Contract, Temp, or Permanent? Understanding Your Employment Options

The job offer finally comes through. You've been searching for months, and someone actually wants to hire you. But then you read the details: "contract-to-hire position."

Your stomach drops a little. Is this a real job or just temp work dressed up in nicer language? Will you actually get hired at the end, or is this company just stringing you along? And what even is the difference between contract, temp, and all the other terms recruiters throw around?

Contract and temporary work isn't a fringe arrangement anymore: 6.9 million Americans—4.3% of the workforce—held contingent positions as of 2023, up from 3.8% in 2017. It’s becoming a standard part of how companies hire. And for some job seekers, it's actually the smarter move.

What does "contract-to-hire" actually mean?

Contract-to-hire (sometimes called temp-to-hire or temp-to-perm) is a position where you work for a company on a trial basis, typically three to six months, with the expectation that you'll be hired permanently if things go well.

During that trial period, you're usually on the staffing agency's payroll rather than the company's. You show up, do the work, and get paid by the agency. If both sides like what they see, the company hires you directly as a permanent employee.

"The temp-to-perm is more of a try-before-you-buy if you will, but that water runs both ways," says Sheila Martin, Vice President of Operations at Kelly, who has spent 28 years in the staffing industry. The arrangement lets the company evaluate you, yes. But it also gives you time to evaluate them.

One clarification: Contract-to-hire is a W-2 position with taxes withheld, not a 1099 independent contractor arrangement where you're responsible for your own taxes.

Contract, temp, permanent—what's the real difference?

Temporary or project-based work has a defined end date. A company needs someone to do specific work for a set number of days, weeks, or months, and then the job is done. There's no expectation of permanent employment.

Contract-to-hire is different because the company's intent is to hire you permanently after the trial period. You're working toward a specific outcome, not just filling a short-term need.

Direct hire or permanent placement means you're hired by the company from day one. A staffing agency might help with the recruiting process, but you go directly onto the company's payroll with full benefits from the start.

Contract work used to be concentrated in certain industries. "We've always seen the more professional roles willing to engage in contract work, specifically in the engineering and IT space," Martin says. "But it's now in all areas of work."

What most people get wrong about contract work

When candidates hear "temp" or "contract," they often assume the worst. Martin has seen it for nearly three decades: "They think it's very short-term in duration. It's low pay, low value, there's no stability. They think it's their last choice."

Most of those assumptions are wrong.

What you're actually giving up (and gaining)

Let's be honest about the tradeoffs.

The main risk is uncertainty. Conversion isn't guaranteed. Whether you get hired permanently depends on your performance, whether you’re the right fit for the role, and the company's budget. "If the client's business fluctuates down, then that contract may come to an end earlier than we had originally anticipated," Martin says. You might plan for a six-month engagement that ends at three months.

What you gain is leverage. You can test-drive a job before committing. You can evaluate culture, support, and training before you're locked in. And you can get your foot in the door. Companies save on initial hiring costs with contract-to-hire, which means they're sometimes willing to take a chance on candidates they'd otherwise pass over.

Martin has watched this play out over decades. One candidate she placed 20 years ago started as a machine operator at a pharmaceutical company through a contract position. Fresh out of tech school, no industry experience. Today, he's the head manufacturing manager at that same company.

When contract-to-hire is actually the smarter move

Contract work isn't right for everyone. But here's something that might surprise you: Not everyone doing contract work wants out. While nearly 45% of contingent workers would prefer a permanent job, 41% actually prefer their current arrangement. For a significant portion of the contingent workforce, flexibility isn't a consolation prize—it's the point.

Contract-to-hire makes strategic sense when you're trying to break into a new industry, relocating to an unfamiliar job market, or unsure whether a company is right for you.

"Use that temp-to-hire vehicle to determine if this is a company you want to work for long term," Martin advises. "Do they have the culture and the support network that you want? Do they have the training that you want?"

The trial period protects you too. Martin has seen workers realize a few weeks in that a role wasn't what they wanted and pivot to something better without being stuck.

Questions to ask before you accept

Not all contract-to-hire opportunities are equal. Some companies genuinely intend to convert. Others use the arrangement to avoid commitment.

Martin recommends asking:

• How long is the engagement going to last?
• What is expected of me, and how will I know when I'm doing a good job?
• How often will I hear from my recruiter?
• What's the pay rate, and when will I get paid?

"If at any point those questions can't be answered with exact certainty, buyer beware," she says.

One more warning: "Never respond to a random text message that we've got work from home jobs. That's all spam stuff." If something feels off, trust your instincts. (Learn more on spotting employment scams.)

Permanent offer vs. contract role—how to decide

If you're weighing a permanent offer against a contract role, the answer isn't automatically "take the permanent job."

"I don't think it should always be about the pay," Martin says. "It needs to be about where this is a better position for you to take the next step after that." A contract role that builds your skills and positions you for advancement might serve your career better than a permanent role that keeps you stagnant.

►Your next step: Before you accept or decline any offer, list what matters most right now: stability, skill-building, income, industry access. Evaluate each opportunity against that list, not against your assumptions about what "permanent" or "contract" should mean.

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