Tools — for hiring teams
What does a permanent hire really cost next to a contractor?
Salary against day rate is the wrong comparison. Put in what you would actually pay, including on-costs and the days a permanent employee is paid but not working, and see both costs side by side. Your figures stay in your browser and there is no form to complete first.
Your comparison
To compare, enter the annual base salary, the permanent role's working days per week, the contractor day rate, the contractor's days per week and the engagement length.
Where people go next
No enquiry needed. Read first if you would rather.
Methodology
How this is calculated
Every figure comes from you. The tool holds no fee, margin, tax rate or leave allowance of its own, so the result is only ever your scenario. Each line below is the whole of the arithmetic.
Recruitment fee = base salary × fee % (first year only)
Employer NI = (base salary + bonus − NI threshold, if positive) × NI rate %
Employer pension = base salary × pension %
Each later year = salary + employer NI + pension + bonus + benefits
First year = each later year + recruitment fee
Productive days = working days per week × 52 − leave − bank holidays − other paid days
Permanent cost per productive day = yearly cost ÷ productive days
Contractor cost = day rate × days per week × weeks + other engagement costs
Permanent cost over the engagement = recruitment fee + yearly cost × weeks ÷ 52
Break-even day rate, same spend = (permanent cost over the engagement − other engagement costs) ÷ billable days
Break-even day rate, per productive day = permanent cost per productive day, later years
Like-for-like year = day rate × the permanent role's productive days
Break-even length = (recruitment fee − other engagement costs) ÷ (contractor weekly cost − permanent weekly cost)
Where the rates come from
- Employer National Insurance rate and threshold: statutory, set each tax year. GOV.UK National Insurance rates (opens in a new tab).
- Employer pension: your scheme's rate, at or above the statutory minimum. GOV.UK workplace pensions for employers (opens in a new tab). If your scheme works on qualifying earnings rather than base salary, enter the equivalent percentage.
- Recruitment fee, bonus, benefits, leave and day rate: entered by you.
Why is paid leave not a separate cost?
Because salary already pays for it. Adding holiday pay on top of salary would count the same money twice. Instead, leave, bank holidays and other paid days off reduce the days the employee is working, so each productive day costs more. That is the fair figure to set against a day rate, which you only pay for days worked.
What does the break-even day rate tell me?
It is the day rate at which you would spend exactly the same on the contractor as on the permanent hire over the engagement you entered. Below it, you spend less on the contractor for that period; above it, you spend less on the permanent hire. It does not adjust for the days each one actually works; the per-productive-day figure does. A short engagement carries the whole recruitment fee, which raises this break-even rate.
Why are there two break-even day rates?
They answer different questions. The first is the day rate at which you would spend the same over the engagement, with the contractor billing every week and the permanent employee taking leave in that time. The second is the day rate at which a day of the contractor's work costs the same as a productive day of the permanent employee's, leaving out one-off costs. If the contractor will also take time off, the second is the fairer comparison.
What is the break-even length?
The permanent hire usually costs more at the start, because of the recruitment fee, and the contractor costs more each week after that, or the other way round. The break-even length is the number of weeks at which the two running totals meet. For a shorter engagement the option that was cheaper at the start costs less; for a longer one, the other does. If the two never meet, one option is cheaper at every length.
Is one model cheaper?
Not in general. It depends on the figures and on how long you need the work. Cost is also only part of the decision: a contractor can start quickly and bring specialist experience for a defined piece of work, with an end date you control. A permanent hire builds continuity and internal knowledge, and comes with the commitments and management responsibility of employment. A temporary specialist gap and a permanent capability usually call for different answers.
How does IR35 affect this?
For a medium or large client, the client decides whether an engagement falls inside or outside IR35, and that can change how the contractor is paid and what the engagement costs you. Enter the day rate you would actually pay under the arrangement you expect. This is a description of how engagements are set up, not tax advice. Status depends on the facts of each assignment.
Is anything I enter sent to Humand?
No. The calculation runs in your browser. Nothing you type goes into the page address, our analytics or our servers, and nothing is saved when you leave.