How to convert a contractor into a permanent employee

Converting a contractor into a permanent employee can be a smart move for both your business and the individual. It gives you access to someone already familiar with your systems and ways of working, while offering them long-term security and growth. But the process needs to be handled properly to avoid confusion, delays, or compliance issues.

In this blog, we’ll break down exactly what contractor-to-perm conversion means, when it’s the right decision, and how to manage the transition. You’ll also find practical advice on contracts, communication, and how to set your new permanent hire up for success.

If you are new to permanent hiring or want the full picture first, our permanent recruitment guide is a good place to start.

What does converting a contractor to permanent actually mean?

Not every contractor is hired to stay long-term, but sometimes the opportunity presents itself. Converting a contractor to permanent means transitioning them from a short-term, project-based agreement into a permanent employee contract. This typically comes with changes in pay structure, benefits, expectations, and legal obligations.

Done right, it can give you long-term access to proven talent, reduce onboarding time, and save costs compared to hiring from scratch.

What temp-to-perm hiring looks like in practice

A temp-to-perm route usually begins with a fixed-term or day-rate contract. If the individual performs well, and business needs evolve, you may decide to offer them a permanent position. The switch means they become a full employee, with access to the same benefits, training, and career development as the rest of your team.

It’s often smoother than hiring externally, as the contractor already knows your systems, culture and expectations. That said, it still requires structure and clarity to avoid assumptions or missteps.

Why more businesses are using contract-to-perm strategies

With hiring budgets under pressure and timelines tighter than ever, more employers are using contract-to-perm as a way to trial new talent. It allows you to assess skills, reliability, and culture fit before committing long-term. For candidates, it’s a chance to prove themselves and decide if the business aligns with their own goals.

Recruitment agencies like Digital Waffle support this process, ensuring contracts, compliance and communication are handled professionally on both sides.

When to consider converting a contractor

Not every contractor will want or be suitable for a permanent position, and not every business needs calls for it. But when the timing, performance, and budget all align, converting someone already embedded in your team can be a smart and efficient move.

Below are the most common scenarios where it makes sense to think about offering a permanent role.

Signs a contractor is a strong long-term fit

If a contractor consistently delivers high-quality work, communicates well, and fits into your team culture, these are all strong signals. Other signs include:

• Taking ownership of outcomes, not just tasks

• Showing interest in business goals and team progress

• Going above the minimum scope of work

• Receiving positive feedback from internal teams

If your contractor is already performing like a permanent team member, it may be time to formalise the arrangement.

When conversion makes more sense than hiring externally

Bringing in a new permanent hire from outside can take months. If your contractor is already trained, aligned with your systems, and delivering value, hiring them permanently can reduce time-to-fill and onboarding costs.

It also helps with continuity. Rather than starting from scratch with someone new, you can build on what’s already working. For roles that require internal knowledge or stakeholder trust, this often makes the most sense.

What to consider before making a contractor permanent

Converting a contractor into a permanent employee can be a smart move, but it should be based on more than just performance. Before you move forward, it’s important to review the long-term business needs, internal processes and expectations from both sides.

Here are the key areas to assess before offering a permanent contract.

Role stability, budget and business goals

Before offering a permanent position, consider whether the role will continue to be needed in six to twelve months. If the work is project-based or likely to slow down, it may not be the right time to make a long-term hire.

Make sure the budget is in place for a permanent salary and any additional benefits. Compare this against your business goals. If you are growing, investing in long-term talent might make sense. But if you are restructuring or managing headcount tightly, it might be better to extend the contract or re-evaluate later.

Legal, tax and compliance factors

Switching a contractor to a permanent role involves changes in employment status. This affects tax, benefits, and legal obligations. You’ll need to issue a compliant employment contract and register the new employee for PAYE and pension contributions.

Check that you are not breaching any previous IR35 classifications or contract terms in making the switch. If the contractor was working via a limited company or umbrella, a clean break and a new employment agreement should be in place. Always confirm the right to work status as part of the transition.

Pay, benefits and total reward differences

Contractors are typically paid a higher day rate with fewer benefits. When switching to permanent, the structure of pay changes. You’ll need to discuss salary, holiday allowance, pension contributions and any additional perks or bonuses.

Be transparent about how the overall package compares. Some contractors value stability and career progression, while others prioritise flexibility and higher short-term income. Make sure there’s clear agreement on the value of the permanent offer.

Team fit, leadership and culture alignment

A good contractor might be technically skilled, but not every strong contractor wants or suits a permanent role. Consider whether the individual has shown interest in your team’s long-term goals, participated in collaboration and aligned with your internal values.

Look at how they respond to feedback, how they work with others, and whether they show signs of leadership or long-term thinking. These are often better indicators of permanent fit than output alone.

How to make the transition from contractor to permanent

Once you’ve decided to convert a contractor into a permanent employee, the way you manage the transition can affect how successful it is. Clear communication, a structured process and a sense of purpose will help both sides feel confident about the change.

Below are four key steps to ensure a smooth move from contract to permanent employment.

Plan a clear and honest conversation

Start with a direct and respectful conversation. Let the contractor know why you value their contribution and why you see them as a good long-term fit. Ask if they’ve considered a permanent role and what might influence their decision.

This is your chance to listen. Some contractors prefer the flexibility of short-term work. Others may be looking for more security or progression. By understanding their motivations, you can tailor the offer and position it in a way that makes sense for both sides.

Formalise the offer and employment terms

If the contractor is open to the move, provide a formal offer that outlines the salary, benefits, start date and job title. Be clear about the change in terms, including how the role will differ now that it’s permanent.

Ensure the new contract includes standard employment clauses, such as notice period, probation, pension contributions and working hours. If there are changes in reporting lines or responsibilities, explain them in writing to avoid confusion.

Communicate the change to your wider team

Once the individual accepts the offer, let your team know about the change. Share why the person is moving into a permanent role and how they’ll be contributing going forward. This helps set expectations and avoids confusion about their position.

It also helps the contractor feel more embedded. A warm welcome and clear announcement reinforce their decision to stay and support long-term integration.

Set expectations from day one

Even though the contractor may know the work, a permanent role comes with different expectations. Set clear goals for the first few months and clarify what success looks like in the new context.

Make time for a proper onboarding session, even if they’ve worked with you before. Cover team structure, performance reviews, development plans and any changes to systems or processes. The goal is to help them feel part of the team, not just continuing a project on a different contract.

Mistakes to avoid when converting contractors

Converting a contractor to a permanent employee can be a smart move, but only if it’s handled properly. Without planning, the transition can cause confusion or lead to early dropouts. Below are some common mistakes to avoid during this process.

Moving too fast without assessing long-term fit

Just because a contractor performs well in the short term doesn’t automatically mean they’re the right long-term hire. Before making an offer, assess whether they have the motivation, values and soft skills needed to succeed in a permanent role.

Look beyond the current project. Think about how they would fit into the wider team, whether they’re interested in progression, and whether their goals align with your business needs.

Offering vague contracts or unclear terms

Contractors are used to working with defined scopes, so a vague permanent contract can cause concern. Avoid making a verbal offer without following up with clear written terms.

Be specific about salary, job title, benefits, working hours, reporting lines and start date. Include any probation period and explain how performance will be reviewed. Clarity from the start builds trust and helps the individual transition with confidence.

Underestimating onboarding or team impact

Some employers skip onboarding because the contractor is already familiar with the business. This is a missed opportunity. A permanent hire needs to understand expectations, performance goals and where they fit in the team longer term.

You should also consider how the change affects the wider team. If someone moves from external support to a colleague, that shift in dynamic needs to be acknowledged. Clear communication helps manage that transition and strengthens internal relationships.

The role of your recruitment agency

Working with a recruitment agency can make the transition from contractor to permanent employee much smoother. We support both sides through the process, helping reduce risk, manage expectations and ensure the move is right for everyone involved.

If you’re thinking about making a contractor permanent, we can help with the planning, the paperwork and the conversations in between.

How we support the transition

As a specialist recruitment agency, we act as a bridge between you and the contractor. We check interest levels early, advise on salary and benefits, and help you build a clear offer that reflects your long-term goals.

We also make sure legal and compliance issues are taken care of, including conversion terms, IR35 implications and contract changes. Our team is on hand to guide you through timelines, reduce admin, and provide insight into how similar transitions work in your sector.

When to involve us in the process

If you originally hired your contractor through Digital Waffle, we’ll already have temp-to-perm terms in place and can support from day one. If not, we can still advise on best practice, draft offer documentation, and help benchmark the permanent role against others in the market.

Our goal is to reduce the friction that can come with this type of hire. Whether you're converting one person or planning a wider move from freelance to permanent, we help make the process simple, compliant and clear.

Converting a contractor to a permanent employee can be a smart way to secure proven talent and reduce hiring risk. With the right planning, clear communication and structured support, the transition can benefit both the business and the individual.

Looking for more detail on hiring permanent talent? Read our ultimate guide to permanent recruitment.