You found a good engineer on a freelance marketplace. Six months in, they are effectively your first engineer, and you want to hire them full time. Then you read the terms. Short answer: most talent marketplaces charge a fee, or require you to keep paying through the platform for a period, if you hire someone you met there. On Upwork the conversion fee is 13.5% of the freelancer's estimated annual earnings, calculated from their hourly rate times 2,080 hours. That is real money, but it is usually cheaper than a recruiter and far cheaper than starting the search again. The mistake is not paying it. The mistake is quietly moving the relationship off the platform to avoid it.
Fees and terms change, so check the current terms of your marketplace before you budget. This is practical guidance, not legal advice.
What the fee actually looks like
The Upwork formula
Upwork's help center describes its contract-to-hire process and the conversion fee: 13.5% of estimated annual earnings, using the hourly rate multiplied by 2,080 hours. For hourly contracts it uses the highest rate between that freelancer and client. You start the conversion from the contract, and the freelancer has to accept it.
An illustrative example: an engineer billing $80 an hour has an estimated annual figure of $166,400. The conversion fee is about $22,460. At $50 an hour, it is about $14,040.
Other platforms work differently
Vetted networks and staffing-style marketplaces often handle this with a placement fee, a minimum period of paid engagement through them, or a buyout clause in the client agreement. Some build the cost into the hourly rate you have already been paying. The only reliable answer is your own agreement. Find it and read the section on hiring talent directly before you raise the subject with the engineer.
Is it worth paying?
Compare the fee to the real alternatives, not to zero.
Against a recruiter
Contingency recruiters for engineering roles commonly charge a percentage of first-year salary, often in the range of 20% to 25%. We cover when they are worth it in should you use a recruiter for your first engineer. A 13.5% conversion fee on someone you have already seen ship for six months is a better deal than most recruiter placements, which come with no track record at all.
Against starting over
The hardest part of hiring an engineer is knowing whether they are good. You already know. You have seen how they communicate, how they handle a vague spec, and whether their estimates hold. Restarting the search costs months, and as we discuss in how long hiring your first engineer should take, a typical search for a senior engineer is not quick. The fee buys certainty you would otherwise pay for in time and risk.
Against staying a contractor
Sometimes the honest answer is not to convert yet. If the engineer is happy as a contractor and you are not sure you need a full-time person, you can keep the arrangement and revisit. The questions to ask are in when your contractor engineer becomes an employee, including the misclassification risk of a contractor who works like an employee.
Why going around the platform is a bad idea
It is a contract breach
Marketplace terms typically prohibit moving a relationship off-platform to avoid fees, and Upwork states that doing so without paying the conversion fee violates its terms of service. The platform can suspend accounts, and the agreement may give it a claim for fees. The engineer's account, which may be their main source of other work, is at risk too.
It starts the employment on a lie
You are about to ask this person to trust you with your product. Asking them to help you dodge a contract on day one sets the tone for everything after.
Diligence can find it
Investors look at who built your product and under what agreements. A contractor relationship that started on a marketplace and then disappeared from it, while the same person kept working, raises questions about IP assignment and contract compliance. The IP side is covered in the paperwork that stalls your term sheet. Paying the fee is the clean version.
How to convert well
1. Check the IP paperwork first
Work done through a marketplace is covered by the marketplace's terms and any contract you signed with the engineer. Before converting, confirm that IP for everything they have built so far is assigned to the company. If it is not clear, get a written assignment signed as part of the conversion.
2. Make an offer, not a rate change
Converting a contractor to an employee is a new job. Make a real offer: salary, equity, benefits, title, and who they report to. Do not just divide their hourly rate into a salary. Contractors price in their own taxes, benefits, and gaps between clients, so the right salary is usually lower than hourly rate times 2,080, and the equity is a new conversation entirely.
3. Budget the fee into the hire
Treat the conversion fee as a recruiting cost. Put it next to what you would have paid a recruiter and the months you saved. It is a one-time cost for that relationship.
4. Decide employment structure if they are abroad
Many marketplace engineers are outside your country. Converting may mean hiring through an employer of record or keeping a direct contractor agreement off-platform after the fee is paid. That decision is covered in EOR or contractor for your first engineer abroad.
5. Run the paid trial in reverse
You already ran the longest possible trial. Use it. Ask yourself the questions in our paid trial post: would you be disappointed if they left tomorrow? If yes, the fee is easy.
If you are deciding whether your first engineer should be this person, or whether you need someone more senior to lead the work, that is a judgment call we help with in a call with Fraction.
FAQ
Do I have to pay the fee if the engineer approaches me?
Generally, the terms look at whether you met through the platform, not who suggested the move. Check your agreement before assuming otherwise.
Can I pay the fee in installments?
Platform policies vary. Ask the marketplace's support team before you commit to a start date.
Is there a time limit after which the fee no longer applies?
Some marketplaces set one, some do not, and some count from when you first contracted. Read your current terms rather than relying on a forum post.
Should the engineer's salary account for the fee?
No. The fee is your recruiting cost. Do not lower their offer to cover it.