By Michael Solomon, 10x Management Co-Founder
We received great feedback about the first article in this series we published, so I wrote an abridged version. Enjoy!
How much does an employee really cost?
That question depends on a lot of factors. The most important factor may be the length of employment. If you’re going to spend the resources to recruit, hire and train a full-time employee, then you better hope that the employee is committed to your company for the long-term.
However, in the technology sector, the average job tenure is falling, and even at cream of the crop companies like Google, average job tenure is just 1.1 years.
Let’s take a quick look at the numbers by comparing a freelancer who earns $150/hour and a full-time employee earning $135,000 per year. Let’s make the assumptions that you are hiring both right now and that the freelancer and the full-time employee “work” the same amount of time over one year:
49 weeks per year (subtracted for vacation) x 40 hours per week = 1,960 hours per year
Here’s how they stack up:
* Recruiting and training for a high-level employee can run anywhere between $50,000 and $200,000 according to most research. This article assumes $100,000.
* This article assumes an average of $5,300 dedicated to office space and equipment.
** Based on 22% of employees wasting 2 hours per day.
Suddenly the simple comparison of $150 per hour for the freelancer vs. $135,000 per year for the full-time employee becomes cloudy. The extra costs associated with the full-time employee mean that in the first year, your full-time employee could actually cost more than your freelancer. How’s that for an aha moment!
If you are looking for a long-term solution to a problem, a deeply dedicated team member, or you know that you will need someone on a project for many years, then hiring a full-time employee might make financial sense. But if you have a project that needs to be done in the short or medium-term, or you need to satisfy demand at peak times, or any of these other use cases , then hiring freelancers is a very viable and financially sound alternative. 10x Management has been connecting leading companies with top innovative tech talent for years, as more and more businesses are beginning to realize the benefits of on-demand talent.
If you liked this article, you might enjoy reading The Real Cost of Freelancers vs. Employees