US · Margins
How does a temp-to-perm conversion fee work?
How conversion fees are structured, the hours-worked taper clients expect, and how to protect the fee in your terms of business.
The short answer
A conversion fee is charged when a client hires your contractor directly. Standard practice is a percentage of the annual salary — often 15 to 20 percent — reducing as the worker completes hours on assignment, and reaching zero after a defined period, commonly 1,000 to 1,500 hours or twelve months.
Key facts
- Typical fee
- 15–20% of annual salary, tapered
- Common taper to zero
- 1,000–1,500 hours worked
- Where it lives
- Terms of business, agreed before the first assignment
Conversion is a good outcome badly handled. The client gets a proven employee, the worker gets permanence, and you lose a recurring gross profit stream — so the fee exists to price that loss, not to punish anyone.
The taper is the fair mechanism and the one clients accept. Every hour worked returns margin to you, so the outstanding fee should fall accordingly. Publishing that schedule in your terms removes the argument entirely.
The clause has to be watertight on scope. Cover the client's affiliates and subsidiaries, cover hires made within a defined window after the assignment ends, and cover introductions passed on to third parties. Most fee losses come from a gap in scope, not from a client refusing to pay.
Price conversions into your commercial thinking as well. A temp-to-perm book with predictable conversion at healthy fees can be more profitable per placement than a pure contract book, particularly in professional and clerical niches where assignment lengths are short.
Keep the record. An enforceable conversion fee depends on being able to show the introduction date, the assignment record and the agreed terms — which is another reason for assignment data to live in the ATS rather than in a mailbox.
United States
How this differs by US state and metro
The answer above holds nationally. What changes locally is registration, insurance, wage rules and how much cash each contractor consumes — these are the states and metros founders ask us about most.
New York
New York City · Brooklyn · Long Island
New York bill rates are among the highest in the country, which is good for gross margin and bad for cash: the higher the pay rate, the more each contractor consumes while you wait for the invoice. Factoring or payroll funding is close to standard here.
New York guideTexas
Dallas–Fort Worth · Houston · Austin
Texas is a volume market: light industrial and logistics run high contractor headcount at moderate margins, which makes the working capital requirement large relative to profit. Factoring lines scale with invoices here and are the usual answer.
Texas guideFlorida
Miami · Orlando · Tampa
Florida hospitality and healthcare clients frequently pay on 45 to 60 day terms while the workers are paid weekly. Seasonal peaks mean your largest payroll weeks and your slowest collection weeks can arrive together — size the facility for the peak, not the average.
Florida guideIllinois
Chicago · Naperville · Rockford
Illinois compliance costs are front-loaded, and light industrial margins are thin, so the funding line has to cover both the payroll gap and the administrative load. Model the long-assignment pay step-up into your bill rate from day one or it will eat the margin later.
Illinois guideMetro-level wage, bill rate and startup cost detail:
Local questions
Does this change if I start in New York?
The national answer holds. What changes in New York is local: New York bill rates are among the highest in the country, which is good for gross margin and bad for cash: the higher the pay rate, the more each contractor consumes while you wait for the invoice. Factoring or payroll funding is close to standard here. Check the New York page before you register anything, and model the cash gap on New York pay rates rather than national averages.
Is the answer different in Texas than in New York?
The economics are the same shape; the local detail is not. In Texas: Texas is a volume market: light industrial and logistics run high contractor headcount at moderate margins, which makes the working capital requirement large relative to profit. Factoring lines scale with invoices here and are the usual answer. That affects your registration checklist and your working capital number, not the underlying principle.
Which US cities does this apply to?
All of them — but we publish metro-level bill rate, wage and startup cost detail for Buffalo, Houston, Dallas–Fort Worth, Austin and more, because pay rates and buyer mix vary far more between metros than between states.
Do I need a separate licence in every state I place in?
You register where you have employees and where you do business, not once nationally. Most states require unemployment insurance and withholding registration plus workers' compensation cover; a minority licence employment agencies, and some cities — New York City among them — licence separately from the state. Confirm each state and city before your first placement there.
Go deeper
How much do staffing agencies charge employers?
What staffing agencies charge employers: temp bill rates and markup, permanent placement fees, temp-to-hire conversion fees, and what actually sits inside the number.
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