I commented on this idea briefly when I discussed a freelancer’s relationship with the recession, but this concept is definitely worth further exploration and explanation.
When running any kind of business, it is in your best interest to increase your revenues and reduce your expenses. That sounds logical and straightforward enough. While the conventional route would lead you to hire several full-time employees as your company continues to grow, it may make better financial sense to add freelancers and other outsourced professionals to your staff mix.
How can you save money with freelance writers, virtual assistants, and others like them? Let’s have a look at a few ways that they are more cost-effective than regular full-time employees.
Hire (and Pay) on an As-Needed Basis
A full-time employee is paid the same whether they are given one project to do or fifty projects to do. During the slower periods, many employees may find that they have very little to do, but you have to pay them just the same. This is not the case when it comes to outsourcing to freelancers. Instead, you only hire and pay them on an as-needed basis.
When you are hit with an added workload, you can turn to your favorite freelancer to pick up the slack. When the workload returns to normal, you can thank the freelancer for his time and let him know that you’ll call him when you need him again. In like manner, you can hire specialists as needed, rather than relying on a single employee to do everything.
No Overtime Pay for Weekend Work
Need a rush job completed over the weekend? If you were to get your full-time employee to come in to the office on Saturday and Sunday, there’s a good chance that you’d be liable for paying overtime. This can get very expensive, very quickly.
While freelancers may charge a premium for rush jobs, the premium is typically less than what you would have to end up paying in overtime. Further still, many freelancers choose to work on weekends and holidays, so you may not be liable for a premium at all, so long as you give the outsourced professional reasonable notice.
Freelancers Provide Their Own Equipment and Office Space
When you hire an employee to work in your office, you need to provide them with office space. You also need to provide them with a computer, a camera, a cell phone, and any other equipment that they may need over the course of doing their work. Let’s not forget about maintaining the office photocopier, stocking up on stationery, and even keeping up with the company water cooler. These expenses can add up very quickly.
By contrast, freelancers must provide their own equipment. You typically don’t have to pay for their computer maintenance or monthly cell phone charges, because these costs are usually integrated into the quoted rate. If the freelancer needs to buy a new smartphone, he buys it himself. This is an understood cost of doing business.
Vacation Pay, Medical Plans, Administrative Costs…
Some people may be thrown off by the rates they are quoted by freelancers, because these hourly rates are usually higher than what they are paying their full-time employees. This is true, but you also have to realize that the freelancer’s rate is all-inclusive.
With a regular employee, you are responsible for paying into a retirement plan, a medical plan, paid vacation days, maternity leave, personal leave, and all sorts of additional expenses. Further still, you have the added administration costs of managing these supplementary details. When it comes to outsourcing, you pay them just like a supplier: you get an invoice, you pay the invoice, and you’re done. The administration is much simpler.
Outsourcing Makes Good Economic Sense
For a larger company, it obviously does not make sense to rely solely on outsourced professionals to handle the entire workload. You will still want to have some full-time staff to handle the day-to-day operations of your business.
However, for much of the seasonal work or for situations where the workload demand can be unpredictable, outsourcing to freelancers and other similar professionals really can save you a lot of money in the long run. And you’re not losing out on quality, so long as you hire quality freelancers.
I find your reasoning to be flawed. If I was to stop being an employee and become a contractor or specialist, I would need to ensure that my quality of living stayed the same (or got better). As a result of losing my benefits, pension, vacation etc, I would charge more. It is not uncommon for someone with the same skill level as myself to charge 3 or 4 times as much as I make. On top of that, there are plenty of times when something comes up that I am tasked with that any contractor or specialist would charge extra for.
Now…in doing the basic math, if contractor A bills out at 3X my income (after benefits let’s make that 2X) if you use them for 6 months + 1 day you have now just LOST money.
Outsourcing or the use of contractors has NEVER been about saving money. You pay for the convenience.
Thanks for the comment, but I disagree.
If you use the contractor at full-time equivalent (FTE) hours for six months, then you may indeed to paying more for that time period, but what about afterwards when his/her services are no longer required? You would be continuing to pay a full-time employee (unless you lay them off, in which case you may have to go through another hiring process to get a replacement when needed), whereas the freelancer would not be receiving any money from you during that time. The administration costs, as mentioned, are also lower for freelancers as opposed to full-time employees.
As I note in the final paragraph, I’m not suggesting that someone get rid of all their staff and replace them all with outsourced contractors. That wouldn’t make sense. It does make sense, however, to use a contractor for as-needed work, seasonal work, and so on.
Let’s say that you run a magazine and you need writers. You only pay the contractors when you need the articles and you can hire them with specific expertise in mind. With full-time staff, you could incur extra costs during the downtime and the extra costs needed for the generalists to research specific topics.
I guess I am coming at this from my personal experience. I work in IT and management is going through the process of trying “save money” by outsourcing.
For my specific job, there will be zero savings by outsourcing. In your magazine example, I could see that working very well.
However, if you have a contractor that works 4 hrs a day for a year (on average), you end up paying about the same amount as an FTE would make in that whole year working 8 hrs a day. The minute that contractor has to work 1 hr over that theoretical limit, you have just spent more money than you would have paid for an FTE.
For small one-off jobs it might make sense…but I see the word contractor as being different than out-sourcing. A contractor comes in to do your one-off job, while you Out-source your department to another company.
I understand where you are coming from Michael, but it is not always a good choice to outsource. Take my line of work in the school system with IT support.
Lets outsource it and take the school based employee away. Now pay someone to come when you have an issue, in which they have to drive to the school, you have teachers that have to stop the lesson they were teaching, modify their plans. This leads to the students not getting a good education. The time issue in a school system is of prime importance.
If we are at the school, outsourcing will not pay for a person to be onsite, we can get to a problem in a short period of time so that the teacher does not have to “wing it” for more than a few minutes.
To pay an outsourcer to be onsite during school hours will end up costing more than what you can pay a full time employee with benefits. They have already looked at that cost and decided that the current IT support at the school was more cost effective.
There was a time when “outsourcing” & “globalization” were dirty words (to many people)due to massive job losses as corporations cut costs by outsourcing services/jobs to lower costs countries in their relentless profit-driven quest.