Are Contractors Really More Expensive than Permanent Staff?

by Elise Milburn - over 3 years ago

“We don’t hire contractors; they’re too expensive!”

As someone who specialises in placing IT and Technology Contractors, I can tell you that I hear this line at least once a day.

But while some employers are instantly put off by a quote of a few hundred pounds a day, it turns out that the actual cost of a permanent member of staff can sometimes be higher to your organisation than a contractor!

Let’s say you are looking to hire a Senior .Net Developer for contracting work in London. Their rates are, on average, between £350 to £450 per day (inclusive of Agency Fees), possibly higher if you’re looking for a specialist with a niche skill set.

Let’s go with the median figure - £400 per day. That’s roughly £2,000 a week, £8,000 a month, £96,000 over a year. Ouch.

Is that figure really a true reflection though?

An employer does not pay NI or pension contributions for a contractor. Furthermore, if the contractor takes a day off, you do not pay them for that day. If the contractor is off sick then, guess what, no pay for the contractor.

Add to this that to recruit someone through an Agency, you inevitably have to pay a fee - normally calculated as a percentage of the candidate’s salary. However, when recruiting a contractor, the fee is inclusive within the day rate quoted - meaning you don’t pay any “extras” once the contractor has been placed.

A calculator for the true cost of a permanent employee is available here (spreadsheet download).

It suggests that after taking into account their basic salary NI contributions, holiday pay, sick pay, pension, benefits, bonuses etc, the actual cost of a permanent member of staff can sometimes be higher per annum than a contractor!

What Do Contractors Offer?

Not every contractor is out to get money - most, in fact, take a genuine interest in their speciality and enjoy the fact that they can move from project to project without getting caught up in the “politics” of a company.

They’re there to perform a task and, if they enjoy that task, why wouldn’t they want to do it for different people? The satisfaction of successfully completing a project and then moving on to a new challenge is ultimately what drives many contractors.

Money is obviously important, but so is putting food on the table. A contractor who relocates has to pay their expenses (of course they can claim back some of this, but it’s not pound-for-pound) and does not get paid when they are off sick or indeed want to take some time off.

Add in the downtime between contracts (one week to one month on average) and it all adds up to requiring a decent day rate to cover those risks.

I am a huge advocate of the positive impacts that hiring a contractor can have for organisations for short and long term projects. Their passion and expertise in specific areas of technology make them an ideal solution in many cases, so please don’t discount using a Contractor based solely on their day rate.

If you would like to find out more about the benefits of hiring a contractor for your business or wish to register with Oscar as an IT / Tech contractor, please get in touch with me today.

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