Is a freelancer more expensive than a permanent contract?

Freelance or permanent contract: what budget does each of these contracts represent? A large majority of companies have not yet dared to use freelancers, in particular because of their rate, which they consider to be higher compared to an employee profile. But is it just a question of cost or are there other reasons for such a barrier? In this article, discover a comparative analysis of the costs for a freelancer and for an employee, which will give you a better understanding of advantages of each of these profiles.

Freelance & employee: how to explain the difference in costs?

The cost of an employee

Businesses are more familiar with the cost of an employee. The salary paid at the end of the month corresponds to the net remuneration, that is to say the gross remuneration from which various contributions have been subtracted. However, some charges remain invisible on the pay slip (and therefore on the gross remuneration) but have a significant impact on the overall cost of an employee for his employer. Note: all of these costs are entirely financed by the company.

In detail, here are the various expenses included in the budget allocated to each employee:

• Recruiting : To find the ideal candidate for a permanent contract, many companies can invest in certain tools or use recruitment agencies, for example. As an indication, these structures can charge up to 25% of the cost of an employee. Unlike a tool that facilitates research and monitoring, these professionals offer personalized support and an updated vision of the state of the market.
• Remuneration : The monthly net salary of an employee on a permanent contract is a fixed cost, i.e. this expense is included in the long-term budget. The remuneration of employees can also be one of the most substantial budgets for a company.
• Salary expenses : They are taken directly from the gross salary and represent on average between 22% and 28% of this amount. Even if these expenses are taken from the salary, it is the company that is responsible for paying these contributions to the departments concerned. These expenses therefore include contributions for social security, unemployment insurance, retirement, as well as other social benefits.
• Employer charges : These burdens are not always visible to operational teams. It is therefore important to consider this expense when you want to recruit an employee, since it represents on average 30% of the gross salary. This contribution is only financed by employers, which is why it is not shown on the pay slip. These expenses include in particular contributions to vocational training and other items of expenditure that finance social protection in France (URSSAF, Pôle Emploi, etc.).
• contract : There are costs to be taken into account at certain periods of the CDI contract. A new recruit needs a certain amount of time to adapt before being 100% operational, which can represent a higher or lower cost depending on the commercial impact of this new employee. If the recruitment is not successful at the end of the trial period, the company will have to reallocate time and/or budget to search for new talent. In the same way, an end of contract generates costs, especially in the case of payment of compensation in the event of a contractual breach or dismissal.
• Periods of absence : The permanent contract naturally offers financial security to employees. Companies have therefore made a commitment to pay their employees during their periods of absence, whether they are periods of rest or in the event of illness (leave, RTT, sick leave).
• Social benefits : Companies make social benefits available to employees, such as mutual insurance, health insurance, supplementary pension plans, restaurant tickets, vacation bonuses, etc.
• Employee training : This line of expenditure includes two distinct costs: maintaining wages during training and financing of training by the company. These costs are mandatory but they can be more or less high, especially when there are major changes in certain sectors (e.g. technological) or when certain employees want to increase their skills, for example.
• Logistics : These hidden costs are not directly attributable to the collaborator but are directly linked to the employee's hiring. The company must be in a position to provide them with adequate hardware, software, premises, and a functional workspace. Of course, the company can also invest in more or less modern HR management tools.

The cost of a freelancer

A freelancer's TJM also includes several costs that, unlike a permanent contract, are fully covered by the freelancer. As a company, you will only have to pay the overall price of the service. You are not responsible for any additional costs. This may explain why a TMR may seem higher, if we try to compare it with the daily rate of an employee.

In more detail, the Calculation of the TJM of a freelancer includes most of his social security contributions (pension, social security, social security, mutual insurance, insurance), his contributions (VAT, taxes) and finally the amount of his remuneration. Depending on the seniority of freelancers, some may also be able to conclude their days of unavailability (e.g. weekends, holidays, etc.) and professional expenses such as travel or material investment.

In fact, the remuneration of a freelancer does not correspond to the amount of his gross salary. On the contrary, according to his statutes, his net remuneration varies between 30% and 50% of the amount invoiced to companies.

For example: a self-employed person under SASU invoices a service with a TJM of 800€. From this amount, you subtract all the expenses related to your status as well as income tax, to arrive at an average amount of €450. However, this final result may decrease depending on the social security contributions financed (very good mutual insurance, pension plans, contingency contract, etc.)

The TJMs used are therefore generally higher than the remuneration of an employee, due to the number of contributions paid by the self-employed person. A former employee can therefore increase his remuneration by becoming a freelancer, but this implies being able to finance the risks associated with his status (irregular income; personal investment to have health coverage and prevent possible illnesses; cash flow to anticipate periods without a mission, etc.).

For a company, the financing of a service provided by a freelancer is clearly facilitated, especially for accounting monitoring. Businesses are not responsible for paying social security contributions. On the other hand, it is still important to check that a freelancer has fulfilled his duties before starting the collaboration. This obligation of vigilance can be taken over by a third party company, in order to focus on starting the mission.

Why do these cost differences exist?

Cost factors

When it comes to choosing between hiring an employee or soliciting a freelancer, several criteria must be carefully considered. They will have a major impact on identifying the right talent to meet your needs, on the success of the collaboration as well as on the result of the project and/or on the development of the company.

Here are the main factors to consider:

1. State of the market : This can play a decisive role, especially if the market is in short supply. Some talents who are aware of the scarcity of their skills will more easily turn to freelancing and prefer to have the possibility of choosing their customers. This is especially the case for developers, for example. In order not to give up these profiles, companies will therefore be forced to broaden the types of collaboration, in particular by welcoming freelancers into their teams.
2. Expertise : Your decision must also take into account the nature of the project, the skills and the seniority expected. There are a majority of freelancers who have developed very technical expertise as an employee, and are in high demand on the market. Because of this high demand, these profiles may prove to be rarer as an employee.
3. Flexibility : The expected duration of the contract or projects is a key factor in decision-making. Freelancers offer significant flexibility in terms of recruitment costs, departure costs and end of contract costs. They are available quickly and in case of non-accounting, the collaboration can be completed without difficulties. If a project requires the immediate intervention of rare expertise, a freelancer would be the most appropriate choice.
4. Regularity of needs : Whether it is a one-time need, a recurring but short project, or the expertise required over the long term to develop the team's skills, you will not choose the same type of contract. This is simply due to budgetary issues and operational needs. If there are not enough tasks to maintain a position in the long term, using a freelancer would be very favorable to meet these occasional needs.

In fact, there is no unanimous answer that prevails for either of these profiles. Whether it is therefore a permanent contract or a freelancer, you must analyze your situation and identify the profile that best suits your operational, strategic and logistical context.

Example scenarios: CDI vs freelancer

Let's explore some typical scenarios to illustrate when hiring an employee is still essential, as well as situations where collaborating with a freelancer can be more beneficial. Of course, these sample scenarios are the result of our field feedback and specific to specific contexts. You cannot avoid any specific analysis of your situation to make the most appropriate choice.

Here are 3 example scenarios that we observed:

1. Skills not available on CDI : It happens that some specific skills, often technical, are mostly mastered by freelancers. This status can indeed be attractive, because of its remunerative advantage and greater freedom. To avoid these market dynamics, it is essential to check whether the required expertise is actually available on a permanent contract. If this is not the case, we invite you to remain open to freelance profiles, at the risk of missing out on an excellent profile.
2. CDI: Casting error : Suppose that you have hired a permanent employee who, unfortunately, is not the right person for the position. In the event of an early departure, the costs associated with severance benefits and recruitment processes can be high. On the other hand, when a freelancer does not exactly match your needs, you can avoid additional costs because this collaboration does not involve severance benefits, for example. If you have doubts about the profile you are looking for, using a freelance profile will allow you to refine your needs, while benefiting from up-to-date skills in the requested profession, as well as an expert look at the latest trends in your sector of activity.
3. Structuring the company : When considering building teams in order to structure your business, permanent employees remain the best option. They are often committed to the long term, allowing you to benefit from a solid base of expertise. However, it is important to take into account periods of trough or the unavailability of certain expertise in your research. A freelance profile can then assist you with missing expertise or strengthen your team for the finalization of a project, over a given period of time.

When it comes to choosing between a freelancer and an employee, it is ultimately essential to find the ideal balance between operational needs and market reality. Indeed, the “price” should not be the only criterion for collaboration because other parameters come into account: availability of expertise on the market, urgency of the need, objective linked to the search for a new talent... The priority should therefore focus more on the quality of the expertise sought, and not on the contract, which is becoming a simple modality. In the future, companies will undoubtedly be composed of hybrid teams, combining freelancers and employees jointly.