Human Capital Management Solutions

06
11
Oct

Contingent workers cost more than permanent workers – fact or myth?

By Trevor Vas

This old chestnut is a very interesting question – should Contingent workers be costing more than permanent workers?

I have had many conversations with my peers debating this question and most people I spoke to have the impression that hiring Contingent workers is more expensive for the business because they expect to be compensated for the lack of financial certainty relative to a perm employee.

But this really shouldn’t be.

The question to consider is do Contingent Workers cost more or are we indiscriminately setting Contingent rates based on what the worker wants to be paid rather than what the job is worth?

Contingent workers are more expensive if the rate that is paid has no correlation to what an equivalent permanent person would be paid, which, unfortunately, is what many organisations are doing currently. Many businesses are applying rates based on what the seller of the service wants to be paid, hence, the greater salary costs.

Here’s an analogy to help explain further – If you were going to buy a property in a certain suburb with a 3-bedroom house on a reasonably-sized block of land, you would visit various real-estate agents look at what they have sold, check out their recent sales records on their websites and conduct the necessary market research.

You would not just walk up to any house and ask the owner what they wanted to sell for and agree to a random fee won’t you?

Unfortunately, for many organisations when they are employing Contingent workers, the rate is based on what the seller of the service wants to be paid. This is why in many cases people attribute the costs to be much higher than that of recruiting a permanent worker/person.

So what is the solution? A better approach to calculate how much to pay, in my opinion, would be to divide the perm equivalent annual salary by 220 (the number of work days minus annual leave, sick leave and PHs) and rounding up the figure to get your daily rate.

For example, let’s say you are looking to hire a Management Accountant in NSW and you know that the average salary for this role, based on similar positions in your organisation, is $120k per annum. To calculate what this contractor should be paid, you simply divide this amount by 220 (the number of work days minus annual leave, sick leave and PHs).

Perm rate: $120K including super

Contingent rate: $120K/220=$545 (~$550 or with 10 percent variance either way) per day

If you are after a hot skillset, you may need to pay a premium, but this should be the exception and not the rule. Such roles need to be evaluated on individual basis to ensure that the remuneration package is fair.

Checking various salary surveys to see if your rates compare favourably is another good way help you decide.

Using this approach, it is also easier if you want to convert the Contingent worker to permanent in the future.

If you take this approach, you will be relating your Contingent staff costs to your permanent staff costs and this will go a long way towards reducing your overall salary costs.

Post by HCMS - Human Capital Management Solutions
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