Do the maths yourself before you outsource anything

What a full-time position really costs and how to work out the effective hourly cost

The effective hourly cost is the total annual cost of the position divided by the number of hours in which the person actually does the work you hired them for. It is always higher than the rate set in the contract, because it divides a larger amount by a smaller number of hours.

Seven steps

1. Gross salary × 12. The starting point, the same one that appears in the contract.
2. Add the employer contributions. Pension, disability, accident insurance, the Labour Fund and FGŚP, the guaranteed employee benefits fund, add on the order of 20% to the gross salary. The exact mark-up depends on the accident insurance rate in your industry.
3. Add the cost of the position. A computer and a phone spread over three years, licences, access to systems, initial and periodic training, medical checks, office space.
4. Add the cost of supervision. The manager's hours on conversations, approvals, appraisals and problem-solving — counted at their rate, not the employee's.
5. Count the available hours. 2,080 calendar hours minus annual leave, public holidays and statistical sickness absence. About 1,500 remain.
6. Count the productive hours. From the available hours you subtract meetings, administration, switching between tasks and idle time. In office work what usually remains is 60–75%.
7. Divide. The total annual cost by the productive hours. That is the number you compare with an outside quote — never the gross salary.

Example on PLN 8,000 gross

Substitute your own numbers. The contribution mark-up depends on the accident insurance rate, and the productive share on how many meetings and how much administration your company has.

The three commonest errors

• Dividing gross pay by 160 hours. It leaves out contributions, the cost of the position and the fact that a month does not hold 160 hours of work on one task.
• Omitting the supervision cost. An hour of a decision-maker costs a multiple of the employee's rate, and a new position takes the most of it.
• Assuming full workload. A position costs the same in a month in which there is half a position's worth of work.

Compare an outside rate with the effective hourly cost, and not with the amount in the contract. See how settlement by the hour works →

What the time costs before a new hire starts producing results

Turnover cost is the sum of three things: the cost of the vacant position, the cost of recruitment and the cost of bringing a new person to full productivity. The last item is usually the largest and usually nobody counts it.

Component 1: the vacant position

The work does not leave with the person. Either it stops happening — and then the cost shows in the result — or others take it over, and the cost shows in their overtime and in the tasks they set aside. Count it as the number of weeks vacant × the weekly value of the work of that position.

Component 2: recruitment

Job adverts, the recruiter's time, the manager's hours on interviews, tests, medical checks, preparing the workstation and the equipment. On a specialist position this easily reaches an amount matching one or two months of salary.

Component 3: the productivity ramp-up curve

From day one a new person costs the full rate and delivers a fraction of the result. The typical course in office work looks like this:

On top of that comes the team's time: questions, checking, corrections, explaining context. With well-run onboarding that is several dozen hours of people who already work for results.

How to measure it in-house

1. Take the effective hourly cost of the position (see the study on the cost of a position).
2. Count the weeks vacant and multiply by the weekly value of the work.
3. Add up the real recruitment costs, including the hours of your own people.
4. Add 1.5 months of the full cost as productivity lost in the first quarter.
5. Add the team's hours spent on onboarding, counted at their rates.

In the external team model this bill arises on the supplier's side: recruitment and onboarding are theirs. See what you can hand over →

Outsourcing or a position: which process to hand outside

Price rarely decides whether a process goes outside. What decides is whether the process can be described, handed over, signed off. Below are six entry criteria and a list of situations in which a position works better.

Six questions before the decision

1. You know where the work starts. A list, a request, a document or a database — something that arrives at the input.
2. You know what gets produced. A concrete result and the form in which you sign it off.
3. A sign-off criterion exists. Someone can say “this is done well” in a way that can be checked without discussion.
4. The work can be done remotely. Physical presence is the only hard boundary.
5. Company knowledge transfers in reasonable time. Once onboarding runs longer than the project itself, the point disappears.
6. A rhythm exists. You know whether the topic comes back every month or happens once.

When a position works better

• The work requires decisions that belong to the owner or the board.
• The position is fully and predictably loaded all year round.
• The process builds an advantage you want to keep inside the company.
• Physical presence in a specific place is required.

Four qualification errors

• Moving chaos outside. A process without a description becomes more expensive outside, not cheaper.
• Comparing rates instead of costs. The supplier's rate covers supervision and onboarding the next person, the gross salary covers nothing.
• Splitting one process across three suppliers. The cost moves into coordination on your side.
• No one to sign off. Without a named person on the client side, every project ends in a discussion about scope.

A step-by-step version of the same question sits on the home page. Go through the assessment →

What to settle before the start so you do not pay for rework

The most expensive part of an assignment is misunderstanding, not execution. Rework costs twice: once the supplier's work, once your people's time to explain the same thing over again. A brief is cheaper than both.

Seven fields that close the matter

1. Business goal. What is to change in the company after delivery — not what is to be produced.
2. Audience. Who will read it, watch it, or take the call.
3. Scope. Itemised activities. This is the basis of the later settlement.
4. Input materials. What you supply and when — without it the deadline does not start running.
5. Sign-off criterion. The sentence that shows the work is finished.
6. Deadline and reporting rhythm. When delivery falls due and when status comes along the way.
7. Decision-maker. One full name on your side.

Checklist before the start

• Can anyone describe the result in one sentence, without “and that sort of thing”?
• Is there an example that may be shown as a model?
• Is it clear what the supplier is not doing? (the one place worth writing out)
• Are the accesses and materials ready on the start date?
• Does the person signing off have time reserved for sign-off?

Why this is worth calculating

One round of rework on a 20-hour assignment is usually 4–6 hours of the supplier's work and 1–2 hours of your team on explanations. With the effective hourly cost of a decision-maker around PLN 150, two such rounds cost more than an hour spent on a proper brief.

A finished brief also comes out on its own, at the end of the assessment. See what it looks like →

The reports are green and the project is red: SLAs, metrics and the definition of done

Campbell's law says that every indicator which becomes a target gets distorted. You measure response time — you get “accepted for processing” in seven minutes and a solution after six days. Three ideas that most companies confuse have to be separated.

Three different things

Two indicators that show the truth

• First Time Right — the share of tasks accepted without corrections on first delivery. It measures understanding, not diligence.
• Rework Rate — the share of work carried out a second time. A rising Rework Rate alongside a green SLA means the supplier keeps up with the reply and not with the solution.

How to set it in the contract

1. Write down the definition of done for each type of task before the first hour of work starts.
2. Set the SLA separately for response and separately for resolution — otherwise you measure only picking up the phone.
3. Pick two to four metrics. More means nobody reads them.
4. Set the review rhythm: who talks, when, and on which numbers.
5. Write down what happens when a metric is red for two periods in a row.

Warning signals

• A report that looks good while the organisation stands still.
• Indicators calculated by the supplier and verified by nobody.
• “In progress” statuses that persist longer than the reporting cycle.
• The absence of one person who answers for the deadline by name.

On our side the definition of done and the review rhythm are in place before the start. See what the entry looks like →