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Myth Buster #1 - Temps & Contractors are more expensive

It’s often stated that temporary & contract workers are more expensive than their permanent counterparts however its usually the case that employers overlook the costs of employing someone directly that are incorporated in an ‘all inclusive’ hourly or daily rate

If a company employs someone directly they have the additional cost of National Insurance, company paid benefits such as pension, the administration & payroll processing costs as well as the risks & responsibilities associated with being the direct employer.

There is seldom consideration given to scenario’s like – ‘the person didn’t work out now I have to go through the full HR process and pay a month’s salary in lieu of notice’ or ‘the temp has been with us for almost one year and will soon be entitled to full employee rights and benefits’ or ‘the temp is seeking a pay rise’ etc  

When an organisation utilises a temporary or a contractor they pay an ‘all inclusive’ hourly or daily rate that not only includes all costs but also uses the agencies cash to finance the transaction on interest free terms!  The agency manages the relationship, including problem resolution and once the assignment is completed the costs stop!

In spite of the current economic climate professional temps & contractors are often paid the same or more than their permanent counterparts as they don’t have the perceived security, benefits and opportunities of permanent employees therefore seek parity or even a premium. The new Agency Workers Regulation has given some framework to ensuring that temporary workers are ‘no worse off’ than a permanent employee doing the same role but in essence the equation is the same Temps/Contractors & Perm hires are cost neutral.

It’s true that frustration arises when you lose a temp/contractor at the assignment end having invested training and a considerable amount of your own time but you have to balance that with the fact that you have had someone onboard with the right skills & experience to complete the project without having to distract your existing team or redeploy them only to create ‘bottlenecks’ elsewhere. You may have even met your next permanent hire after a successful assignment!

The example below highlights how the temp/contractor and permanent hire need not be different in cost but may be a more efficient investment of labour costs!

 

 

Permanent Hire

Base Salary (includes holiday)

£40,000

Pension @ 5%

£  2,000

Total Base Costs

£42,000

National Insurance @ 13.8%

£  5,796

Recruitment Fee @ 20% of Base

£  8,000

Total Annual Cost

£55,796

Working Days Per Annum

260

Total Cost Per Day*/Hour**

£214.60 pd/£28.61ph

 All Inclusive Temp/Contractor Rate

£218.85 pd/£29.17ph

 

  • * The total cost excludes any Pay in Lieu of Notice for termination, Cost of Funds, Internal Administration, Payroll Processing charges, Risk & HR responsibility etc
  • ** Based on a 7.5 hour working day
 
Written by Steve Carter - Non-Executive Director