Finally I decided to compare a contractor vs permanent employee from different angles. As I worked both as a permanent employee and work as a contractor and worked for
nearly 10 15 companies (time sure passess quickly) I thought it is good time to share my experience.
I frequently hear permanent employees saying contractors earn way too much but I noticed some thinking logic that just doesn't feel right... People compare highly skilled (with exceptions) contractors to an average permanent employee, and they should compare it to the same level permanent employee.
Now at this point in time I don't know how much difference there is between a contractor and permanent employee so I decided to use IT Job Watch website and compare the same job title and find out what is the average for both a contractor and a permanent employee. Another good source for IT Salary/Rate is The 2013 IT Salary Survey which shows data for junior, mid and senior level.
I work as a BI Consultant/Developer and I typed "BI Consultant" and got:
Permanent avg. Salary: £60k
Contractor avg. Daily Rate: £450
Which sounds about right. Now at this point it is difficult to compare it so I'm going to make various calculation and you can follow the logic for any Job Title.
First we need to find the same unit so I'm going to do choose "monthly" income.
£60k / 12 = £5k per month
450£ * 22 Days = £9.9k per month
Now that looks like a contractor is paid almost double the amount! (if not more with tax efficiencies which I will discuss later) but have I missed something? Yes... I forgot Contractor is not paid for bank holidays, off-sick, time off or any kind of days off.
According to this website permanent Employee most frequently get 33 days off (including bank holidays) in private sector and 35 in public sector so I will use 34 Days off... But wait what about off-sick? Well average is 6 days per year according to this website. So that gives us 40 days paid time off for permanents and 0 for contractors.
Let's recalculate our figures and only contractor income per month will be recalculated as permanent employees are paid for time off.
52 weeks * 5 days a week = 260 working days
260 working days - 40 no paid days = 220 paid days
220 paid days * £450 = £99k per year
99k per year / 12 months = £8.25k per month.
In the old days it seems contractors were employed for ever! But that changed and more frequently is it 3, 6, 12 months and sometimes more. For BI Consultant I suspect average is below 12 months. Bench Time is when a contractor finishes an assignment and looks for another one, this is generally the most "expensive" part of being a contractor but IT/BI is in demand and it seems 4/5 people find a new contract within 30 days and often next day/week. BI Consultant with it's 450 per day rate... is probably more difficult to get new suitable role so I will go with average 45 days bench time. Permanent people will have some bench time as well but generally it will be every several years so I'm not going to take into consideration in my calculations.
So let's recalculate.
220 paid days - 45 bench time = 175 paid days.
175 days * £450 = 78.75k per year
78.75k per year / 12 months = £6.5k
So before we move on into discussing it from various angles let's remind ourselves the final calculation:
Permanent BI Consultant = £5.0k per month
Contractor BI Consultant = £6.5 per month
First I will discuss Take Home aspect and in the following section I will discuss Cost for Employer.
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