What Is a Conversion Fee?
When a client hires a temp the agency supplied, the conversion fee is what the agency collects for losing that worker to a permanent payroll. It compensates for the ongoing markup that ends and the recruiting work already done, and the service agreement defines it, often shrinking as the assignment lengthens.
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When a client hires a temp the agency supplied, the conversion fee is what the agency collects for losing that worker to a permanent payroll. It compensates for the ongoing markup that ends and the recruiting work already done, and the service agreement defines it, often shrinking as the assignment lengthens.
Conversion Fee explained
While a temp is on assignment, the agency earns a markup on every hour worked. If the client hires the worker directly, that income stops, so most agreements set a price for the transition. The structure varies: a share of annual salary, a flat amount, or a sliding scale that declines with time worked until conversion becomes free after a stated period. Some agreements let the client buy out the worker early; others allow it to extend the temp assignment long enough that the fee drops away.
In business development, conversion terms are a lever. A hiring manager weighing temp-to-hire wants to know what happens if the trial goes well, and a rep who states the terms up front removes a common objection. Disputes usually arise when the terms are vague: a client hires the temp through another vendor, hires after a gap, or assumes the fee disappeared. Large managed programs may set conversion terms for all suppliers, overriding an agency’s own.
A direct-hire placement fee pays for a search that produced a new employee from scratch, which a conversion fee does not. It is also a contract term rather than a legal rule, and some jurisdictions and client programs limit restrictions on hiring a temp. Written terms should state when conversion is triggered, how the period is measured, and whether the fee applies after the assignment ends.
Why it matters when you're buying
Stating conversion terms upfront turns a common objection into a selling point and heads off disputes after the temp proves useful. VA Horizon books intake meetings with companies that are hiring, and those terms are worth raising in that first conversation, before a trial assignment makes the question urgent.
Frequently Asked Questions
What is a conversion fee in staffing?
How is a conversion fee calculated?
Can a client avoid a conversion fee by hiring through another vendor?
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