Reply to: Cost to employer

[HornyHorse]

Oh for goodness' sake. Every time we try to give sensible answers about a decent rue-of-thumb comparison, someone comes along with a piece of less than sensible arithmetic.

1. What's that 12th month? If it's supposed to cover everything, it's not a good input to the calculation. I'd say at least 1 month to cover being on the bench. 5 weeks holiday. 10 days public holidays. Write in 1 week sick time.

That makes 3 months off in 12.

OK, OK, you may not be benched, you may not take sick leave, you may not take 5 weeks holiday. In so far as you don't, so far are you diverging from the rule of thumb. The point of the rule of thumb is to make a standardised comparison of like for like. If you then behave as a contractor in a way that permies don't or can't behave, adjust accordingly, don't invalidate the base calculation.

2. £76 * 7.5 *21 * 9 = £107,730.

3. I suggest allowing 5% for expenses not normally incurred by permies. Hector does and he's not known for throwing money away.
£102,344.

4. Employers NIC (like for like, remember) £11,614.
Leaves £90730.

5. There is more: it looks like trying to nickel'n'dime the figures to death, but remember, every little bit that you fail to count has the effect of inflating the contractor figure. Personally I'd take 2 months estimated bench rather than 1, but YMMV. I'd also add travel to site: employees may choose to live and work in nearby places, contractors often can't so choose because contracts are in various places. Etc etc, maybe not exactly right down to £76k but much nearer that than £130k.


As I said, you may then do things like not go sick, not take 5 weeks holiday, etc. That is your personal variation from like-for-like (and maybe the reason you contract), but it is not a rejection of the base calculation.

Methinks you make too many assumptions for there to be any value left in the so called generalisation. It becomes a meaningless rule dreamt up by a drone with no ability to encapsulate the personal criteria which form the value of one's effort and time. It becomes worthless.

[expat]

Am I missing something here?

If I'm on £76/hour, then by our general rule of thumb my permie salary would be £76,000. .....

BUT £76 * 7.5 *21 * 11 (rate * hours * days in month * 11 months worked) is over £130,000.

So that's a difference of £54,000! I can't imagine how 5 weeks holiday/sick pay/pension/healthcare would ever amount to £54k.

Oh for goodness' sake. Every time we try to give sensible answers about a decent rue-of-thumb comparison, someone comes along with a piece of less than sensible arithmetic.

1. What's that 12th month? If it's supposed to cover everything, it's not a good input to the calculation. I'd say at least 1 month to cover being on the bench. 5 weeks holiday. 10 days public holidays. Write in 1 week sick time.

That makes 3 months off in 12.

OK, OK, you may not be benched, you may not take sick leave, you may not take 5 weeks holiday. In so far as you don't, so far are you diverging from the rule of thumb. The point of the rule of thumb is to make a standardised comparison of like for like. If you then behave as a contractor in a way that permies don't or can't behave, adjust accordingly, don't invalidate the base calculation.

2. £76 * 7.5 *21 * 9 = £107,730.

3. I suggest allowing 5% for expenses not normally incurred by permies. Hector does and he's not known for throwing money away.
£102,344.

4. Employers NIC (like for like, remember) £11,614.
Leaves £90730.

5. There is more: it looks like trying to nickel'n'dime the figures to death, but remember, every little bit that you fail to count has the effect of inflating the contractor figure. Personally I'd take 2 months estimated bench rather than 1, but YMMV. I'd also add travel to site: employees may choose to live and work in nearby places, contractors often can't so choose because contracts are in various places. Etc etc, maybe not exactly right down to £76k but much nearer that than £130k.


As I said, you may then do things like not go sick, not take 5 weeks holiday, etc. That is your personal variation from like-for-like (and maybe the reason you contract), but it is not a rejection of the base calculation.

[ChimpMaster]

Am I missing something here?

If I'm on £76/hour, then by our general rule of thumb my permie salary would be £76,000. .....

BUT £76 * 7.5 *21 * 11 (rate * hours * days in month * 11 months worked) is over £130,000.

So that's a difference of £54,000! I can't imagine how 5 weeks holiday/sick pay/pension/healthcare would ever amount to £54k.

[MPwannadecentincome]

What happened to the perm to contract rule of thumb that perm annual salary / 1000 = contractors hourly rate?

So in this case £30 per hour at 7.5 hrs a day = £225 per day

And I'm sure there are 'benefits' on top of the £30,000 to account for too?

[RichardCranium]

Why don't contractors do that "sort of crap". Their work needs peer reviewing as much as anyone else does,

The only person that I knew who wrote deliberately obscure code was a contractor (and boy did the company regret not reviewing his work from day 1)

Where review meetings = "How are you performing relative to Corporate Objective 17: 'Enhancing the image of the Corporation' = 5 marks towards getting your annual bonus."

Where progress meetings = the local middle manager saying "prayers", telling you about their latest training course and making a feeble joke about their cat.

Where one-to-one = where your untrained line manager gets you to sit in a room with them for three hours where they humiliate and bully you because that's how they think motivation is achieved.

Where talking to HR = trying to find out which form to use this week to claim your bus fare.

Where filling in review forms = ticking boxes on a badly designed Word template giving your view on what the corporate objectives should be in the next five year plan.

That sort of crap.

[tim123]

It's worse than that. The standard project management rule of thumb says you can expect 200 productive days from a permie. There are 260 days in the year, so you are paying 30% more because when they are in work they are in review meetings, progress meetings, one-to-ones, talking to HR, filling in review forms and all that other crap contractors don't do.

Why don't contractors do that "sort of crap". Their work needs peer reviewing as much as anyone else does,

The only person that I knew who wrote deliberately obscure code was a contractor (and boy did the company regret not reviewing his work from day 1)

tim

[ASB]

Oh good lots of different answers. As ever it depends upon on what you are trying to achieve. So heres another one.

For my guys I have to budget on 1300 hours per year. I also have to take a surcharge on salary which is 42% - this is supposed to cover all employment related costs (holiday, sickness, pension, bonus, NI, life insurance, health and HR costs). Also does NOT include accomodation costs.

In my case this would give me an effective hourly rate of 30,000 * 1.42 /1300 = 32.76 or a day rate of 242.42.

If I was looking to fill a 30k role I had with a contractor I would be expecting to pay 275 at most to the agency. This would be reasonably cost neutral.

[McBainCo]

I have used in the past anything from a factor of 1.8 to 2.5 depending upon the fixed and variable costs of the employer.

A £30,000 salary will hover between £245 to £340 pd. Assumed 220 workind days p.a.

A contractor under £200 pd, would be working at below the national average salary (£25000)

[Clarky]

Bit late I know...

But www.listentotaxman.com is good... includes the Employers NIC contributions on there now too...

But yeah, should've pitched yourself high than what you did...!

[MrMark]

It's worse than that. The standard project management rule of thumb says you can expect 200 productive days from a permie. There are 260 days in the year, so you are paying 30% more because when they are in work they are in review meetings, progress meetings, one-to-ones, talking to HR, filling in review forms and all that other crap contractors don't do.

Maybe, but then you have to take into account the time contractors may spend on forums.contractoruk.com Oh...

[RichardCranium]

Factor this into the time they actually work and this is about 15% more on the hourly rate.

Contrast this to a contractor, who only gets paid for the actual hours worked.

It's worse than that. The standard project management rule of thumb says you can expect 200 productive days from a permie. There are 260 days in the year, so you are paying 30% more because when they are in work they are in review meetings, progress meetings, one-to-ones, talking to HR, filling in review forms and all that other crap contractors don't do.

[centurian]

You didn't account for sick time, holidays, pension, healthcare etc etc. £155 is not a lot of money these days.

Quite. A person's hourly rate is generally considered "annual salary / 52.143 / 5 / 7.5" - assuming 7.5 hours per day.

This becomes their headline hourly rate and permie's therefore think that that is how much they earn for each hour that they work.

But they tend to work at least 250 hours less per year in terms of holiday time alone, but still get paid for it.

Factor this into the time they actually work and this is about 15% more on the hourly rate.

And that doesn't even count sickness, pension costs etc.

Contranst this to a contractor, who only gets paid for the actual hours worked.

[tim123]

Are there any calculators available to work out cost to employer for a specific salary.

i.e for a 30000k p/a salary how much would that leave the company paying on a daily rate including employers tax/ni.

I know daily rate my direction would be £115.38.

The normal rule of thumb is that it costs twice as much to cover the extra non capital costs like NI, Pension, holiday, sickness etc and three times as much when included the capital costs of office space, furniture, IT support etc.

When employing a contractor, you are saved from the first but still have to pay the latter.

tim

[krytonsheep]

WHS, for £155 a day, you're probably still saving them money, depending on how much pension/health insurance/holiday etc is included in the permie role. Personally I would have pushed for around £350 considering you have got no job security at all.

[ChimpMaster]

I'm sorry if I offended by throwing that question out there quickly. I had 10 minutes to think up a daily rate to counteract a 30k p/a perm offer. Had to wing it and offered £155 and they accepted

You didn't account for sick time, holidays, pension, healthcare etc etc. £155 is not a lot of money these days.