Convert a contractor to an employee when three things line up: the work has become core and continuous, you want them accountable for outcomes beyond a scope, and both sides want a longer horizon. Conversion is the cheapest senior hire you'll ever make, the trial already happened, but only when those conditions actually hold.
The signals it's time
- Their work stopped being project-shaped: it's ongoing ownership of a core system.
- You keep extending, three renewals is a hiring decision you haven't admitted.
- They behave like an owner: raising risks, improving things outside scope.
- The team already treats them as a member; the contract is the only difference.
- Losing them to another client would genuinely hurt the roadmap.
The math, honestly
| Factor | Contractor | Employee |
|---|---|---|
| Headline cost | Hourly/day rate | Salary |
| Hidden adds | Agency margin (if any), renewal friction | Employer taxes, benefits, equipment, ~20-35% on top of salary |
| Flexibility | High, scale down anytime | Lower, exit costs and notice periods |
| Knowledge risk | Walks at engagement end | Compounds in-house |
| Commitment signal | None implied | Retention and roadmap ownership |
How to make the conversion well
- 1Raise it early and directly, ask about their interest before building the offer.
- 2Price the offer on market salary for the role, not a mechanical discount of their rate.
- 3Honor any conversion terms in your agency or platform agreement.
- 4Give equity and scope meaning: conversion should feel like a promotion, not a pay cut with benefits.
- 5If they decline, keep the relationship, a great contractor who stays a contractor is still a win.
