Is Hiring a Freelancer a Money-Saving Miracle or an Expensive Gamble? Comparing the True Costs to Hiring an In-House Employee

February 19, 2023

PouyaSadri

Freelancers vs. In-House Employees: The Epic Battle for Your Hiring Budget - Which One Will Save You More Money?

Freelancer

Business Development

Unlock the Power of Freelancers: The Secret Weapon for Agile and Cost-Efficient Staffing Strategies

Business leaders are discovering that tapping into the vast pool of freelance talent can be a game-changer for their companies. By utilizing independent professionals, businesses can access the exact skill sets they need for any given project, keeping their workforce nimble and ready to tackle any new opportunities that arise. With 75% of hiring managers planning to increase their use of freelancers, it's clear that this trend is here to stay.

But the benefits don't stop there. Hiring freelancers can also lead to significant cost savings for your business - a fact that many managers struggle to quantify. This holds true for both short-term projects and long-term partnerships. So why not leverage the power of freelancers to help your business thrive and stay ahead of the game?

As a business owner or hiring manager, making the most of your budget is crucial. But with so many options available, it can be difficult to know which route to take when it comes to staffing. That's where we come in. In this article, we'll help you assess your potential savings and compare costs between freelancers and in-house employees.

We'll take a deep dive into the expenses associated with hiring each type of worker, breaking down the drivers of cost and helping you make an informed decision. By the end of this comprehensive guide, you'll have a clear understanding of the true costs of hiring freelancers versus in-house employees, and you'll be well-equipped to make the best choice for your business.

Costs of hiring a freelancer

When it comes to compensation, working with freelancers can be simple. You pay an hourly rate or established set fee. That’s it.
As self-employed individuals, freelancers set their own rates. These set rates account for the costs associated with doing business as an independent professional, including overhead costs, benefits and taxes, since they—and not your company—are responsible for paying these expenses.

Costs of hiring an in-house employee

When it comes to hiring employees, many of us only consider their salary or hourly pay rates. However, the truth is that this is just one part of the total cost of employment. According to the Small Business Administration (SBA), the actual cost of an in-house employee is usually 1.25 to 1.4 times higher than their salary. So why is this?

Well, when you hire an employee, you take on a range of expenses and tax obligations that you may not have considered. For example, you'll need to pay payroll taxes, which can add up to a significant amount. These taxes fund Social Security and Medicare programs that help retirees, those with disabilities, and children. As an employer, you must match your employees' contributions, totaling 15.3% of their salary.

It's not just payroll taxes that add to the cost of employment. You'll also need to think about things like worker's compensation insurance, health insurance, retirement plans, and paid time off. All of these expenses can quickly add up, making the real cost of an employee much higher than their salary.

So if you're thinking about hiring someone, it's essential to take all of these additional costs into account. By doing so, you can make a more informed decision and avoid any surprises down the road. Remember, the cost of an employee is much more than just their salary!

Did you know that as an employer, there are many additional costs to consider beyond an employee's salary or hourly rate? For instance, you'll need to factor in payroll taxes, such as Federal Insurance Contributions Act (FICA), Social Security, and Medicare. And don't forget about the Federal Unemployment Tax (FUTA), which was created to help fund unemployment benefits.

While most companies see a reduced rate for FUTA if they pay state unemployment taxes, that's not the only additional cost you'll need to consider. You might also be responsible for state payroll taxes for each employee. And that's not all. Employers are typically required to purchase workers' compensation insurance to cover any costs associated with employees injured on the job. As you add more employees, the price of coverage rises, and state laws can significantly affect these costs.

While all of these additional expenses can be daunting, it's essential to factor them in when making hiring decisions. By doing so, you can make a more informed decision that benefits both your business and your employees. And remember, choosing to forego these expenses can lead to significant financial risks and potential legal issues down the road.

Another cost consideration: In-house hiring costs vs. external help finding freelancers

Beyond the ongoing costs associated with hiring an in-house employee, it’s essential to consider the upfront expense of bringing someone on board.

The in-house HR process entails slightly different costs in each industry, but the following expenses are common in most fields:

• Recruiting costs
• Time of internal HR team
• Time of team conducting interviews
• Job board fees
• Background check and drug screens
• Administrative costs
• Time of the administrative team to enroll new employees in benefits, payroll, etc.
• Fees associated with enrolling new employee in benefits programs
• Deferred productivity cost
• Cost to productivity while new employee gets up to speed
• Provisioning costs
• Cost of equipment necessary for employee to perform duties
• Cost of new accounts for required software programs
• Training cost
• Time of team training new employee
• Cost of training programs for new employee

Are you looking for a more cost-effective way to get work done without adding to your in-house team? Skilled freelancers might be the answer. Unlike hiring a new employee, freelancers don't require extensive training or expensive equipment, and they won't add much administrative overhead. With their expertise, they can get started right away, saving you both time and money.

Additionally, finding the best freelancers for your project doesn't have to be a burden on your organization. You can entrust the process of identifying and hiring top freelance talent to external sources. These platforms can connect you with qualified professionals who have already been vetted, so you can rest assured that you're getting the best talent for your project.

By working with freelancers, you can save on costs while still getting high-quality work. Plus, the flexibility of freelance work allows you to scale up or down as needed, making it an ideal solution for short-term or specialized projects. So why not explore the world of freelance talent and see how it can benefit your business?

Perks of hiring freelance talent

One of the many benefits of working with freelancers is that they come prepared with their own equipment, covering the costs of the tools they need to get the job done. From laptops to specialized software and subscriptions, freelancers invest in the tools they need to excel in their craft, allowing you to save on equipment and software expenses.

Not only do freelancers come equipped with their own tools, but they're also experienced in working remotely, making it easier for them to collaborate with your team from anywhere in the world. And because they're not tied to a specific location, you can find the best talent regardless of where they're located.

By leveraging the expertise of freelancers, you can save on costs while still receiving high-quality work. Plus, with their specialized skills, freelancers can often complete projects more quickly than an in-house team, helping you meet deadlines and stay ahead of the competition. So why not explore the benefits of working with freelancers and see how they can help you take your business to the next level?

Unlock the Potential of Your Business with Freelancers: Discover the Benefits of Hiring Independent Talent

Additional benefits of hiring freelance talent include:

• Ease of onboarding:Onboarding and training new employees can be a time-consuming and expensive process. But when it comes to freelancers, onboarding is often a breeze. Because freelancers are experts in their fields and are typically engaged for discrete projects, they require less training and onboarding than a new in-house employee.Freelancers are self-starters who are used to working independently and taking charge of their own workload. They come prepared with the skills and knowledge needed to tackle your project from day one. And because they're only engaged for a specific project or period, you don't have to worry about long-term training and development costs.By working with freelancers, you can save on onboarding and training expenses while still receiving high-quality work. Plus, with their specialized skills, freelancers can often complete projects more quickly and efficiently than an in-house team. So why not consider working with freelancers for your next project and experience the ease of onboarding for yourself?
• Flexibility:One of the greatest benefits of working with freelance talent is their flexibility. Freelancers are available when you need them, and they often have flexible work schedules that can help address your needs.When you have a project that requires additional support, you can turn to freelancers to help fill the gap. They can provide you with the expertise and support you need, whether it's for a short-term or long-term project. Because freelancers work on a project basis, you have the flexibility to engage them as needed, without having to worry about committing to a long-term employment contract.Freelancers are often able to work outside of traditional business hours, which means they can be available when you need them most. Whether it's working weekends, early mornings, or late into the night, freelancers can often adjust their schedules to accommodate your needs.By working with freelancers, you can tap into a pool of talented professionals who are there to support you when you need it most. With their flexibility, expertise, and project-based approach, freelancers can help you achieve your business goals without breaking the bank. So why not explore the world of freelance talent and discover how they can help support your business today?
• New perspective: One of the biggest advantages of working with freelance talent is the fresh perspective they bring to your projects. Because freelancers work with a wide range of clients, they often have a wealth of experience and knowledge that they can apply to your project.Freelancers can offer a unique perspective that can bring new ideas and innovation to your team. They are not bound by the same internal constraints as your team, and they can bring a fresh set of eyes to your project. This can help you to address projects in a new and exciting way, leading to breakthroughs and new solutions that may not have been possible without their input.In addition, freelancers often work with multiple clients at the same time, which means they can bring a wealth of knowledge from other industries and sectors to your project. This cross-industry experience can be incredibly valuable, allowing you to leverage best practices from other industries and apply them to your project.So if you're looking for a fresh perspective on your projects, consider working with freelance talent. Their expertise, experience, and innovative thinking can help take your project to the next level and drive success for your business.

Cost estimate comparison: freelancer vs. in-house employee

If you're considering hiring freelancers versus in-house employees, you may be wondering how to compare their costs. While in-house employees come with additional expenses, such as benefits and taxes, it can be difficult to compare their costs to those of freelancers who charge hourly rates. However, there is a straightforward way to estimate the hourly costs of an in-house employee relative to a freelancer.

For example, let's say you're looking to hire a software developer and the top freelancers in your area charge around $70 per hour. This simple method can help you make an informed decision and determine which option makes more financial sense for your organization.

The Bureau of Labor Statistics (BLS) suggests a median annual pay of $110,140. However, that's not the whole picture. Experts advise that true employment costs can range from 1.25 to 1.4 times the employee's salary. So, for a general estimate, let's split the difference at 1.325 and multiply the annual salary by that number. In our example, that's $110,140 x 1.325 = $145,935.50.

But what does that mean for hourly rates? According to the Organization for Economic Cooperation and Development (OECD), the average number of hours worked by American employees in 2019 was 1,779. So, dividing the total employment cost by that number gives us an effective hourly rate for in-house employees. In our case, that's $145,935.50 ÷ 1,779 = $82.03.

Now, how does that compare to a freelancer's hourly rate? Let's say the freelancer charges $70 per hour. That's a significant difference of $12.03 per hour. To put that into perspective, if you compare the rates on an annual basis, you'd save $21,401.37 by hiring the freelancer.

In conclusion, before you decide on the salary for a software developer, consider the additional employment costs and compare the hourly rates of in-house and freelance employees to find the best fit for your business.

Deciding which kind of worker to hire

Are you contemplating whether to hire a freelancer or an in-house employee for your team? It can be a challenging decision that can greatly impact your business. In the following section of this article, we'll help you make an informed choice by breaking down the key factors you need to consider when deciding between independent and in-house team members.

When to consider hiring freelance talent

Here are a few reasons why hiring a freelancer might be the better option for your company.

• When you need a top-notch expert in a specific field, look no further than freelancers. Many freelancers possess years of experience and specialized skills, which enable them to offer tremendous value as industry experts. Whether you require the services of a highly skilled professional for a short-term or long-term project, working with freelance talent can help you achieve your goals. So, don't hesitate to tap into the expertise of freelance professionals when your company requires specialized skills and knowledge.
• In the current fast-paced business landscape, being able to make quick decisions is crucial for success. If you want your business to be more agile, working with freelance talent can be a game-changer. Freelancers can provide flexible and efficient solutions to address your workforce needs without the delay of sourcing and hiring an in-house employee. With years of experience in their specialized fields, freelancers can help you achieve your goals quickly and effectively.
• Are you facing a tight deadline for an urgent project and your team is already stretched thin with work? Don't panic, hiring freelance talent can be your perfect solution. With freelance workers, you can quickly and easily identify highly skilled professionals who are readily available to jump in and get the job done. Compared to hiring an in-house employee, the process is less intensive and more efficient, enabling you to find the right candidate and start working on the project right away.
• Are you struggling with overworked employees? It's not uncommon for teams to become overwhelmed with projects and tight deadlines. Rather than burning out your staff, consider outsourcing talent to help redistribute the workload. Freelancers can provide a cost-effective solution for a defined period of time, allowing your team to focus on other critical tasks without sacrificing quality.

Common myths of hiring freelancers

We're not advocating for replacing your employees with freelancers. Instead, it's essential to evaluate the talent gaps in your team and determine whether to hire an employee or a freelancer for each role. At the world's work marketplace, we've seen companies successfully engage independent professionals in various situations. Many companies have even found success in building teams that comprise a blend of full-time employees and freelancers who collaborate closely.

Many business might be wary of hiring freelance talent based on some of these misconceptions:

• It is a common misconception that freelancers only offer basic skills. However, many freelancers are highly experienced experts in their field. As they work independently, they have the opportunity to hone their skills and develop specialized expertise, which might not be possible in a traditional office environment.
• Hiring a freelancer does not limit you to task-based work. In fact, many independent professionals are hired to work on ongoing projects with specific, defined milestones. This allows your team to benefit from their specialized skills and experience over an extended period. Additionally, working with a freelancer on several projects over time can help build a mutually beneficial relationship. By leveraging their expertise in your industry, you can save time and resources while also producing high-quality work.
• While freelance talent is often hired for short-term work, they can also play a significant role in ongoing projects. Building a relationship with a freelancer can lead to future collaborations and a long-term working relationship. This is especially true for specialized tasks or projects where the need for that expertise is ongoing. So, freelance talent can be an essential part of your team, both in the short-term and long-term.

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