|Employee hrs. worked per week||-||40||40|
|Number of weeks worked||-||52||52|
|Total Annual hours worked||Hours worked per week*Number of weeks||2080||2080|
|Total cost||Annual Hours* Hourly cost||$124800||$124800|
|Effective Cost with overheads||Total Cost* overhead factors||$248352||$147264|
|Hourly rate with overheads||Effective Cost/Hours worked||$119.4||$70.8|
|Paid Leave time in hours||-||160||00|
|Effective Hours in a year||Total Annual Hours-vacation time hours||1920||2080|
|Effective hourly rate||Effective Cost/ Effective Hours worked||$129.35||$70.8|
Table: Comparison of cost structure for Employee and Consultant
The table concludes the following points
👉 Actual cost of an employee is approximately 2X of gross cost
👉 Actual cost of the contractor is approximately 1.2X of gross cost
👉 At the same hourly rate, a contractor would cost around 60% lesser
To calculate the cost of labour for your company consider each and every aspect of your expenditure. This includes the rent you are paying for your office space, accounting and legal fees, corporate insurance, corporate taxes, marketing materials, training, books and publications, subscriptions, and subcontractor costs if any. All these small costs become a significant part of the total individual cost.
All we have done is rather than comparing just the salary of an employee and the consulting fee of a consultant, we have taken a closer look at what an individual actually costs to an organization. Now that you are armed with calculations that reflect the cost of an employee and consultant much more accurately, you are in the perfect position to choose what is best for your organization monetarily.
Of course, there are positions that need an in-house person and hence, every hiring decision cannot be based on just cost. Every company and situation is different so there is no general answer for all organizations here. Nevertheless, an awareness of the factors and issues that influence the cost discussed in this article will help arm you to make the best financial decision for you and your team.
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