This article outlines the process of converting from a Stakeholder (e.g. Potential Employee, Contractor) to an Employee (and vice versa).
From the Configuration cog, click "Manage People"
Find the Stakeholder, click on the menu on the right-hand side and click 'Convert Employee Account to Stakeholder' (or 'Convert Stakeholder Account to Employee' if they are already a stakeholder)
In the confirmation dialog, specify the date of the changeover, and confirm.
What happens next?
The person now shows up as an employee (if originally a stakeholder) or stakeholder (if originally an employee).