Contract Vs. Permanent - a cost comparison

What follows aims to give you a true representation of the costs associated with permanent and contract resource. Some of the costs are accurate 'estimates' others are drawn from experience and 'national average' statistics. The example is bases upon a £40,000 base salaried position.

£40000 - Base Salary
£11750 - Agency fee @25% + VAT
£5120 - Employer’s NI Contributions @ 12.8%
£3840 - Holiday Pay (National Average of 5 weeks incl. Bank Holidays)
£1000 - Sick Pay ( National Average of 7 days per year)
£600 - Private Health Payments (1.5 % National Average)
£2000 - Pension Contributions ( 5% National Average )
£2500 - IT Training Course Costs ( National Average )
£3300 - One month's notice ( when/if the employee resigns)

This figure, £70,110 equates to a true cost of an additional 70%. The true figure of the permanent hire is approximately 170% of the base salary.

This figure does not take into account management time and costs associated with permanent hires, additional HR and accounting costs, car costs and allowances, leasing costs for capital equipment and any other sundry costs. It also ignores any redundancy costs, pay in lieu of service and 'down-time' on a project due to lack of qualified resource.

By 'converting' this cost to the relevant hourly rate of a similarly skilled interim and contract resource, the difference is not as vast as initially envisaged. The cost per hour equates to approximately £35.82 (calculated by dividing £70,110 by 261 (the working days in a year) and then by 7.5 (the work hours per day).

So, contract and interim resource may not prove to be the most expensive recruitment solution available to you and your organization. It may, with foresights and planning, be one of the more cost-effective mechanisms available.