The Cost of Hiring Freelancers Vs Employees

Capital on Tap UK 09 September 2024 minute read

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Full-time employees and freelancers each come with their unique advantages and costs. Whilst freelancers offer greater flexibility and specialised skills, employees provide long-term commitment and deeper integration into the company culture.

Though freelancers often charge higher rates, they do not require additional expenses such as pension contributions and national insurance. By understanding these benefits and costs, you can make an informed decision that aligns with your business needs when expanding your team.

To determine whether hiring full-time employees or freelancers is more cost-effective, we have analysed the financial implications of each option, looking at both the hourly rates and total annual costs (presuming they are working 36 hours a week) of hiring employees and freelancers. Additional costs associated with in-house staff have also been considered.

Fay Sumner, Head of People at Capital on Tap offers expert insights into why freelancers may sometimes be more advantageous to your business, despite their higher fees.

The cost of freelancers versus employees

It may come as a surprise that the data revealed freelancers were more expensive than full-time employees in 29 out of the 30 job roles analysed, challenging the common perception that freelancers are a lower-cost option. The table below highlights the roles where freelancers command the highest rates.

Rank	Job Role	Average Freelance Hourly Rate	Average Employee Hourly Rate	Percentage difference
1	Legal Consultant	£99.06	£16.00	144.38%
2	Photographer	£65.69	£14.67	126.99%
3	Voiceover Artist	£52.92	£14.67	113.20%
4	Human Resources Consultant	£48.80	£20.67	81.00%
5	Business Consultant	£46.67	£18.67	85.71%
6	Public Relations Consultant	£40.86	£19.33	71.53%
7	Copywriter	£40.45	£16.00	86.63%
8	Blog Writer	£39.35	£14.67	91.40%
9	Content Writer	£39.33	£14.00	95.00%
10	Technical Writer	£37.24	£20.00	60.23%
11	UX/UI Designer	£35.76	£27.33	26.72%
12	Project Manager	£34.98	£24.00	37.23%
13	Translator	£34.71	£13.33	88.98%
14	Accountant/Bookkeeper	£33.67	£13.33	86.52%
15	Digital Marketer	£32.16	£18.67	53.09%

The average employee costs £29,667 per annum when factoring in additional expenses such as income tax and pension contributions. In comparison, hiring a freelancer for the same period comes in at a staggering £62,070 - more than double the expense.

However, Fay Sumner, Head of People at Capital on Tap notes, “Whilst freelancers may appear more costly at first glance, it is crucial to align your choice with your business needs. They are often sought after for their specialised skills and deep knowledge which can justify the additional investment, especially for projects where your in-house team may lack experience.

“Additionally, freelancers offer significant flexibility, often working on a project-by-project basis. If you are looking to manage capacity in the short term, a freelancer might actually be more cost-effective than committing to a full-time salary.”

Freelancers’ higher rates account for the lack of benefits they receive, such as a pension, but these rates also reflect their specialised expertise. This is particularly true for consultancy roles- such as legal, human resources, public relations, and business consulting - where freelance rates can be as much as £83 higher per hour than those of full-time employees.

Whilst larger companies typically have dedicated in-house legal teams, smaller businesses often opt to hire freelancers for their legal needs. However, legal freelancers charge up to 144% more per hour. This disparity can amount to nearly £145,500 across a full year.

The costs associated with photographers and voiceover artists also greatly differ, with freelancers in these fields charging 127% and 113% more per hour, respectively. These services are typically required on an ad hoc basis, making them ideal for outsourcing to freelancers rather than employing full-time staff.

The roles where freelance rates are most similar to employee costs

Although freelance rates are predominantly much higher than that of full-time employees, the percentage difference between the two is much smaller in some job roles.

Rank	Job Role	Average Hourly Freelance Cost	Average Hourly Employee Cost	Percentage Difference
1	Illustrator	£18.00	£23.43	26.22%
2	UX/UI Designer	£27.33	£35.76	26.72%
3	IT Support Specialist	£16.67	£12.08	-31.92%
4	Project Manager	£24.00	£34.98	37.23%
5	E-commerce Specialist	£15.33	£23.14	40.57%

Illustrators demonstrate the smallest difference between freelancers and full-time employees, with freelance fees being just 26.2% higher than employee costs. UX/UI designers follow closely, with freelancers charging 26.7% more than their full-time counterparts.

Our research found that IT Support Specialists were the only role where hiring a freelancer cost less on an hourly basis compared to a full-time employee. On average, freelance IT Support Specialists charged approximately 32% less than their full-time counterparts.

Whether a business opts for freelancers or full-time employees, understanding their needs is essential for maximising their utility.

Fay from Capital on Tap offers guidance on how to prepare for new hires: “Welcoming a new employee, whether freelance or permanent, requires thorough preparation. Effective onboarding is key - introduce them to the business, the project they will be working on and provide a clear, detailed brief to ensure maximum productivity and minimal time wasted. Additionally, consider logistical needs such as benefits, equipment, and uniforms, and budget for these before their arrival to create a smooth transition.”

More information on budgeting for a small business can be found here.

Methodology and sources

To find out whether it was more cost-effective to hire a full-time employee or a freelancer, Capital on Tap have analysed the annual cost of each option across 30 different job roles, taking into consideration the additional implications of pension contributions and national insurance required for full-time employees.