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Comment by curious_curios | Hacker News Reader

There’s a whole world of unintuitive reasons for this kind of thing. Non-exhaustive list:

- Freelancers are OpEx, FTEs are CapEx. They are usually separate budgets so departments split.

- They want to maintain good relationships with the freelance companies in case they need to spin up staffing quickly with top talent in the future.

- They don’t have to pay some benefits and taxes on freelancers.

- Freelancers and consultants are often used to get tabs on ‘industry best practices’, i.e. what your competition is doing.

- Despite what you might think, they might actually be better than the FTEs, or at least perceived to be so.

- It’s easier to fire them when times get tough without as many rules and regulations.

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That last is especially important.. it is option value. Same reason a one month lease costs more than a one year lease.

When times get tough they shouldnt hire freelancers in the first place... If they have ongoing hires they pay 3 times as much on a freelancer as they do on an employee... this logic doesn't check out at all

You don't hire the freelancers _when_ the time gets tough, you hire them when you're fine. But _if_ you need to downsize, you can cut them easily.

In a country with strong labor laws, you can't do that with FTEs, you're stuck with them unless they make major missteps.

In some cases you can do layoffs, but that is larger process that takes time. And there are some regulations that mean you must try to find other work inside company for them or offer them job if such comes available. Ofc, you can pay them off if they agree to.

No, the logic is right.

If you have full-time employees you have to fire them when times get tough. In some countries it’s very hard to fire people and it requires months of notice. These laws encourage companies to choose contractors so they don’t get stuck with employees they can’t fire during tough times.

If you have freelancers you can more flexibly pause, delay, or reduce hours and then resume them again when you need them.

You can also scale freelancers to your workload or ability. With each FTE you’re committing to an extra 40 hours of pay every single week, no exceptions. With a freelancer you could have them do 5 hours one week, 0 hours the next, 40 hours after that. Even at 3-5X the rate it could come out to be less costly if the workload is intermittent.

> In some countries it’s very hard to fire people and it requires months of notice

This is, of course, true. I want to add that a company in Europe can still tell you not to come back tomorrow. They would just have to pay for those months of notice as if you were employed. In other words, it is expensive, but it is only a money issue.

> In other words, it is expensive, but it is only a money issue.

Bingo. That's all that matters.

Where's the difference in employing a freelancer for 1 month for 20k vs paying an employee for 3 months for less?

It doesn't make any sense.

In some EU countries like Portugal you are also required to pay quite handsome severance based on years worked. Between 15 and 45 days of base salary for each year of service, with a minimum of three months’ salary.

I work as a contractor and am managing a small team. I easily do the work at least two people in my team, in addition to managing ("babysitting") the team. While my pay is not 5 times their pay, it is most certainly higher than theirs.

But my most attractive trait is not that I work harder, it is that they can fire me at any point, without giving any reason or any notice. On top of it, they don't have to deal with any personnel issues - if I misbehave, they'd just fire me on the spot or complain to the agency and let me be their problem. No matter how hard I work, I rarely get a word of appreciation. They also don't have to do performance reviews, "rankings", pay discussions etc. Yes, it all comes at a higher cost, but it also removes all the pesky things that nobody wants to deal with.

Think of it like hiring a plumber even though the plumbing issue is small enough for you to fix yourself. You just don't want to do it

> it is that they can fire me at any point, without giving any reason or any notice.

Isn't this true for an US non-union employee?

If they live in an at-will employment state, yes.

Who's talking about USA?

Easy to fire so they can be relied upon to toe the line. Outside the org chain so little risk of becoming a competitor to management. Additionally freelancer orgs are often a vector for mutual back scratching / kickbacks.

I think FTEs are often promised security, a career with promotions, a work family etc. These are expected out of a tradition of norms. Belief in such promises can be exploited to extract more value for less.

Management optimizing for self interest will exploit FTEs as much as they will allow and divert as much revenue to peer owned freelancers as the company will allow.

This is a helpful list, thanks :)

Do you happen to have an idea on how to hit companies up and offer myself as a freelancer?

It seems there are non-IT departments that I could help out with getting their AI innovation in order.

You’re welcome!

Hit up the freelancing firms staffing your company, they probably work for others in different industries too. Note they’ll take their cut, but you’ll probably still get paid more than your current hourly.

Ask the freelancers at your company how they got the job. It's probably through some agency, probably more than one, if your company hires a few freelancers.

Then contact those agencies. Don't ask the freelancers at your company to get a direct contact, they probably have clause in their contract that forbids them to poach employees of their customers.

> Do you happen to have an idea on how to hit companies up and offer myself as a freelancer?

You can do cold outreach. Identify a contact and send a message.

Leveraging your personal network is more effective if you can. Freelancers who come through references are more trusted.

Note that if you go through a freelancing agency you won’t be getting the hourly amount they bill your company nor anywhere near it. The amount you get could range from around 80% of what they bill down to 20% depending on the arrangement.

The OpEx vs CapEx thing is huge, by the way.

I've been in the position where I couldn't hire for long stretches of time, but was given ample budget for operating expenses. Of course we hired contractors and agencies, even if the rates seemed absurd compared to direct employees.

A few more...

- They sometimes provide specialized skills the company has difficulty hiring for.

- They sometimes provide specialized skills that the company only needs for a short period of time. The goto example here is audio programming on a video game.

> - They don’t have to pay some benefits and taxes on freelancers.

The employer-paid taxes and benefits on full time employees can be very large, depending on the country.

Even in the United States people are surprised to learn that their employers pay taxes for employing them. You pay some taxes on your income and your employer also pays some taxes for employing you!

Well, and the employees often have to pay those taxes and benefits themselves, so that’s rolled into the amount the company needs to pay them.

Full-time employees do not pay those taxes and benefits themselves. It’s called a payroll tax because the company pays it for people on their payroll.

If someone is paying those taxes themself they are not an employee, they are a contractor.

This is one reason why contractor hourly rates are so much higher than salaried FTEs: They are paying higher taxes on the money that reaches their account.

Sorry, yes I meant contractors not employees. But employees are actually paying them also, it’s just the company pays it for the employ before the employee sees it.

I explained to someone I supervise yesterday during a conversation that the company pays roughly equal taxes on our income as to what we ourselves pay on it, it blew her mind. The only reason I know about it is because I researched self employment taxes for my SO last year and was curious why hers were so high.

I think it surprises 80% of the people I talk to about it.

Many people don’t believe me or assume I’m wrong.

This is why payroll taxes are popular with politicians: They hide the real tax rate out of sight of the employee.

They’re not hidden at all. Every pay stub you receive has a line item stating exactly what the employer paid and a separate line of what you paid.

It’s not roughly equal at all.

Let’s round up and say the employer pays 10% and the employee pays 10%. For self employment that goes to 20%

But, in the US, you can pay yourself whatever wages you want and take the rest as a distribution which is not subject to employment taxes.

So if you make 100K as an employee, then quit to freelance, you just pay yourself 40K in wages (or whatever you deem a reasonable salary) take the rest as a distribution and come out ahead.

The other comments about PTO and employees costing more are similarly “wrong” in that there’s a simple bottom line and the other costs beyond wages simply aren’t that significant, especially at the higher end. Insurance costs don’t scale with wages. 401k is easily obtained inexpensively as a freelancer, etc. Time off is easily handled with monthly or weekly rates instead of hourly.

All in all it simply comes down to if you can convince someone with a budget to get a SOW signed and a PO issued. Everything else is just fungible numbers business move around on a PnL report.

The real bottom line is they offered to pay you 30 EUR and you accepted it. The freelancers did not.

OP is in the Netherlands so payroll cost is going to be around 1.5x their gross income / 3x net income. Total cost per FTE is even higher but also depends on the organizational overheads. So the gap between 30 € net/hour that OP gets and 150 € total cost/hour that the freelancers take is really not nearly as big as it sounds.

> Freelancers are OpEx, FTEs are CapEx

I don’t think this is true unless simply make up your own definition of CapEx.

“Examples of OpEx include employee salaries, rent, utilities, and property taxes.”

https://www.investopedia.com/ask/answers/112814/whats-differ...

(Yes there are some times when you may be able to capitalize some labor, but that would apply to freelancers as well and is very much the exception, not the rule)

This may be different per country and all sorts of fun things apply like “is this R&D” which definitely changes the calculus.

Sorry which countries is this different in?

And other than R&D, which other fun things apply that definitely change the calculus?

In Netherlands you can't simply fire a FTE. It's different from US where people have "at will" employment. In NL FTEs are more like CapEx than the OpEx

Do they amortize and depreciate wages in the Netherlands? If not it’s not like a capital expense.

Are they more like CapEx or are they CapEx?

I'll add: often the freelancer is a former employee with expertise that's easier to pay for than train into new employees.

FTE’s are not capital expenses.

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