Though workers and employers are increasingly comfortable with the idea of a contingent workforce, most employees are still more interested in permanent rather than temporary work. According to the American Staffing Association's (ASA) "The Staffing Services Industry: Myth and Reality" report (February 2001), about fifty-five percent of all temporary employees use temporary work as a transitional path to permanent employment. Of the 9.7 million people employed last year as temporary or contract workers, 7 million later transitioned to permanent jobs, based on ASA's research.

This means that employers who take on temporary workers can be fairly certain that their in-house contingent staff would be willing to become permanent employees. What makes this situation particularly appealing to employers is that when a temporary position becomes permanent, they can often avoid the sudden need to recruit for a suitable candidate.

Temporary employees transition into the workforce in a number of ways, but an increasing popular method is through "temp-to-perm" arrangements. Several reasons exist for the arrangement's popularity. The first—and probably most important—is that the employer doesn't have to commit to hiring. If the need for the position ends, the employee doesn't work out, or an internal employee is more qualified, the temporary employee can be let go without qualms.

By initially filling the slot with a temporary worker, employers continue to take advantage of staffing agencies' core strength in recruiting qualified personnel. Finally, temp-to-perm gives employers the opportunity to check a potential employee's fit with their organizations before they commit to a permanent relationship.

Streamlined Procedures

Employers and staffing agencies agree that there's nothing hard about making a temp-to-perm conversion. "Conversions aren't always pre-arranged, but when they are, there's a fairly typical process," says Steve Berchem, vice president of the American Staffing Association.

"There's usually a period over which a client agrees to keep the employee on, usually two to four months," says Bercham. "After that, the staffing agency will waive any staffing fees; if the employer converts early, there will often be a fee which becomes smaller as time goes on."

He stresses that this is only a typical arrangement, with many variations. "Some agencies charge a fee no matter what."

Though a temp-to-perm conversion is a fairly simple process for staffing agencies and clients, employers still need to follow their internal procedures to fill positions. "We utilize temps from clerks up to PhD scientists; our company's conversion rates are perhaps ten percent a year," says Renee Forseth, workforce programs manager with Merck & Co., Inc., headquartered in Whitehouse Station, New Jersey. "But we also follow a posting policy-if we're adding to headcount, we post internally seven days, then post externally. A temp is considered an external candidate."

Once managers and HR make the conversion decision, a temp's change in status calls for more than paperwork between the staffing agency and client. For the most part, former temporary workers are processed into the company as new hires.

"We already require background checks and medical evaluations from our agencies, so we don't usually need to re-do this," says Susanna Wayt, Director of HR at Bayer Corporate and Business Services in Pittsburgh. "But a temporary employee wouldn't have had exposure to our benefits package, our employee credit union, and those sorts of things. They go to our orientation acting as a new-hire, and have always been open and positive about it."

Conversion As A Staffing Tool

Both employers and staffing agencies agree that the most compelling advantage of a temp-to-perm arrangement is the chance for the employer and employee to have time together prior to hiring. "From the candidates' perspective, it's very positive for them to have a chance to show employers what they're capable of," says Chris Jock, general manager for Kelly Scientific Resources in Troy, Mich. "In turn, employers get to see potential employees' skills in action, and their fit with the company."

Flexibility is another advantage. "Most often, we bring someone into a temporary position, but find that they can move into a permanent job somewhere in the company because of their skills," says Forseth. "Or sometimes we may not be sure that the position we bring them in for is permanent."

Using a temp allows employers to focus on what they need at the moment, without locking them into a certain direction. The option to convert temps to permanent workers later, gives employers a shot at a qualified worker if the position does turn out to be long term.

Some HR departments may be able to trim their recruiting expenses for time, office space, headhunter, and advertising expenses by going through staffing agencies. Other departments feel that expenses tend to be a wash when they compare what would have been their own recruiting costs versus the fees they pay to staffing agencies. Whether or not employers realize hard cost savings, it's their lessened hiring risks that tend to make the temp-to-perm arrangement so desirable.

Jock says that employers understand the cost of a bad hire. "In general, we've seen an increase in requests for temp-to-perm arrangements over the past 18 - 24 months. Though some markets are a little less or a little more, we're seeing around 40 percent of our workers on a current assignment go to perm."

Conversions are generally offered as a standard part of a staffing solution agreement, and can be economically beneficial to the employer, says Jock. "Whether it's the economy, a cash flow problem, or a poor fit with the company, this arrangement gives employers the opportunity to back out."

Potential Pitfalls

With all the advantages of temp-to-perm, the "try before you buy" approach may sound so ideal that employers would always want to hire this way. However, temp-to-perm isn't always feasible.

"It's not practical to look at temp-to-perm for every situation, because not everyone is interested in working as a contractor," says Wayt. "You may not be able to get the person if you only offered the temp-to-perm option-it's a two-way street with employees."

Desirable candidates who don't want temp work can go elsewhere if they're not offered permanent employment, but the issue may not even arise if that's all you're offering. "The best, or passive, candidate may not even be on the radar, because they wouldn't leave a secure job for an "iffy" one," says Jim Rowland, president of Jim Rowland Personnel in Atlanta, Georgia.

Rowland also warns that a temporary employee looking for permanent work may still keep an eye out for another job. "This can be expensive for an employer," he says. "If you have a 13-week buyout period, and the employee gets a job offer somewhere else after only eight weeks, that employee will generally bail out and take it. The employer is then back to square one with new agency fees."

Besides losing candidates or failing to interest others, a company's internal staffing can be affected by using temporaries for positions that need to be permanent. Forseth points out that headcount issues can sometimes crop up. "This doesn't happen much at Merck, but if a manager decided to use a temp-to-perm option, someone could come back 3 - 6 months later and say to the manager 'we're taking that headcount away from you.' They wouldn't do that with a permanent employee."

Making It Work

Like always, the key to managing a temp-to-perm arrangement involves the same people management skills HR and managers need with their permanent employees. Finding the best person for the job is of primary importance, and the chance to try someone out before actual hiring is a great tool. However, Wayt cautions that the convenience of these arrangements sometimes work against the best interests of the company.

"The only time we've had a problem with temp-to-perm happened when we ignored our own concerns," Wayt says. "Maybe we had a situation where there were issues with the temp, but the temp was there, it was convenient to hire the person, and it didn't work out. It can get too easy to just take the temp and not go looking for the best person out in the marketplace."

Wayt says that occasionally she will hear a complaint from a manager about a temp. After suggesting that the temp be replaced, however, the manager will say: But we're comfortable with so-and-so. "Some people may default because they have a warm body," Wayt says, "but I tell them not to lower their standards."

She emphasizes that managers and HR should approach conversions prepared to keep their standards and put the best person in the job, even if that creates an uncomfortable situation. "When we have a temporary job that will be converted to perm, we post the job for others in the company to try for. If the temp isn't selected, he or she can sometimes be upset." Wayt says that "these can be tough discussions, because temps can identify with jobs and consider them "theirs".

Communication is key, says Forseth. "This means communication with the agency and the person; everyone needs to know the rules and to set their expectations realistically."

Forseth urges employers to be very upfront and frank. "Make sure the temp understands the situation, and what any permanent job will be like. Sometimes these can change a little, and you want to make sure the worker understands everything." However, with the proper precautions and a good understanding of the arrangement, temp-to-perm can work well for both employer and employee.

Carla Joinson is a Stafford, Va.-based writer specializing in human resources and management topics.