LR Business Services – time to save time

How much does a permanent employee actually cost?

stress_shutterstock_101571505

When deciding to hire an individual into a new permanent role, you need to consider all the costs involved. These are often estimated at being between 40% and 100% on top of an individual’s base salary. The massive variance in the figures is not helpful to employers in aiding their decision making process! So here is our guide to calculating the costs. We have included notes detailing how we have done the calculations so that you can use the table as a guide to calculate the costs for your company.

 

Be aware:

  • Hiring a contractor doesn’t entirely free a company of the responsibilities and risks associated with a permanent employee. The Agency Workers Regulations (AWR), which came into force on 1 October 2011, allow agency workers to claim equal pay and conditions after 12 weeks!
  • Part-time workers and fixed term employees are protected from being treated less favourably than equivalent full-time workers. They should get the same treatment for: salary (including sick pay, maternity, paternity and adoption leave and pay), pensions, holidays, training, promotions, redundancy, career breaks etc.
  • Anyone who’s worked continually for the same employer for 2 years or more has the same redundancy rights as a permanent employee.

 

Description Part-time administrator @ £15 / hr, 2.5 days / week, working 50 weeks / yr (937.5 hrs / yr) Freelancer @ £25 / hr working 2.5 days / week, 50 weeks / yr(937.5 hrs / yr) Value on a £25,000 salary Value on a >= £45,000 salary
Salary £14,062 £23,437 £25,000 £45,000
Recruitment (20% for an agency) £0 Assume advertised on free job websites £0 £5,000 £9,000
Income Tax (deducted from annual salary) £0 £0 £0 £0
Employer NI @ 13.8% on everything over £7,956 / yr £843 £0 £2,352 £5,112
Holidays Loss of 10 days per year = £ 1,125 £0 Loss of 20 days per year* = £2,000 Loss of 25 days per year* = £4,500
Pension – stat min 3% £422 £0 £750 £1,350
Sickness – estimated at 2% of working time* 2.5 days = £280 £0 5 days = £500 5 days = £900
Equipment (desk, PC / laptop, software licenses, phone / mobile, IT services inc consumables e.g. printers) £1,000 £0 £1,000 £1,000
Training Estimated at 1 day per year, £450 per day for the course = £450

Loss of time = £ 112

Total = £562

£0 Estimated at 2 days per year, £450 per day for the course = £900

Loss of time = £200

Total = £1,100

Estimated at 4 days per year, £450 per day for the course = £1,800

Loss of time = £720

Total = £2,520

Benefits – car allowance £0 £0 £0 £4,000
Benefits – health care (estimated @ £45 / month) £0 £0 £540 £540
Company insurance – public liability £50 £0 £50 £50
Consumables – e.g. tea / coffee, water £52 £0 £104 £104
Total: £17,974 £23,437 £38,396 £74,076
%: +28% +0% +54% +65%
Risks        
Maternity leave (90% for 6 weeks, £137 for 33 weeks) £6,040 £0 £7,117 £9,194
Paternity leave (2 weeks) £137 x 2 (stat) x 50% = £137 £0 £137 * 2 (stat) = £274 2 weeks full salary = £1,731
Jury service £0 (will you need a temp to cover?) £0 £0 (will you need a temp to cover?) Assume only lasts 2 weeks at full salary
Performance issues / termination or redundancy costs – based on 10% of salary £1,406 £0 £2,500 £4,500

The calculations differ based on likely expectations of company benefits / policies at the salary.

* – based on 250 working days in a year (365 – (52 x 2 weekend days) – 8 bank holidays)

 

If you need skilled help and none of the employee costs or risks, then contact us. Our team come from a varied background, for example marketing, IT, finance and have decided to change tack in their careers to work flexibly and from home. So you get a lot of expertise and experience for your money – plus it is like hiring a team of people, rather than just one individual!