When it comes to the question of why consultants get paid more than employees, the answer is simple: companies and hiring managers who hire contractors commit to paying them more. This is because contractors negotiate more often, and if an employee works full time for a company for three years, they can request increases, but these increases will usually be in line with company policy or those given to other employees. On the other hand, companies tend to fire consultants with minimal notice if they are not satisfied with their performance. The most important factor in determining consultant salaries is their skill set. However, the amount of infrastructure a consultant uses is significantly less than that of an employee, and they do not receive any benefits from the company.
Workers' compensation benefits and the ability to apply for unemployment insurance benefits are not available to consultants who work as independent contractors. When making the decision between hiring an employee or a consultant, it is important to consider all the hidden costs associated with each option. For example, when I was just starting out, I was looking for figures ranging from 1000 to 1500 pounds a day, while I know consultants who work for as little as 500 pounds. It is also important to consider that a consultant does not require any corporate infrastructure. At the end of the year, an employee receives a W-2 form stating the total amount of salary or salary paid throughout the year, as well as the total of all taxes withheld. On the other hand, consultants decide when to look for new clients, when to accept a new consulting job, and how much money they will earn.
This makes it difficult to determine how much a consultant should charge. There are proven methods to more accurately calculate labor costs for both employees and consultants. This allows businesses to conduct a sound financial analysis and make an informed decision when faced with the “employee versus consultant” dilemma. The firm hires the consultant for the duration of the project and pays them a fixed rate for the scope of the project or per hour for each hour of work. Some consultants simply prefer to work for smaller companies and are willing to accept a small pay cut to do so. If they don't have a payroll job at any company, they are also solely responsible for obtaining independent health insurance and planning for retirement.
Additionally, consultants face a real risk (although it must be admitted that it is small) of not being paid.