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Public sector could make huge savings by hiring contractors
Posted Oct 21, 2010
Following yesterday's Spending Review in which the Chancellor laid out his plans to cut Government departmental budgets by an average of 19% over the next four years, a leading umbrella company says that hiring contractors could help make huge annual budget savings.
Rob Crossland, chief executive of Parasol, says that the cost of employing permanent staff is very high due to the burden of pension contributions and other expenses.
"Public sector spending cuts have the potential to create lots of opportunities for contractors as ultimately, the work of the public sector still needs to be done and employing contractors could be a low cost solution.
"It's not wage costs to the public sector that is the major issue here, it is pension contributions running at circa 15 per cent, with travel and subsistence expenses for public sector managers on top, creating a ticking financial time bomb that needs addressing.
"As an example, for a public worker on a salary of £25K, pension costs would be an additional £3,750. Employing a contractor to do the same job would still incur the £25K salary cost but would save £3,750 year on year. There is no need to reimburse contractors for their travel and subsistence expenses either. You aren't simply making a one off cost reduction; hiring contractors can help to make huge annual budget savings.
"The bonus for the public sector is that it will also have access to highly skilled, experienced and motivated individuals to complete projects without the need to supply a host of benefits and no redundancy costs when their services are no longer required. There is also the option to include longer payment terms in any contract, compared to paying employees on a weekly or monthly basis, which then creates cash flow savings for the public sector. This was of course one of the suggestions made by Sir Philip Green in his recent public sector spending review.
"It's easy to say contractor roles will be cut in order to save money but the fact remains they are ultimately cheaper to employ. As a controversial aside, fewer permanent employees within an organisation also means less union membership, which in turn depletes the union power base."
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