Why don’t we have ‘Contract-To-Hire’ Arrangements in Ireland?
by Michael Lantry
IT Contracting Advice
In the USA the use of contract to hire arrangements is quite a popular approach for bringing in talent. So why do we not see it in Ireland where so many US owned companies operate and, quite often, our talent acquisition strategies and workforce structures align?
Here we will attempt to explain what ‘contract to hire’ is and why it is not used by employers in Ireland.
What is ‘Contract to Hire’?
This refers to a contract of employment that is defined for a specific length of time. It is unique in nature in that it is the recruitment agency who is employing the candidate, not the employer. It is the recruitment agency who payroll’s the contract to hire. This continues to be the case throughout the contract to hire arrangement. Under this arrangement, there is also an implied intention for the employer to take on the contract to hire resources as a permanent full-time employee. This can happen at any time during the contract to hire arrangement.
Why is this popular in the USA?
With a contract to hire, the underlying intention is, to put it crudely, to ‘try before you buy’. This applies for both the employer and the potential employee. It allows both parties to get to know each other a lot more closely before committing to a long-term employment contract.
The interview processes are often more streamlined, and resources can get working more quickly as there is less risk or processes involved. It also enables the employer company to control budget, keep their staffing needs flexible and bring in niche skills that might not exist in-house.
Why do we not see contract to hire arrangements in Ireland?
As well as the differences in payroll, the contract to hire resources is not self-employed, as they would be as a ‘normal’ contractor or freelancer in Ireland. The distinction here is that the official employer (aka recruitment agency in this case) is responsible for the contract to hire PAYE (or equivalent in the USA) and has tax liability for the individual. This is not attractive.
This is the key reason why this is not a type of employment in Ireland. The closest equivalent we have in Ireland is a fixed term contract. But again, the payroll and tax liabilities for a fixed term contract sit with the employer, not the agency who placed the candidate.
This also has implications for the access to benefits packages and employee rights.
One could also argue that, in a contract of employment in Ireland, the probation period exists for some of the same reasons as those highlighted above as to why the contract to hire arrangement is popular in the USA. However, fundamentally, the nature of a permanent full-time employee contract is quite different from a contract to hire contract.
We still do see contractors converting to permanent employees in Ireland. This is the very same route that someone on a contract to hire arrangement would take in the USA. But these contractors are normally either typical daily rate contractors who are responsible for their own taxes, or on a fixed term contract and officially employed by the employer already (just for a fixed period of time instead of permanently). So, the key difference is that the recruitment agency is never the employer who is payrolling the resource. However, the logic that makes the contract to hire arrangements popular in the USA would be the same.
Contract to hire arrangements are popular in the USA for several reasons, but we do not use this approach in Ireland. However, the benefits of this type of arrangement (to both the candidate and the employer) can still be enjoyed in Ireland using existing employment types that can be facilitated in the Ireland tax system.
Come talk to GemPool if you would like to learn more about these benefits and how you can help your business. You can get us on email@example.com or log on to our services page to gain an understanding of our expertise. If you’re a candidate looking for a new job you can head over to our careers page to find a suitable job opportunity.