Are Contractors An Expensive Option?

This is a question that is often asked but has a complex answer. Because contractors and permanent hires are not directly comparable options. They both involve engaging a person, it’s easy just to add up the cost of each and think that one is simply a more expensive version of the other. But in a similar vein, you might equally ask, is a Business Analyst cheaper than a Programme Director? To which the answer would be yes – but still not the right hire if you need a Programme delivered. In fact, a BA would potentially be a very expensive mistake if put in charge of a large and complex programme.

When our customers ask us for help in finding the technical people who can address their business problems, there are a whole host of factors in play. What are the skills gaps? What are the business goals? And just as importantly – how long will this need last? Is there a defined end goal?

Companies need to build teams they can rely on for the long term, and provide opportunities for people to develop their skills. That’s permanent hiring, and it’s vitally important. A permanent team costs more than the combination of salaries.  One must consider the training, sick and parental leave, benefits and a host of other costs but that’s not a bad thing. Building a team and sharing the company goals with them, and letting them balance their life outside work with their career. These professionals invest time, emotional energy, enthusiasm and do so for the long term.  The company spends money on supporting them in a holistic way so they can stay part of the team throughout different phases of their life. It’s a win-win, with cost and reward on both sides.

Contractors, however, are engaged for completely different reasons. Normally it’s about buying in specific expertise – for example, a customer of Vocative’s needed to migrate their finance software into the cloud. We introduced them to a contractor we’d worked with several times before, delivering similar projects for different customers; the project was delivered within 6 months. And of course, now they have no need for that expertise. The job is done. If they’d made a permanent hire they would now be paying for skills they don’t need. That’s an expensive mistake. Or perhaps it’s about having an element of flexibility in the project team so it can scale or contract on demand. The shorter term engagement and greater risk brings a day rate premium, but that premium buys value for the company.

Engaging contractors is about finding independent businesses and consultants who can provide immediate results in specific areas. There’s no long term development, no long term commitment on either side: it’s a business transaction. So comparing the costs of a permanent hire with a contract engagement is a false comparison.

Some challenges need specific expertise that will be redundant once the project or system is implemented. That’s a contract hire. 

Some challenges need people who will stay for many years and shape a culture or work on repeated projects. That’s a permanent hire. 

So whilst you can compare the cost of hiring a project manager on a permanent basis or a contract basis, that comparison only has meaning if you understand how long each of them might stay, and what business value they might bring. The trick is not to compare the costs of dissimilar solutions. The trick is choosing the right solution at the right time. At Vocative we work with our customers to help them understand what they need as well as providing the right person. It’s all about the art of recruitment.

Talk to Vocative today about finding the right solution for you.

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