Generally speaking, short term, large jobs are completed more cost
effectively by hiring temporary contract personnel than by hiring
permanent employees. The reason for this is pretty obvious: carrying
permanent employees when there is no work for them results in BOTTOM
LINE (profit) losses equal to the fully loaded costs of those
employees. But let's work up and example.
ALL EMPLOYEE WORK FORCE: Assumptions are as follows. 1) The short
term, large job requires 10 electricians for 6 months. 2) You
currently employ 5 full time electricians. 3) The fully loaded costs
for your employee electricians is 150% of salary (salary + benefits +
overhead, etc.). 4) Annual salary per electrician is $50,000. 5) You
will hire 5 additional electricians as permanent employees. 6) You
will fire these 5 additional employees after 6 months. The costs are
as follows.
$50,000 x 150% for fully loaded cost = $75,000 (annual cost of one
electrician)
$75,000 x 10 = $750,000 (annual cost of 10 electricians)
$750,000/2 = $350,000 (6 month cost of 10 electricians)
MIXED WORK FORCE: Assumptions are as follows. 1) The short term,
large job requires 10 electricians for 6 months. 2) You currently
employ 5 full time electricians. 3) The fully loaded costs for your
employee electricians is 150% of salary (salary + benefits + overhead,
etc.). 4) Annual salary per electrician is $50,000. 5) You will hire
5 contract electricians for 6 months. 6) Contracted electricians will
not receive any benefits, or use ANY company facilities or personnel
time other than what it costs in labor for your Accounts Payable
person to cut each one of them a check every two weeks. 7) Contracted
electricians are paid $50 per hour. 8) Contracted electricians work
160 hours per month. The costs are as follows.
$50,000 x 150% for fully loaded cost = $75,000 (annual cost of one
electrician)
$75,000 x 10 = $350,000 (annual cost of 5 employee electricians)
$750,000/2 = $175,000 (6 mo cost of 5 employee electricians)
$50/hr x 160 hr/mo x 6 mo = $48,000 (6-month cost of one contract
electrician)
48,000 x 5 = $240,000 (6 mo cost of 5 contract electricians)
$175,000 + $240,000 = $420,000 (6 mo cost of 10 electricians)
CONSIDERATIONS: 1) Re-run the model with the correct assumptions (I
know nothing about electricians). 2) How much is it worth to you to
be able to off load the extra head count when you don't need it
anymore? 3) Can your business handle the reputation of being a
"hire-and-fire" company? 4) Can you pass the "smell test" with the
IRS for having contract labor that you don't pay benefits for? Look
into this before you paint yourself into a corner. |
