Why do contractors cost more? (And is it worth it?)

If you’ve ever hired a contractor, you might have found the total cost per hour/day a surprise, especially if you engaged them via a recruitment agency.  

While contractor employees are great flexible options, it’s important to understand that on a day-to-day basis, they cost more than the equivalent permanent employee. 

Why are contractors so expensive?

Contractors miss out on a range of benefits, including annual leave, sick leave, parental leave and so on. 

When you remove these benefits from someone’s salary and consider the insecurity of contract work, it’s easy to see why these things are balanced out by a higher hourly rate. This is sometimes referred to as casual loading and can be 20 to 25% above the equivalent hourly rate a permanent employee earns.

Contractors are highly skilled and highly flexible. That’s what you pay for when you hire one to support your organisation’s goals.

What about the other costs on my invoice?

Hiring a contractor via an agency comes with costs. Unfortunately, deciphering those costs can sometimes feel like you’re trying to crack the Da Vinci Code.

Depending on the industry you work in, the role type you’re hiring for and your recruitment agency's pricing model, recruitment fees can vary greatly.

In simple terms, the cost of hiring a contractor is as follows:

Contractor pay rate + on costs = total candidate cost

+ agency margin = cost to you as the client.

Let us break this down for you.

On costs

On costs are things like superannuation, payroll tax, workers compensation and other insurances. Sometimes, this might also include an administration fee.

Recruitment agency margin

The recruitment agency’s margin depends on the industry, market demands and the supplier/fee agreement in place. Usually, it’s somewhere between 12 to 25% of the total candidate cost. 

Contractor pay rate 

This varies based on a variety of factors, including:

• fair market rates

• the relevant award

• the candidate’s experience 

• demand for this type of candidate 

• what the candidate is happy to accept.

Contractors can be in high demand due to their unique skills and the highly flexible nature of the employment engagement.

A good recruitment partner will talk to you about what a fair rate will be, taking into account everything from your budget to market rates, demand for talent and more.

Still feeling confused about contractor fees?

Even though contractors can be expensive, they can also be incredibly valuable, especially if your team only needs an extra collaborator for a short period of time. 

If you’re concerned or unsure when you receive an invoice for your contractor costs, please ask your recruitment partner for clarification. After all, recruitment is a partnership, and open, transparent communication is key.

Think a contractor is right for your organisation? Contact Heart to find out how we can help you find the right person to support your organisation’s goals.