Getting your company off the ground and looking to staff your in-house IT team? It might be worth considering an alternative: hiring consultants. But wait, you say. Isn’t it more expensive to go the consultant route than to hire an employee? The answer is a resounding “no.” In this article, we’ll explore the reality behind determining the real cost of maintaining an in-house IT team and working with an IT staffing company.
There’s a misapprehension out there that says IT staffing services are more expensive than in-house employees simply because their hourly rate is often higher. Let’s use an arbitrary hourly amount as an example: $75 per hour for an IT staffing consultant and $50 for an in-house employee.
On the surface, paying $75 an hour for a consultant and $50 an hour for an employee certainly implies that staffing is more expensive. However, it’s an illusion. The real cost of a single in-house IT professional is far higher than $50 an hour.
In fact, each employee costs you almost twice their annual salary. In contrast, you pay a consultant only a fraction more than their hourly rate if you factor in a few considerations that most people miss. What are these breakdowns? Let’s take a closer look.
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Breaking Down the Costs of Hiring In-House
If you’ve been paying attention, you’ve already realized that there are some missing factors in our hiring analogy. Where are the benefits, you ask? What about perks like bonuses? Yes, those certainly add to the cost of going the in-house route.
For instance, if you hire an employee, you’ll have to contribute to insurance – medical, dental, and life. You’ll also have other insurance-related considerations, such as worker’s compensation to deal with.
On top of the insurance, there are other benefits usually offered to employees, such as annual bonuses and retirement fund contributions. Those can add up to a significant amount in just a single year.
Finally, think about how much an employee is going to cost you in payroll taxes. You must pay a portion of each employee’s payroll taxes to the government, which can add up to more than half the cost of that employee’s insurance.
Beginning to see how an employee that earns just $50 per hour could actually cost more than working with an IT staffing service that charges $75 per hour? Good, but we’re not done yet.
Hidden Costs of Hiring an Employee
We’ve touched on the most commonly noted costs of hiring an employee. None of those is present when working with an IT staffing company. However, we’re not done yet. There are additional costs you’ll need to consider, as well.
To run a successful business, you need an existing infrastructure and support systems. You need a phone network, for instance. You need payroll services. The more employees you hire, the more you need to build your HR team. Employees need tools to do their jobs, too. You’re already thinking about your computer network. That will be comprised of workstations, servers, routers, firewalls, miles of cabling hidden inside the walls or ceilings, and so much more.
The more employees you have, the more resources, tools, and infrastructure your business requires. Every new employee means adding another computer workstation to your bill, for instance. It means purchasing another phone, another desk and chair, and finding space for them in the office.
Let’s not forget the less tangible side of hiring employees, either. These might not be things you can touch, like a computer monitor, but they’re costs you will incur anyway. What are those? Think about mandatory employee training provided through HR, the costs of maintaining certification or upgrading their certification to handle upcoming projects, and other development-related expenditures.
We can break everything down into fringe benefits, overhead, and general/administrative costs. Of these, only the last apply to consultants hired through an IT staffing company. When we break it all down, we find that fringe benefits increase costs by about 35%, overhead by about 25%, and general and administrative costs by about 18%.
So, how much does an in-house employee actually cost you? Roughly twice their annual salary. However, understand that this is a median. Depending on your industry and sector, it could be as much as two-and-a-half times their annual salary. So, that employee who costs only $50 per hour? In reality, you’re paying between $100 and $150 per hour when it’s all said and done.
It’s important to note that these figures don’t even include the costs of recruiting or the financial risks you take, such as retaining an employee even though they’re not really living up to their responsibilities just to avoid the hassle of finding a replacement in a world where tech talent is so scarce.
In comparison, the consultant who charges $75 per hour is really only costing you $88 and change per hour when you factor in general and administrative expenses. Why is that? When you hire a consultant from an IT staffing company, you only pay the hourly rate, and you only incur general and administrative costs. You aren’t on the hook for benefits, and you aren’t responsible for payroll taxes. Consultants don’t drive up your overhead costs, either.
Wrapping It Up
To go back to our original example, you’re faced with a decision: work with an IT staffing company and hire a consultant for $88 an hour, or hire an employee and incur costs that might be as high as $150 per hour (even if it’s only $100 an hour, it’s still substantially more than you’d pay with an IT staffing service).
From a dollars and cents perspective, hiring in-house just doesn’t make sense when it comes to some positions. Your IT slots may be among them. Remember that every situation is unique, though. Understanding the factors that should drive your decision is important to attaining a holistic view of the entire situation.