BIZOMAT Tools · Business
Hire or Outsource
Should you hire or outsource this work?
Compares the first-year cost of employing someone with buying the same hours from a contractor.
Open the calculatorRuns in your browser. No account needed.
How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Annual workload | hr | Annual hours of work needed |
| Annual salary | $ | Annual base salary for the role |
| Employee on-costs | % | Employment on-costs from payroll (superannuation, leave, payroll tax, insurance) |
| Hiring / setup cost | $ | Recruitment, onboarding and equipment cost |
| Contractor rate | $/hr | Contractor or agency hourly rate |
What each input means
Open an input to see what it is, its units, the worked example and the common mistakes, with a small diagram.
What this means: Annual workload
- What it is
- The hours of work needed in the year that either an employee or a contractor would do, estimated from the task list or past workload.
- Units and format
- Enter a number in hr: hours. The form accepts 0 hr or more.
- Example
- The form opens with 1400 hr as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Outsourcing cost rises in proportion; employee cost does not change.
- Get it right
- The tool does not check that one person can deliver these hours; a full-time year is limited by leave and holidays.
What this means: Annual salary
- What it is
- The base annual salary you would pay an employee in the role, before superannuation and other on-costs.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $85000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Employee cost rises with salary plus its on-cost loading.
- Get it right
- Enter base salary only; on-costs are added by the next field, so do not use a total package figure.
What this means: Employee on-costs
- What it is
- Employment costs on top of salary, such as superannuation, leave loading, payroll tax and workers’ compensation insurance, as a percentage of salary.
- Units and format
- Enter a number in %: percent: the number is read as a percentage, so type 8 for 8 %. The form accepts 0% to 100%.
- Example
- The form opens with 25% as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Employee cost = salary × (1 + on-cost %) + hiring cost.
- Get it right
- Get the percentage from payroll or finance. Type the percentage itself (25 for 25 %).
What this means: Hiring / setup cost
- What it is
- One-off costs of bringing an employee on: recruitment fees, advertising, onboarding time and equipment such as a computer or tools.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $5000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Adds directly to first-year employee cost.
- Get it right
- The comparison is for the first year; leave this at 0 to see the ongoing yearly comparison.
What this means: Contractor rate
- What it is
- The hourly rate a contractor or agency would charge for the same work, from quotations.
- Units and format
- Enter a number in $/hr: money per hour. The form accepts $0/hr or more.
- Example
- The form opens with $85/hr as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Outsourcing cost = hours × this rate; it also sets the break-even hours.
- Get it right
- Use the all-in rate including agency margin; check whether GST is included and compare on the same basis.
Method and formulas
- Employee cost = salary × (1 + on-cost) + hiring cost
- Outsource cost = hours × contractor rate
- Break-even hours = employee cost ÷ contractor rate
Limitations
- First-year view including hiring cost
- Does not check that one person can deliver the hours
Typical uses
- Resourcing a recurring workload
- Deciding whether to convert contractor work to a role
Who it is for
- Business owners
- Managers
- HR
What you get
- HIRE or OUTSOURCE
- Cost difference and break-even hours
Interpreting the result
- Re-run without the hiring cost for an ongoing comparison
- Weigh knowledge retention and flexibility as well as cost
References
- Australian Taxation Office guidance on distinguishing employees from contractors
BIZOMAT tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.