What is the True Cost of Hiring a Freelancer Versus a Permanent Employee?

Perhaps the most important decision an employer makes is whether to hire a freelancer or a permanent employee. One of the most frequent questions I am asked is "How many hours does a freelancer work in a calendar year?" The most common assumption is 40 hours per week, times 52 weeks per year, to give you 2,080 hours- which is never the case. There are variables when it comes to freelancers that makes this a difficult question to answer. The question that I’ll attempt to answer instead-- What is the true cost of hiring a freelancer versus a permanent employee?

Full-time salary employees are paid for many days that they do not actually work. Salary pay includes PTO for holidays, vacation, and sick days. Freelancers are paid only for hours that they are actually working. Here are the national holidays where most freelancers will not be paid: New Year’s Day, Martin Luther King Jr. Day, George Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. In addition, many companies are closed on the Friday after Thanksgiving and the week between Christmas and New Years. Most employees are given 10 vacation days and 8 sick days from the first day of hire. This, along with personal days, accounts for 6.9% of all U.S. workers per The Bureau of Labor Statistics U.S. Department of Labor (BLS). PTO typically increases the longer an employee is working.

Here’s how the hours are calculated:

52 weeks in a year and 40 hours in a work week

52 x 40 = 2,080 workable hours in a year

10 Holidays = 80 hours, 10 Vacation Days = 80 hours, 8 Sick Days = 64 hours

2,080-80-80-64= 1,856 workable hours in a year

As a contrast to these numbers, the Organization for Economic Co-Operation and Development (OECD) reports that the average U.S. employee actually worked 1,790 hours in 2015. In addition to hours worked, there are plenty of other costs to a company associated with a full-time employee. BLS states the following for internal W-2 based employees:

Supplemental Pay (3.1%), Insurance (8.8%), Retirement and Saving (5.2%), Legally Required Benefits (7.5%)

This accounts for an additional 24.6%.

Several variables determine how much money companies spend on their employees. When evaluating head count, the common assumption to divide the salary by 2,080 hours does not provide a true cost. The above calculations conclude that the true cost of the average freelance employee is in the hours worked- which is 1,856 or 1,790 hours, as well as almost 25% savings in PTO, benefits, etc.