert a contractor to a full-time employee is just one of the complicated aspects of working with global contractors. Before you make that change, you should be confident that the new arrangement will be mutually beneficial for both your company and the independent contractor.

If none of these signs apply, you may want to keep your current relationship with your independent contractors the same. One thing you can change for the better, though, is the way you hire and manage global contractors.

Oyster’s global employment platform can help you bring new international contractors aboard and manage payments and compliance for your existing contractors. Working with independent contractors across the world has never been so easy. Give Oyster a try today.  

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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