When it comes to determining how much a consultant should make compared to an employee, there are several factors to consider. The title of consultant has some similarities with the title of employee, but there are also some marked differences in terms of employment benefits, methods of payment and the amount of time the consultant can expect to be employed. Generally, consultants add thirty to fifty percent compensation in addition to the hourly rate they calculated based on their annual salary. This can be rounded up to forty dollars an hour.
Employers should exercise caution when classifying workers as consultants or contractors, as mislabeling workers can result in heavy fines and legal fees. Workers' compensation benefits and the ability to apply for unemployment insurance benefits are not offered to consultants who work as independent contractors. A company that needs to hire an external consultant for an extended period of time may realize that it is better to classify the worker as an employee, especially if their contract is for a certain number of hours or months of work rather than being tied to the completion of a particular task or project. The company hires the consultant throughout the project and pays them a fixed rate for the scope of the project or per hour for each hour of work. The real cost of a consultant is affected only by the costs of G&A (general & administrative); Fringe (that is, Andre) doesn't realize it, but it is very likely that they would have saved money by hiring the consultant.
However, the amount of infrastructure a consultant uses is significantly less than that of an employee (not to mention the fact that the consultant doesn't receive any benefits from the company).For example, a construction company building an office next to a wetland can hire an environmental consultant to ensure compliance with all laws during the construction process. When making the decision to hire an in-house employee or consultant based on costs, it is vitally important to properly consider all the hidden costs per employee and the costs per consultant involved in order to make a wise business decision. Unlike employees, who may feel that a personally held position is permanent or at least secure, consultants are hired for a pre-established period. If the consultant does not have a payroll job in any company, they are also solely responsible for obtaining independent health insurance and planning for retirement. There are additional potential financial risks with an employee that are less likely in the case of a consultant. As a result, there are proven methods to more accurately calculate your actual labor costs, allowing you to perform a sound financial analysis and make a more informed decision when faced with the “employee versus consultant” dilemma.
On the contrary, companies tend to fire consultants at least a minimum amount of time in advance, if at all, when they are dissatisfied in any way with their performance. A consultant classified as an employee is paid through a standard payroll system that includes withholding for income taxes, Social Security tax and Medicare tax. When deciding whether or not to hire an employee or consultant based on cost, it's important to consider all hidden costs associated with each option. Consultants typically add thirty to fifty percent compensation in addition to their hourly rate based on their annual salary. Additionally, consultants don't receive any benefits from their employer and must obtain independent health insurance and plan for retirement themselves.
On the other hand, employees may receive workers' compensation benefits and have access to unemployment insurance benefits. Companies should exercise caution when classifying workers as consultants or contractors as mislabeling workers can result in heavy fines and legal fees. Ultimately, there are proven methods available for accurately calculating labor costs which can help employers make informed decisions when faced with this dilemma. It's important for employers to consider all factors before making their decision in order to make sure they're making the best choice for their business.
