Temps vs. Full Time Employee's?

Question

How can I do an analysis to see which would be a better choice (dollar wise) for my employer?

Answer 1

If you have used temps in the past I would just look at the cost of the temps including man hours used to train them to perform the specific job, as well as the turnover rate. Then do the same for full time employees including the company cost of their benefits. Once you get all of the data just put it in a comparison spreadsheet and it is self explanitory for your boss to see which is more beneficial.

Answer 2

You'd need to figure out the annual cost for each over a year-long span.

For the temps it should be easy, since they are generally paid by the hour.  Presumably, yearly cost is 40 hours a week times 52 weeks times their hourly rate.  But find out if there are agency fees that are paid per person (probably) and include that in the cost.

For the full-time employees, there's more to consider.  Start with their annual salaries.  The employer has to pay FICA and Medicare taxes on their behalf (0.153 times their annual salary) and unemployment taxes (which varies, but just safely estimate about $120 a year per employee).  I don't know if the job requires workman's comp insurance.  If so, include that amount too (get the amount from your employer).  If there are any company benefits (including employer portions of pension payments if any), also figure the average amount that the employer has to pay on behalf of each employee (again, they should be able to tell you that).  And don't forget paid vacation time and approx. average sick days that might be used.  If payable, then you need to adjust those days into the total cost.  If it's about 10 paid days per employee, divide the annual cost by 365-10, then multiply that result by 365.  That is the true cost to the employer, since he's paying them for days they aren't working.  And finally, include an approximate cost of administration (all the employee's paperwork, paychecks, etc., take more work than a temp).  Ask your employer how much they consider for administrative costs per employee (either in actual dollars or their own hourly time -- which could be used for other things).

HOWEVER, also realize that temps usually get paid more because their agency (or themselves if they are independent) must pay all those other costs for them!  

If they are a contract employee, the standard formula is to take the approx. annual salary as an employee and divide that by 1000, and that is a fair hourly rate.  This is because a contractor must buy their own health care and benefits and takes much more risk (being out of work for months at a time looking for the next contract, etc.).

From the employer perspective, though, sometimes a temp or contractor is a better deal.  It's a temporary cost that comes out a different budget line vs. an employee, which involves long-term expenses of benefits, taxes, pensions, etc.  And it's easier to fire them!