There are 260 weekdays per year but a permanent employee, on average, will work only 223 days. Taking this into consideration, the effective average day rate for a permanent employee is £411. National insurance and pension contributions from the employer represent permanent employee costs that are usually not considered as high as they really are. In value, these contributions represent more than 10% of the total annual compensation for permanent employees. These costs don’t exist when you hire a freelancer.
When comparing day rates to permanent employee costs, the gap between interim and permanent pay can look quite large.
However, the gap begins to decrease with seniority. And hiring permanent employees comes with hidden costs.
In reality, interim hires have a comparable cost to their permanent counterparts.
Start by sketching out a basic organisational structure (i.e, what teams you foresee). Then go through and determine which would genuinely benefit from being full-time employees and which could be part-time/freelance or an intern. Equally, consider outsourcing tasks. This is particularly good for admin, research, finance, simple web development, etc. Some things are better and cheaper done by 3rd parties, either at home or overseas.
Effective number of working days
One of the main differences between interim and permanent employees is that you pay freelancers based on the actual number of days they work on your project. When it comes to permanent hires, it’s a bit different. You have to consider sick days, paid holidays, bank holidays or even weekends. There are 260 weekdays per year but a permanent employee, on average, will work only 223 days. Taking this into consideration, the effective average day rate for a permanent employee is £411.
National insurance & pension contributions
From the employer, these represent permanent employee costs that are usually not considered as high as they really are. In value, these contributions represent more than 10% of the total annual compensation for permanent employees. These costs don’t exist when you hire a freelancer.
Onboarding and offboarding
You’ll invest more time in the onboarding process for a permanent employee. Also, you’ll have to consider training costs. Because you hire freelancers for their expertise, onboarding will take you less time. A freelancer will be ready to work as efficiently as possible faster than a permanent employee. We often hear companies say that it takes 6 months until a permanent hire adds value in high-end professional services, while a freelancer adds impact almost instantly. There are a number of reasons why you may need to let people go. Termination of permanent employment brings costs that don’t apply to freelancers. Hiring freelancers also mean hiring at a lower risk, knowing sunk costs will be minimal if the contract has to be ended.
Freelance consultants v. permanent employees: Flexibility & quicker hiring process make for comparable effective costs
Freelance contracts can be ended with little to no notice
There are a number of reasons why you may need to let people go. Valuable permanent employees may also decide to leave – according to Payspective data, most employees now change jobs every 2.5 years. Termination of permanent employment brings costs. These costs, by and large, don’t apply to freelancers. So you can hire at a lower risk, knowing sunk costs will be minimal if the contract has to be ended. Freelancers can lead to a permanent employee: you save yourself a lot of time and effort in recruiting and de-risk the recruitment of an important role.
Freelancers can be hired much faster than permanent employees
Recruiting for a freelancer can take just a few days on movemeon. Freelance interview processes are generally fast as hiring managers are focused purely on competency, not team fit. In contrast, recruiting for a permanent employee takes a number of months. During this time, businesses may suffer simply because there is nobody in role. Simply put, there is an opportunity cost to the business.
Freelancers are industry specialists & always bring their ‘A’ game
A freelancer’s livelihood depends on their reputation so they will always do the best job they can. As they have the freedom to choose their own projects, they are also more likely to have a focused portfolio, which means you get deeper industry expertise at a lower cost than that of the equivalent permanent employee.
When deciding whether to hire a freelancer or permanent employee, it’s important to consider these factors before making the final decision. How important is it that they make an instant impact? Is this going to be a long-term role or a short-term one? How exciting is the role? Could you use the path to take a freelancer into a permanent role? After answering these questions you should hopefully be able to make the right decision.
An event was hosted my Natwest called Growing inclusive leadership in Tech. The topic addressed was ‘Key ways to create a positive company culture’
We had the pleasure to co-organise a roundtable breakfast discussion with Learnitect. The topic for the day – Recruiting and Empowering Top Performers
On Thursday 28th September, movemeon and On Purpose hosted an event for consultants and ex-consultants interested in building socially impactful careers. We were joined by Parita Doshi, Seigo Robinson, Sophie Runcorn and Jeroen Sabbe. These are 5 of the evening’s top tips