Temp to Hire Conversion Fee for a Marketing Contractor and How to Lower It

A temp to hire conversion fee is a one time charge a staffing agency bills you to move its contractor onto your own payroll, and it is commonly reported at 15 to 25 percent of the worker's first year salary. On a $100,000 marketing manager that is $15,000 to $25,000. Many agreements shrink the fee the longer the contract runs, but you keep paying the hourly markup while you wait. Whether waiting saves money depends on one division, and almost nobody does it before signing.

No national staffing firm publishes its conversion schedule. The percentages here are what employers and staffing trade sources report. The two declining schedules below are labelled examples of common shapes, not any agency's terms. The $149 a month is our own published price.

How do conversion fees work?

While a marketer works for you through an agency, the agency is the legal employer. It pays the person, handles payroll taxes, and bills you an hourly rate with a markup on top. The conversion fee is what the agency charges to give up that arrangement, because once the person is on your payroll its markup stops for good. The fee is written into the client agreement you sign before the contract starts, usually in one of three shapes.

• Flat percentage. A fixed share of the first year salary, owed whenever you convert inside the agreement's window.
• Declining schedule. The percentage drops as contract hours pile up and often reaches zero after a set number of hours.
• Fixed dollar buyout. One agreed sum, whatever the salary. Less common for marketing roles, more common for hourly support work.

Agreements also carry an ownership window, reported at six to twelve months from the day the agency introduced the person. Hire them directly inside that window, even into a different role and even after the contract ended, and the fee still applies. That clause is why "let the contract lapse and call them in a month" rarely works.

What is a typical temp to hire conversion fee?

Reported conversion fees run about 15 to 25 percent of first year salary, a little below the 20 to 30 percent that direct hire placements are often quoted at, because the agency has already earned markup during the contract. For a marketing team that puts the fee here:

None of that includes the markup you already paid. On a manager paid $48 an hour at a reported 50 percent markup, every 40 hour week costs $960 in markup on top of pay. Our staffing agency markup rates for a marketing contractor breakdown shows how much of that $960 is payroll cost and how much is agency margin.

When is it cheaper to wait out a declining conversion fee?

Here is the division. Take the conversion fee and divide it by the weekly markup. For our manager, $20,000 divided by $960 is about 21 weeks. If the agreement takes the fee to zero faster than that, waiting is cheaper. If it takes longer, every week you wait costs more in markup than it saves in fee, and converting on day one is the cheapest option you have.

Two example schedules make the point. In Schedule A the 20 percent fee falls evenly to zero at 520 hours, which is 13 weeks. In Schedule B it falls evenly to zero at 1,040 hours, which is 26 weeks. The table shows the total you have paid to keep the same marketer, markup so far plus the fee still owed, depending on the week you convert.

Under Schedule A, waiting the full 13 weeks saves $7,520 against converting on day one. Under Schedule B, waiting never pays: the cheapest week to convert is the first one, and the gap grows every week. With no decline at all, the contract months are pure cost if you already know you want the person. Both shapes are sold as "the fee goes down over time", which is why the division matters more than the promise.

We priced the flat version of this for one national firm, 13 weeks at a 50 percent markup plus a 20 percent conversion fee, on our Robert Half fees page. It comes to $32,480 before the marketer joins your payroll. For creative and marketing freelancers, the same break even is worked out week by week on Creative Circle fees and markup.

Is a conversion fee negotiable?

Yes, and it is most negotiable before the contract starts, when the agency still wants the business. Once the person is working for you and you have said you want to keep them, your leverage is close to gone. Ask for these in writing at the start:

• The schedule itself. The percentage at each hour mark, and the hour count at which it reaches zero. Then run the division above.
• A faster decline. If the fee falls to zero at 1,040 hours, ask for 520. That single change can turn Schedule B into Schedule A.
• A cap in dollars. A percentage of a $130,000 salary is a bigger number than the same percentage of $100,000. A cap stops a raise at conversion from inflating the fee.
• A shorter ownership window. Six months instead of twelve, and limited to the role you hired for.
• Volume terms. If you use the agency for several contractors a year, the conversion fee is one of the easiest lines to trade.

Once you have agreed the conversion, make it clean on your side too. Put the agency's written waiver or invoice and the offer to the marketer in the same thread, and send the offer letter for e-signature so the start date on your payroll matches the last day on the agency's.

Can I hire a temp without paying the agency fee?

Not inside the ownership window, if you signed an agreement with a conversion clause. Hiring the person directly anyway is a breach of contract, and agencies do invoice for it. Outside the window, or once a declining schedule reaches zero, there is no fee. The legitimate way to avoid the fee entirely is to not start with an agency for a role you already know is permanent.

When does temp to hire make sense for a marketing role?

Temp to hire is a fair deal when you genuinely do not know yet whether the role should exist. A launch that may or may not become a program, a channel you are testing, a manager on leave who may not return. In those cases the markup buys an exit you would not have with an employee, and paying a conversion fee later is the price of having kept that option open.

It is a poor deal when the role is permanent from day one and the contract months are just a trial run of the person. You pay markup to learn something a structured interview and a short paid project would tell you in two weeks. For that case, put the permanent role where marketers look. A Starter listing on MarketerJob is $149 a month, whatever the salary, and you stop it the month the seat is filled. Thirteen weeks of it costs less than one week of a 50 percent markup on our manager. What the main US job boards charge for the same role is compared on job posting cost.

What to ask the agency before the first week

1. What is the pay rate and the bill rate for this contractor, and what is the markup in dollars per hour?
2. What is the conversion fee at week 0, week 13 and week 26, and when does it reach zero?
3. How long is the ownership window, and does it cover any role or only this one?
4. Is the fee calculated on the salary we offer at conversion, and can it be capped in dollars?
5. If we already plan to keep the person, what is the direct hire fee instead?

With those five answers, the division takes a minute, and you will know before the contract starts which week is the cheapest one to make the hire.