The Hidden Costs of Converting Contractors to Employees — and How to Manage Them

“When converting a contractor to a full-time employee, how should you adjust their hourly pay?” — Agency Owner

A common mistake is assuming you need to pay the same hourly rate that you paid the contractor. Don’t do that. Paying the same rate plus benefits makes the employee significantly more expensive.

Here’s how I approach converting a contractor to an employee:

• What’s the going rate?: Look at how much the market is paying for this role as a full-time position. Then consider the expertise of your contractor and decide where they fit within the salary range. Leave room to raise their salary without breaking the bank.
• Keep it fair in-house: Make sure your offer plays nice with what you’re already paying folks in similar roles. Trust me on this one — if the new kid on the block is doing the same job but getting paid more, morale will drop quickly. There’s no reason to pay someone more if they’re doing the same job.
• Factor in Total Compensation: Time to crunch some numbers. Calculate the total compensation package, including salary, benefits (health insurance, retirement contributions, vacation days), and employment taxes. As you may…