How much does it cost to hire a freelancer vs. full-time employee in 2022?

Learn about the pros and cons of hiring freelance or perm in our latest guide on remote talent

Demand for technical talent — engineers, designers, product managers — has always been high, but the pandemic has pushed the labor market to new levels of competition. Given the hiring climate today, many companies are now looking towards hiring remote, freelancers to augment their team staff. However, there are cost and efficiency tradeoffs your company will make when hiring a freelancer vs. a full-time employee. In this article, we’ll walk through the full cost structure of hiring a freelancer vs. an employee and some other factors you should consider when making hiring decisions this year. 

The costs associated with a freelancer vs. full-time 

The first cost to consider when hiring a freelancer is the hourly rate. Unlike employees, Freelancers often charge on an hourly basis and typically the rate they charge is between 1.5–2x what you would pay a full-time employee for equivalent work per hour. Freelancers only charge for the hours that they work, so you won’t be paying for lunch breaks or time spent on learning or professional development. 

Employees, on the other hand, are paid on salary so while the hourly rate is often lower keep in mind that they are being paid for every hour in the office, which includes when there is downtime or lunch breaks.

Benefits and perks

One of the biggest costs associated with full-time employees is benefits. Companies are obligated to provide full-time workers with health insurance, workers’ compensation, disability coverage, and family and medical leave. In addition, companies frequently provide other perks and benefits like paid holidays and vacation, retirement savings programs, gym and wellness reimbursement, and team social events. 

If you hire a freelancer, you won’t pay for any of these benefits or perks.

Taxes

Companies are required to pay taxes on all full-time employees. Employers pay FICA taxes, which includes Social Security taxes at 6.2% of an employee’s gross salary up to the wage base (currently $147,000) and Medicare tax, at the rate of 1.45% of gross salary.

Freelancers are responsible for paying their own taxes, and are similarly taxed a self-employment tax at a rate of 15.3% (12.4% for social security and 2.9% for Medicare).

Stock and equity

Compensation for full-time employees typically includes stock or equity. These grants are beneficial for creating mutual alignment between your business and employees. However, this does require you to relinquish shares of your company. Freelancers, on the other hand, are only paid per their contract and have no long-term stake in the company.

Recruiting fees

Some companies have in-house recruiters, but if you’re working with a third-party, recruiting fees are another cost to keep in mind when hiring. In general, recruiters charge a head-hunting fee of 20% of a candidate’s annual salary, and this cost is paid entirely upfront. This fee is worthwhile if the employee proves to be a long-term, valuable asset to your team. However, if you hire someone who is a poor fit, or the employee leaves within a few months, that recruiting fee is a sunk cost. Staffing agencies for freelancers will also charge a placement fee, but these fees are pay-as-you-go, so you won’t have to bear any large sunk costs for a worker that doesn’t pan out. 

When to hire a freelancer

Although there are a number of costs associated with employing a full-time worker, they are typically more cost-effective over the long term (12 months+) than freelancers. There are numerous other advantages to hiring full-time employees: full-time workers are more aligned with your business, build domain and product knowledge over time, and contribute to company culture and cohesion. However, there are several scenarios in which hiring a freelancer can pay off. 

Speed to hire

One of the top reasons companies hire freelancers is that their business is growing rapidly and they can’t hire full-time employees quickly enough to keep up. The average time to hire a full-time developer is close to 3 months. For comparison, freelancers can usually be hired in 1–3 weeks. If your business needs are urgent (as they often are), you might need to hire freelancers to fill the gap until you can bring on more full-time workers. 

You should also consider the resources required of your existing full-time team to expand. If you need to do an aggressive amount of hiring, your team will have reduced productivity on their projects while they spend more time interviewing candidates and onboarding new team members. A freelancer can help move a project’s key deliverables forward in the interim. 

Short-term or ad-hoc projects

Another reason you might hire a freelancer is if you have a short-term project that only lasts a few months. Hiring a freelancer will boost your team’s capacity temporarily without requiring you to invest in additional headcount for the long term. 

A related scenario is when you have a project that requires a specialized skill set, but doesn’t require full-time attention. You only pay freelancers for the hours that they work, so a freelancer could be a great fit for a project that requires 5–10 hours of work a week. 

Consulting or advising

Finally, you might hire a freelancer to bring in someone in a consulting or advising capacity. Perhaps you have enough employees to meet your business needs, but you’re lacking expertise in some critical area. It can pay off to hire a freelancer to consult on the project and bring your full-time employees up to speed faster than they might learn on their own. 

Competitive pricing abroad

Perhaps your business is in a position where hiring a freelancer makes sense, but you’re still looking to save on costs. One way to do this is to hire a freelancer from abroad. Senior developers in the US can charge very high rates for their services, but you may be able to find skilled freelancers in Canada for 30% less. Developers in South America or Eastern Europe typically bill at ⅓ to ½ of the cost of those in the US. Working with developers in other countries has trade-offs including time zone differences and language barriers. Whether this will be a good fit for you depends on your individual product and business. 

Getting started with a freelancer 

You’ve decided to hire a freelancer, but now you’re not sure how to find the best one for your company. At SkillHire, we work with highly skilled talent in engineering, design, and product based in the US, Canada, and abroad. We send you a curated list of freelancers available for hire and allow you to interview them directly in the app. Cost transparency is central to our business, so you’ll know upfront exactly how much your freelancer will cost. Connect with us here to learn more about how we can help scale your team with top technical talent.