Rates vs Wages

It's difficult to directly compare a contractor's hourly rate to an employee's wage. Simply multiplying up produces a figure which makes contractors seem vastly more expensive. Given there are on average 173 billable hours in a calendar month at a rate of 40 hours per week:

contractor (Â£28 / hour * 173) = Â£4,844 / month employee = Â£3,500 / month

This difference is mostly due taxation and working practices. This article explains how to account for those differences and make a fair comparison.

Accounting for holidays
Because contractors often work on short projects, they usually take their holidays between jobs so it's easy to forget that they don't bill for holiday time. An employee, on the other hand, has holiday time built into their wage.

Given a normal holiday allocation of 20 days per year, you can account for this by either adding 8.3% to the employees cost: 8.3% of Â£3,500 = Â£290 or subtracting 7.7% from the contractors cost: 7.7% of Â£4,844 = Â£373

Accounting for employer's National Insurance
As an employer, you are taxed on each employee's taxable income. For the average employee this works out at: 12.8% of (Â£3,500 - Â£420) = Â£394 of additional cost, or from the other point of view: 12.8% of (Â£4,844 - Â£420) = Â£566 of savings.