A worn out drill bit won't drill a clean hole. Use a sharp one, but a small amount under the diameter of the magnet, eg, .003 under since the drill will probably drill a little oversize in metal. Remember, you can always make the hole larger in diameter, but it is impossible to shrink it. Try drilling a test hole all the way thru a flat plate to see if it is the right diameter to hold the magnet. If you don't drill it all the way thru, you won't be able to push the magnet out again.

Nearly all Hall-effect switches are configured to switch on with a positive magnetic field. The positive field is associated with a magnetic south pole.