The financial implications of hiring a full-time employee (FTE) can give entrepreneurs the first nudge to consider alternatives.
In this blog post, we look purely at the cost implications and do not consider the so-called soft aspects.
FTEs require significant direct and indirect costs compared to other types of engagement.
The nice amount of money an FTE sees in their bank account at the end of the month is just the tip of the iceberg. The accountants see way more of that iceberg:
- Income tax
- Social tax/pension funds contributions (depending on the country of operation)
- Company taxes
- Many countries require a certain percentage to be paid to unemployment guarantee funds
The above is a bare minimum on top of what an FTE gets in their pocket. Percentage-wise, it is at least 30% to even 80% more for the employer to cover, depending on the jurisdiction.
Let’s say Anne in Germany earns EUR 4,000 net; for you, as a company X, it will cost at least EUR 5,600. Then, paid vacations. Sick leaves. And that is NOT ALL.
Next, there are:
- Hiring and onboarding expenses, including your time costs
- Workspace
- Workspace equipment
- Utilities (at least electricity, water)
- Office refreshments: coffee, tea, soft drinks, snacks
- Teambuilding activities, EUR per person annually varying from 300 – 600 on average
- Transportation costs, meals
- Parties, e.g., New Year parties, company events, sports games, anniversaries
- Training budget – usually a couple thousand per FTE annually
- Annual bonuses
- Contributions to marriage, kids’ birth, and other important occasions
- HR – Office staff that manages and supports it all
In a company of 90 employees with an extensive range of people (from low-paid jobs to top-paid jobs), the average monthly costs per employee are at least EUR 10,000 (hiring and onboarding costs not included).
What are the alternatives?
One option is to try your luck and immerse yourself in various freelancer portals to find a suitable person to fulfil a specific task. There can be several risks, but let’s look only at the financial aspects.
The benefit is that it does not require a long-term relationship and financial commitment. Most of the FTE direct and indirect costs fade away. You pay the hourly rate or price for work to be done, and that is it. The drawback could be the case of an upfront payment and total dissatisfaction with the delivered result.
Less visible costs include your time in searching. So, in the example with Anne, it could be around EUR 5,000-6,000, depending on how much time you spend finding the right Anne.
Similar calculations are used to consider outsourcing to a service provider – a company.
Here, the fees would be higher due to an overhead. An outsourcing fee for one FTE equivalent would cost tentatively EUR 7,000-10,000, but you do not need to deal with hiring, onboarding, or managing people, although you still will invest time in managing the partnership and the relationship to get to the expected benefits. This can easily exceed EUR 10,000.
Another alternative is to use value-added services such as ServAgora – on top of the cost of qualified freelancers/experts, you add a percentage of the management fee and let the expert pool holder find you a suitable candidate and manage the expert to be loyal, motivated, and deliver upon expectations.
In this case, the financial outcome can be similar to outsourcing costs minus your time costs – ending with EUR 6,000 – 10,000 on average for a qualified and well-managed one-month FTE equivalent, depending on the expertise requirements.
ServAgora Team
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