In this article, you’ll find a detailed analysis of the pay comparison between freelance and permanent employees.
Focusing only on day rates, the gap between freelance and permanent pay can look quite large, even if this gap tends to decrease with seniority. However, hiring permanent employees implies hidden costs that need to be considered.
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- Pay comparison: freelance v. permanent
- Data source: 34,945 aggregated, anonymised movemeon.com & payspective.com responses
National insurance & pension contributions
National insurance and pension contributions from the employer represent permanent employee costs that are usually not considered as high as they really are. In value, these contributions represent more than 10% of the total annual compensation for permanent employees.
These costs don’t exist when you hire a freelancer.
The effective number of working days
One of the main differences between freelance and permanent employees is that you pay freelancers based on the actual number of days they work on your project. When it comes to permanent hires, it’s a bit different. You have to consider sick days, paid holidays, bank holidays or even weekends. There are 260 weekdays per year but a permanent employee, on average, will work only 223 days.
Taking this into consideration, the effective average day rate for a permanent employee is £411.
Onboarding and offboarding
You’ll invest more time in the onboarding process for a permanent employee. Also, you’ll have to consider training costs. Because you hire freelancers for their expertise, onboarding will take you less time. A freelancer will be ready to work as efficiently as possible faster than a permanent employee.
Regarding offboarding: freelance contracts can be ended with little to no notice. There are a number of reasons why you may need to let people go. Termination of permanent employment brings costs that don’t apply to freelancers. Hiring freelancers also mean hiring at a lower risk, knowing sunk costs will be minimal if the contract has to be ended.
Time to hire
Freelancers can be hired much faster than permanent employees. Recruiting for a freelancer can take just a few days on movemeon. Freelance interview processes are generally fast as hiring managers are focused purely on competency, not team fit. In contrast, recruiting for a permanent employee takes a number of months. During this time, businesses may suffer simply because there is nobody in the role. Simply put, there is an opportunity cost to the business.
Movemeon.com was founded by McKinsey colleagues, Nick Patterson & Rich Rosser.
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