Recruiting a worker is an important and well-considered decision. It goes beyond the salary and involves total worker costs and obligations that come with permanent workers. At the same time, many companies benefit from flexibility. Seasonal demand, market trends, and economic conditions can change quickly, affecting workforce needs. Freelancers can be an attractive option to scale up without long-term contracts or high costs.
In this blog, we discuss the costs of employing workers, what to consider, and why combining permanent workers with flexible professionals can be the ideal solution.
The cost structure of a worker
Hiring a worker involves more costs than just the salary. In addition to gross wages, there are various additional expenses that determine the total cost for a business. The business costs of a worker consist of:
- Gross salary
The minimum wage of a worker is legally regulated and depends on the worker’s age. The minimum salary may be higher if your sector falls under a collective labor agreement (CLA). Many CLAs include agreements about the minimum salary you must offer—often higher than the legal minimum wage. Additionally, a competitive salary and secondary benefits may be necessary to attract candidates in a competitive job market.
- Vacation pay
In addition to the salary, every worker is entitled to vacation pay, which amounts to 8% of the gross annual salary.
- Worker insurance contributions
Businesses pay premiums for worker insurance such as unemployment insurance (WW), disability insurance (WAO/WIA), and sickness benefits. These premiums vary by sector and company.
- Income-dependent health insurance contribution
Businesses also pay an income-dependent contribution under the Health Insurance Act (Zvw).
How much a worker costs a business often depends on these mandatory contributions, which can significantly increase total labor expenses.
Example breakdown of worker costs
Below is an illustrative cost breakdown:
Component
Cost
Percentage of Gross Salary
Gross Annual Salary (16-hour workweek)
€11,697.00
100%
Vacation Pay (8% of gross salary)
€935.83
8%
Social Insurance Contributions
€2,807.28
24%
Pension Contributions
(typically mandatory)
€1,508.90
12.9%
Total
€16,949.01
144.9%
Important Notes
This calculation excludes bonuses or secondary benefits such as a 13th-month salary—often necessary in today’s tight labor market. Studies show that workers highly value secondary benefits, making them a crucial factor for attracting talent.
Hidden costs of permanent workers
We now know that salary accounts for approximately 75% of total employment costs and that numerous additional expenses exist. However, recruiting a new permanent worker involves more than just salary and standard costs. There are many hidden, direct, and indirect costs that can add up quickly:
1. Recruitment costs
Posting job vacancies, recruiter fees, job fairs, and conducting interviews all require time and money. Considering the average cost to recruit a worker can help you budget accurately.
2. Administrative costs
Background checks, paperwork, payroll setup, and enrollment in benefits programs all generate costs. Onboarding and training can also be significant expenses.
3. Ongoing costs
Beyond salary, you also cover bonuses, insurance, licenses, work attire, travel expenses, company cars, and more.
4. Absenteeism costs
For long-term absence, businesses must continue paying wages for up to two years, even for temporary or zero-hour contracts.
5. Termination costs
Laying off workers comes with severance payments and administrative burdens, even for temporary contracts.
6. Legal and compliance costs
Labor law compliance is complex and time-consuming. If worker classifications don’t meet legal standards, businesses may face additional compliance costs and reputational challenges. Smaller companies sometimes need extra support or guidance to stay compliant with evolving regulations.
Scaling up without the costs of permanent workers
Recruiting permanent professionals may be your first thought when scaling up, but there are multiple ways to grow your workforce and meet changing demand, market trends, or economic conditions without the risks and extra costs of long-term employment contracts.
Consider a flexible work platform that allows you to quickly find freelance professionals for shifts when needed. These professionals bring fresh energy to your company, possess specialized knowledge, and can elevate your team’s performance. Additionally:
- They are flexible, meaning you only pay for hours worked.
- You avoid extra costs for social security premiums or vacation pay- since they’re taking care of it themselves.
- You are not responsible for continued payment during sick leave.
Business cost for a worker often decreases when you can scale up or down without committing to full-time salaries and additional overhead.
Where to find reliable freelancers?
With Temper, the digital marketplace for freelance professionals, you can easily post shifts and select qualified professionals that match your organisation. Since they work as freelancers, they manage their own administration and payments. Additionally, all professionals working via Temper are covered for liability, accidents, and sick leave.
If you seek continuity, you can even invite them to your flexpool, giving them first access to new shifts. This allows you to build a trusted group of go-to freelancers. Below, we compare the costs of permanent workers versus a freelancer via Temper.
Key differences between permanent workers and freelancers
Factor
Permanent Worker
Freelancer
Cost Flexibility
Fixed salary, even during absence or slow periods
Pay only for hours worked
Long-Term Costs
Higher fixed costs in the long run
Potentially higher hourly rate, but no long-term commitments
Additional Expenses
Company pays social premiums, vacation pay, and pension
Freelancer sets their own rates, including taxes and benefits
[Read more about freelancer costs here.]
Conclusion
Many businesses benefit from flexibility. Seasonal demand, market trends, and economic conditions can change quickly, affecting workforce needs. Worker costs extend beyond wages; they also include taxes, insurance, absenteeism risk, and overhead. By considering these factors, you get a clearer picture of the true cost of a professional.
Permanent workers come with fixed structures that may not always align with your needs. Freelancers offer a flexible, low-risk way to scale up without long-term contracts or high expenses. For companies wondering how much a worker costs a business overall, factoring in these indirect costs is crucial.
With Temper, the digital job board for businesses and freelancers, you gain the flexibility to quickly adapt to changing conditions. Our platform provides access to a pool of experienced freelancers who can seamlessly integrate with your existing team and workflows.
Need to scale up for a busy weekend? Post extra shifts on our platform and find qualified workers within 90 minutes. Facing an unexpected slowdown? Cancel shifts without notice periods or pay obligations.
Frequently asked questions about employment costs
How do you calculate the gross-to-net difference for a worker?
On average, companies pay 30% above the gross salary in labor costs. To calculate:
- Divide the gross annual salary by 100.
- Multiply the result by 130.
Example with a 30% markup:
- Gross annual salary: €11,697.00
- Calculation: €11,697.00 ÷ 100 × 130 = Total worker cost: €15,206.00
Use an online calculator to determine the exact costs for your industry and workers.
What business contributions are included in the salary?
Additional labor costs include vacation pay, worker insurance contributions, and the income-dependent health insurance contribution (Zvw).
How do you compare freelancer costs with worker costs?
Check out our cost comparison table for a detailed breakdown of freelancer vs. worker expenses.
