Contractor vs Permie Comparison spreadsheet

[TheFaQQer]

On a slight tangent doing this has also shown me that my company isn't as 'tax efficient' as I thought it was. As a % of the turnover, what would you all expect to be able to take home (net) on average?

It varies from year to year and rate to rate.

The lower the rate / the fewer days worked, the easier it is to increase the percentage of take home.

My take home is about 40% of turnover

[fidot]

An agent's view of the client perspective

The following is an extract from an email sent by an agent, pitching contractors instead of permanent.

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What if I told you I can supply a contractor at the same cost as a permanent developer?
Crazy right.

Well interestingly following on from some market research I have found that the market isn't far off an equilibrium.

So far this year the average Senior PHP Developer earns £55,000 per annum and the average day rates I have charged my clients is £375 all-inclusive of agency fees, based on these figures I have found the following findings;

Contract: Employers NI 13.8% – (Paid by us)
Contract: Employees NI 12% – (Paid by us)
Contract: Finder’s Fee (Zero)
Contract: Avg 28 days holidays per annum (You do not pay)
Contract: Avg Sick days 10 days per annum (You do not pay)
Contract: Total cost: £82,500 per annum

Permanent: Employers NI 13.8% – (You pay)
Permanent: Employees NI 12% – (You pay)
Permanent: Finder’s Fee Avg 20% (You pay)
Permanent: Avg 28 days holidays per annum (You pay)
Permanent: Avg Sick days 10 days per annum (You pay)
Permanent: Total Cost: £80,190

(This figure does not include further costs associated with company perks ie; pensions, healthcare, bonus etc.)


Additional benefits of contractors

Although commonly misunderstood, most contractors prefer longer contracts. If anything it will be your permanent candidates that are leaving your jobs to go contracting.
No recruitment finder’s fee. Which if a permanent member decides to leave is thrown away.
Another misconception is that contractors gain the knowledge then leave, when in fact they can impart their knowledge and experience to you and the team.
Contractors work on a day rate so their work mentality is to work at their full potential from day 1.
Contractors are able to hit the ground running, and do not take as much time to get up to scratch on your systems as maybe as permanent developer would.
Flexible Notice periods and end dates on contract.

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Bear in mind that this is a pitch to take on contractors rather than perms (so £375 is a perhaps a bit low for a senior PHP dev) and whether you agree with the assumptions (how many contractors are sick 10 days per annum?) or not, you will see that this isn't far off the hourly rate = salary/1000 that is often stated.

[northernladuk]

The following is an extract from an email sent by an agent,

I stopped at this point...

[madame SasGuru]

It's wrong. A salary of £55,000 would suggest an hourly rate of roughly £55 an hour so £400 or so a day before agency fee - so nearer £450 than £375 which blows his figure out as the cost of the contractor is £99,000 not the £82,500 he suggests...

Now I know you will get a php developer for £375 but my concern would be how good is he really.

[fidot]

but note that the perm figures do not include pension, healthcare etc.

[madame SasGuru]

but note that the perm figures do not include pension, healthcare etc.

That's not going to add £19,000 to the permie staff cost figures which is what it needs to do to make sense.

[malvolio]

That's not going to add £19,000 to the permie staff cost figures which is what it needs to do to make sense.

You think? Cost of employment is between 40 and 100% of salary.

[madame SasGuru]

You think? Cost of employment is between 40 and 100% of salary.

Read the entire email from the agent

It has the costs at:-

Permanent: Employers NI 13.8% – (You pay)
Permanent: Finder’s Fee Avg 20% (You pay)
Permanent: Avg 28 days holidays per annum (You pay)
Permanent: Avg Sick days 10 days per annum (You pay)
Permanent: Total Cost: £80,190

And I pointed out that the other items fidot has come up with (pension and healthcare) isn't £19,000.

Now I'm not saying that a contractor comes out as more expensive than a member of staff (I suspect there is very little in it) more that there isn't enough detail here to justify the agents original claim.

[malvolio]

Read the entire email from the agent

It has the costs at:-



And I pointed out that the other items fidot has come up with (pension and healthcare) isn't £19,000.

Now I'm not saying that a contractor comes out as more expensive than a member of staff (I suspect there is very little in it) more that there isn't enough detail here to justify the agents original claim.

There is a long list of overhead costs associated with employing someone in any decent sized company, including - but not limited to - pensions and SSP provision, support overheads (HR and payroll mainly), training, efficiency (permies are rarely more than 80% efficient, notice provision, assorted insurances and the rest. Plus, potentially, season ticket loans, car schemes, health care and the rest. We can probably ignore fixed costs such as heat and light and hardware provisioning but they will still represent a cost that is more than a contractor would carry, if only because the contractor isn't a 52 week a year item.

I did a detailed analysis of all this for a client a while back. My £500 a day gig was costing them around 8% less than the equivalent grade permie on £60k plus car and benefits, even if I worked a full year.