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Contract-to-hire is all the rage in tech hiring, especially at startups and scale-ups. The idea is simple: work as a contractor for a bit, then transition to a permanent employee. But here’s the thing - the details matter, and most candidates don’t scrutinize them closely enough before signing on the dotted line.
So, what does contract-to-hire actually mean? It’s pretty straightforward: you work as a contractor for a few months, usually at a higher daily or hourly rate, and then the company has the option to offer you a permanent role. The key word here is “option” - unless the permanent offer is guaranteed in the contract, the company can ditch you at the end of the contract period, having gotten the benefit of your work without committing to employment. Now, most companies do intend to convert contractors who perform well, but intent and contractual obligation are two different things.
Let’s talk about the money. The daily rate premium might sound great, but you need to consider what you’re losing out on as a contractor compared to a permanent employee. As a permanent employee, your employer typically covers things like pension contributions, private health insurance premiums, paid holiday time, and social security contributions. As a contractor, you’re on your own for all that - you pay the full self-employed social security rate and get none of those benefits. When you factor in these costs, the effective compensation difference is often much smaller than the headline daily rate suggests.
For example, let’s say you’re making €300 a day as a contractor, which works out to about €72,000 in gross annual revenue. But after you pay your self-employed social security contributions, taxes, and health insurance, your net position might be equivalent to a permanent salary in the €45,000-55,000 range. If the equivalent permanent role pays €60,000-65,000, the contractor arrangement isn’t looking so great - it’s basically a discount.
So, what should you negotiate? First, try to get the conversion offer as binding as possible. The ideal outcome is a written commitment to offer a specific role at a specific compensation band, conditional on satisfactory performance. If you can’t get that, at least get the evaluation criteria and timeline in writing. Next, negotiate the daily rate to reflect the full cost difference - you should be looking at a genuine 30-40% premium over the equivalent permanent salary. And don’t forget to clarify the evaluation criteria upfront - what does satisfactory performance look like, who makes the decision, and when is it made? If the company is vague about these questions, that’s a red flag.
Contract-to-hire can be a reasonable arrangement, but only if the company has a strong track record of converting contractors, the daily rate genuinely compensates for benefits foregone, and the conversion terms are in writing. If the daily rate doesn’t meaningfully exceed the permanent equivalent, or the conversion offer is just a verbal promise, it’s less reasonable.
Before you agree to anything, calculate the net annual difference between the contractor arrangement and the equivalent permanent salary at that company. If the difference is less than €10,000-15,000, the premium probably isn’t enough to compensate for the uncertainty and administrative overhead of self-employment. But if the difference is substantial, and the conversion terms are in writing, it might be worth considering.
And hey, if you’re looking for roles with transparent hiring structures, you can check out Xeito - they’ve got a smart job search feature, salary intelligence, and a tracker extension to help you keep everything organized. Just something to keep in mind.
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