Independent contractors provide in-demand skill sets, specialized expertise, and a valuable external perspective, all while allowing you to keep existing employees focused on your core business. But what does it cost to engage independent contractors and how do you plan this category spend?
When preparing your budget for independent contractors, you will need to do so within the overall scope of your project cost. Keep in mind that your project rate may contain a variety of costs and resources such as a managed service fee, materials, licenses, and expenses, in addition to the rate of the independent contractor.
Because of all the factors and parameters, it can be difficult to benchmark or categorize the labor costs of a project into a rate card. Independent contractors do not always fit into a compartmentalized service spend, as each project or work stream has unique variables. Those variables are—in many cases—why you are engaging an independent contractor with a specific expertise, ability, or experience in the first place.
While creating a budget is critical, it is equally important not to minimize the intangible value that an independent contractor brings to the project.
There are nearly 42 million independent workers in the United States. This diversity of talent, expertise, and rates that will vary by industry, region, and experience. As such, you may receive a wide range of rates for consultants being considered for the same project.
As part of the engagement process, the independent contractor will typically provide a statement of work that will identify tangible value points such as certifications, accomplishments, and experience levels that support their proposed project cost. It will be up to the hiring manager to justify the value of the independent consultant to make the final decision.
Ideally, you will want to identify independent contractors who are the best fit for your project, and then have that person justify their rate within their statement of work. A consultant should be able to articulate the value of their services to you. This is a common and preferred process for many clients.
Keep in mind that it is not always possible to compare independent contractor rates to your hourly or salaried employees. In fact, independent consultant rates may be higher than that of a W-2 employee. With employees, you bear the burden of taxes, benefits, and insurances. Independent contractors are solely responsible for these expenses as well as for their own operational expenses. They have to cover their non-billable time at their rate, so expect that a short-term project will be more expensive by the hour than a long-term project. More important than the rate, however, is the value in hiring an independent contractor for the tangible benefits of your business.
If your business plans on regularly engaging independent contractors, be sure to have a way of memorializing these project costs as well as the consultants themselves. Re-engagement, as well as sharing consultants across departments, can make a big difference in both quality and time to productivity. Building a curated group of known independent talent can be just as valuable as having a strong staff of regular employees.
To learn more about independent contractor engagement or our proprietary online consultant marketplace, MBO Connect®, contact us today.
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