Cheaper to hire contractors ??

**WouldBeEntrepreneur** · 28 January 2004, 23:12

Try getting a quote from EDS, Accenture et al. for there fees.

I have worked alongside permie employees of both Compaq and Microsoft who were sent in as consultants to the client I was at. They were significantly less experienced and were charged to the client for at least double, if not triple, what I was charging as an independent.

The guys themselves were very bright young recent graduates but had that kind of rabbit-in-headlights look about them due to their inexperience. They also seemed a bit narked that they were charged to the client for so much and were not seeing very much of it in their paypackets.

I guess these big consultancies need to charge loads of money to keep paying the expensive lawyers to maintain their Teflon coating whilst channelling £millions of profit to a select few.

**sanjaysahoo** · 29 January 2004, 05:55

Cheaper to hire contractors ??

we can provide you the contractor in a very cheap rate.

**terotech** · 29 January 2004, 09:31

Cheaper to hire contractors ??

F!ck off Sanjay, WBE - Interesting point, I too have worked alongside Accenture etc. and seen the

Rabbit in the Headlights eyes

.

What I am looking for is a cost analysis of contract vs permanent staff as I am trying to prove a point that contractors are cheaper than permanent staff when the benefits are weighed up (overheads etc.), any links etc. to this sort of thing would be most appreciated.

D

**tim123** · 29 January 2004, 12:36

terotech

I think you will struggle in your quest.

At normal rates (ignoring the current depressed rates) even once you have added on the cost of employment benefits the contractor still costs more.

The real saving is only made if you add in the flexibilty of being able to hire and fire at will and most companies won't accept a monetry value for this, because:
(a) they will claim that the don't need this flexibility and that every perm they employ today, they will need forever.
(b) most companies don't use contractors this way anyway. Once on project they just look like a perm, getting paid for the void periods in just the same way. They are too scared that the contractor won't be available next week and that they will lose all the company knowledge that is in his (her) head. (and to a certain extent they are right)

tim

**DimPrawn** · 29 January 2004, 14:35

What about when the perm demands to go on 23 training courses every year?

What about when the perm develops severe back problems and is signed of on the sick for 6 months?

What about when the perm becomes pregnant?

Look at productivity. Permies spend their whole life at appraisal meetings.

Hire a permie by all means, but don't expect much more than 10% productivity out of them over a year.

**terotech** · 29 January 2004, 16:22

Tim:

I understand your points (which are valid), the discussions I have had seem to centre around the cost of permies being mainly in the items raised by DP. From my perspective, I am a contractor and as such don't get the nice things from the employer (training, sick pay, holidays, trophy-hunt days etc. etc.) when I add these things up they come a lot of money which the client obviously saves by using contractors. At my current clients site all of the permies seem to take great delight in having meetings about meetings about meetings which none of the contractors here are privvy to (we don't even get invited, not that we would want to be) and so the cost to the employer must be astronomical. Adding the fact that on the majority of client sites I have been on 20% of the workforce (contractors) seem to do 80% of the work surely it must be more beneficial (and cost-effective) to use contractors instead of permanent staff ???

Interested,
D

**tim123** · 29 January 2004, 18:27

Just do the maths yourself......

The basic rules seems to be that a 40K job pays 40 pph. A perm can be expected to work 220 days per year so that's 1650 hours. At 40 pph plus margin = 48 pph so that costs 80K.

To make perms more expensive you have to find an increased cost of 100%. Using 'normal' things you wont do this. ERNI = 10%, pension = 6%, sickness is an insurable risk and averaged over all employees shouldn't come to more than 5% of payroll (there are few companies that continue to pay an employees salary for a very long term illness), recruitment costs = 10%, pregnancy costs are again a few % (the actual maternity pay that you have to pay is trivial, the major cost is in the potential loss of a key employee, but you have this cost if a key contractor gets pregnant so it can't be seen to be a perm 'overhead'). Total all this up and you will get to about 60% so a perm looks to be about 20% less expensive than a contractor.

As to the other things mentioned.
Training. As I perm I never had the opportunity to go on one. I consider the idea that I might be able to 'demand' even a single course laughable. In my career, the courses that I see people go on are in-house training in a new tool, and IME cons get invited to these as well if appropriate. In what I do, the 'career' development courses that some people go on are an opportunity available to the very few.

'perm' meetings. I hear that in some places this is 'endemic' but I doubt you'll be able to sell the idea that this is a 'cost' of a perm'. The company wouldn't hold them if they didn't think they were beneficial in some way. I must say that I've never actually encountered a site where it is a big problem. I work at places where there are 'project' progress meetings which I am expected to attend and the sort of perm only meetings (where the company 'performance' is kept a secret from the contractors) are a once every 6 months affair. Even if, in the short term, you can convince the company that this is a cost, it will be a hollow victory as once a place has a lot of cons, either the meetings will cease, or the cons will be expected to attend.

Project "trips". Perhaps I've been lucky. The companies that I have worked for have taken the attitude that as a valued team member I was just as entitled to go if I whished. The cost to the company was small in any case, nobody got paid time off to go, if you wanted to go it was in your own time.

Finally: Relative productivity:
Yeh, I agree with you. Contractors, often (though not always) are substantially more productive then the perms, but if you could persuade clients that this were the case you wouldn't need to persuade them that you were cheaper, would you?

tim

**terotech** · 30 January 2004, 11:03

Excellent response tim, many thanks for your insights ...

D

**jumpsystems** · 30 January 2004, 15:58

Regarding sickness et al.

A contractor will generally try to get into work if they are under the weather, whereas a permie will take the day (or two ) off as paid leave. That tells me that, even if the employer does cover themselves with insurance, they are losing productive days that are far more costly.

I also think the work ethic is stronger in the freelance community. After all, you're only as good as your last contract, to pinch an existing saying.

Cheaper to hire contractors ??