Cost of employment

Occasionally, potential clients ask freelance technical writers to justify their apparently high rates. Typically, the person who asks the question is not an accountant, and compares only the salary of an employed person with the freelance writer's day rate. This page and the (associated spreadsheet) help to show the true cost of employing someone, and put freelancers' fees into perspective.

A danger with comparing our fees to the cost of employing someone is that we can become caught up in trying to justify our rates. That's the wrong approach, because freelancers and employees solve different problems for clients and employers.

Calculating employment costs

Various web sites suggest that the full cost of employing someone is between about 40% (www.interimmanagementuk.com/management-cost.htm) and 100% (www.startinbusiness.co.uk/flowchart/4flowchart_employment.htm) of an employee's salary, in addition to the salary itself.

How are the numbers derived? We could not find a detailed cost model that is recognised by (or defined by) professional bodies or HM Government, so we devised our own (cost-of-employment-calculator.xls). Many thanks to the people on UKBF (www.ukbusinessforums.co.uk) and PCG (www.pcg.org.uk) who contributed their knowledge.

Costs vary by employment sector. The spreadsheet is for office-based work. It is not perfect. As far as we know, there is no one correct method of calculating employee costs. For example, the marginal costs of a new employee wouldn't generate additional infrastructure costs. Does that mean that you shoudn't apportion infrastructure cost to the new employee?