It just doesn't seem logical that I would suffer a pay cut for being "promoted" to a full time position. If they see value in me and want to secure me in the company, is the only type of additional compensation I can expect to see limited to benefits/vacation excluding salary?
I would wager most commonly those that get hired direct from a contract to hire position at least get the same wage plus health insurance, PTO, and a 401k if your new employer offers it. Maybe you'll get a tiny raise on top of that. It probably depends on what the staffing agency bill rate/mark up was for your position.
Well my job title is contractor, in the sense that I'm being contracted by a company to work for them for a specific amount of time. But I see what your saying.
So what happens if these people who are working on contract at another company don't get brought on full time? Since they are technically still employees at the staffing agency, does the agency actively look for another job to place them in given their skills? Or are they simply "let go" once their current contract is up?
Mixing up terms - you're not a contractor, but a contract to hire (CTH) employee. I actually currently work at a staffing agency that mainly focuses on CTH employment for most of its business (the other side being direct hire/outsourced recruiting). I would say it would depend on the agency and the client location. Our placement terms vary by location and definitely job skill. Low skill positions are something like 520-720 hours (typically 3-4 months), high skill CTH positions can easily be 1040+ (6 months+).
Many CTH associates call in and wonder why they aren't hired at day 90/hour 520, but none of our clients dump associates because they reached their minimum hours and only one I know of hires immediately at day 90. Sometimes the client waits until more than 1 person hits the minimum day/hour mark to bring on a group of 5, 10, or 30 direct. They don't want to be doing new/rehire orientation for people all the time. Sometimes they want to wait until the next fiscal year. Sometimes they just don't know you're at your hour/day mark until they ask us.
It's actually in the staffing agency's interest to keep you on longer. I do invoicing and payroll and we pay your taxes like FUI and SUTA. However, if associates hit the max contribution on those taxes, we don't have to pay for it and it bumps up our margin. Admittedly, it's a pretty slim bump and due to turnover, most associates hit neither, or FUI at most.