When to Convert a Contractor to Full-Time (And When Not To)

Six months in, your contractor knows your codebase better than half your team. They hit deadlines, they write clean code, they show up to standups even though nobody asked. The question starts nagging: should you bring them on full-time?

Sometimes the answer is yes. But more often than people expect, the answer is no. And not because the person is bad. Because the arrangement is already working.

The urge to convert is usually about comfort, not need

When we were running Pray Screen, we had a designer in Colombia who did all our app store screenshots, social assets, and UGC templates. She was fast, affordable, and her work was consistently good. After a few months, Lotts and I talked about bringing her on full-time.

We never did. Here is why: she was already giving us 15-20 hours a week, which was exactly what we needed. A full-time offer would have doubled our cost for the same output. We would have been paying for 40 hours of availability when we only needed 20 hours of work.

That distinction matters. Full-time employment is buying availability. Contracting is buying output. If you are already getting the output you need, paying for extra availability is just burning money.

When converting actually makes sense

There are situations where it clearly does make sense. Here is my rough checklist:

They are working 35+ hours a week for you consistently. At that point, they are already full-time in practice, and you are probably paying more per hour than a salaried equivalent. The math flips.

They have access to sensitive systems and strategy. If someone is in your Slack, your repo, your board deck, and your customer database, the legal and operational risk of keeping them as a 1099 starts to outweigh the flexibility benefits.

You need them to stop taking other clients. This is the big one. Contractors serve multiple clients. That is the whole point. If you need exclusivity and deep focus on your product, that is an employment relationship.

The role is going to exist for years. If you know you will need a senior iOS developer for the foreseeable future, locking in a full-time hire protects you from rate increases, availability gaps, and the contractor simply moving on.

When converting is a mistake

The flip side is just as real. I have seen startups convert contractors who were perfectly happy with the arrangement, and it backfired.

One founder I know hired his freelance marketer full-time. Within two months, the quality dropped. Not because she got worse, but because the structure changed. She went from delivering specific projects with clear scope to sitting in meetings, doing ad-hoc requests, and filling time. The output-driven energy disappeared.

Some people are contractors by choice. They like the variety, the autonomy, the ability to structure their own day. Offering them a full-time role feels like a promotion to you. To them, it might feel like a cage.

There is also the cost reality. A contractor at $80/hour for 20 hours a week costs you $6,400/month. A full-time employee at a comparable salary costs that plus benefits, equipment, payroll taxes, PTO, and management overhead. You might be looking at $10,000-12,000/month total cost for the same person doing the same work.

The misclassification risk nobody talks about

Here is the thing that actually matters from a legal standpoint. If your contractor works only for you, follows your schedule, uses your tools, and reports to your manager, they might already be an employee in the eyes of the IRS. It does not matter what the contract says.

This is where the conversion question gets urgent. If someone looks and acts like an employee but you are paying them as a 1099, you are exposed to back taxes, penalties, and potential lawsuits. In that case, converting is not a nice-to-have. It is risk management.

The IRS uses a multi-factor test, but the core question is simple: do you control what they do and how they do it? If yes, that is employment.

A better question than yes or no

Instead of "should I convert this contractor," try asking: "what would I lose if they left tomorrow?"

If the answer is "a lot, and it would take months to replace them," you should either convert them or significantly increase their rate and commitment. Key-person risk with contractors is real, and most startups do not think about it until the person actually leaves.

If the answer is "it would hurt for a week or two but we would find someone," then the contractor arrangement is probably right. You have flexibility. Use it.

How we handle it at Grade

We built Grade because managing contractors was the messy part of our business at Pray Screen. We had 30+ creators across different countries and payment methods, and the operational overhead was brutal.

Now, building Grade itself, we still use contractors for a lot of our work. We track deliverables, tie payments to verified output, and pay everyone with one click. When someone is doing great work on a contract basis, we do not feel pressure to convert them just to "keep" them. The system already works.

That is the real unlock. If your contractor management is clean, payments are on time, and expectations are clear, you do not need to convert people out of anxiety. You convert when the role genuinely demands it.

The short version

Convert when the person is already full-time in practice, you need exclusivity, or you are at misclassification risk. Keep them as a contractor when the arrangement is working, the hours are part-time, or they prefer the flexibility.

Do not convert out of fear of losing someone. Fix the relationship instead. Pay them well, pay them on time, give them interesting work, and respect their autonomy. That is how you keep good contractors around without turning them into employees they never wanted to be.