There is no doubt the cost of employing Permanent staff is increasing disproportionably, against a backdrop of slowing economic growth combined with economic and European trade uncertainties.
At the lower end of the salary scale, the rising National Living Wage, has put a lot of businesses under-pressure, particularly those who employ a high number of low-skilled workers. A lack of senior people with a track-record within executive roles at corporate businesses has resulted in companies operating within the FTSE 350 quell shareholder dissent and award bumper salary increases to senior permanent executives, in some instances, despite the companies making heavy losses.
Employers recruiting middle income earners are also bemoaning a lack of skilled professionals for permanent roles. The increase in Employer NI contributions, increased workplace pension contributions (minimum 3% from April 2019) and the need to pay inflated salaries to bring in Employees with important skills has further compounded the problem of recruiting permanent staff.
Skill-shortages are endemic in most industries and with a 40 year low in UK unemployment employer’s costs are increasing as they are having to provide additional benefits to new permanent employees such as golden handshakes, parachute payments, stock options, and generous relocation packages.
As the cost of Permanent employment continues to rise, Interim Managers can use this fact to help justify their day rates and the value they represent. It’s another argument Interims can use to demonstrate their true worth and make the case for using Interim Managers more compelling.
The calculation below is a ‘fairly crude’ example of an Employee earning a salary of £70k pa but actually costing the company £95,770 pa when benefits are taken into account; That’s an additional 37% over and above the basic salary, and this example is based on an employee receiving only a modest benefits package.
Employer Pension Contributions 6% £4200
Employer National Insurance Contributions £4841
Bonus at 5% £3500
Car Allowance £5400
25 Days Holiday + 8 Bank Holidays £6329
Healthcare Insurance £1500
Total £25,770 Benefits + £70,000 salary = £95,770 pa
This demonstrates that a permanent employee will cost an employer 37% more than their base salary. Therefore, if an interim manager adopts the standard principle that interims are paid a day rate equal to a third (33%) more than permanent employee, the employer is actually making a saving. Interim managers could use this comparison if asked to justify their day rate by a potential client.
When justifying their services, interim managers should also inform potential clients that their service evolves around being engaged to deliver on specific objectives that are usually measurable. The client can therefore make an assertion that if the interim manager delivers, the business will benefit to the tune of £x amount or %x improvement in sales or efficiency gains. The client can then calculate whether the interim manager is worth the investment. It is also worth mentioning to the client than once the interim completes the assignment and moves on, the company has a clean break with the interim manager, incurring no further costs, yet still benefitting from the project, programme, changes, or turnaround implemented.
Friday Dec 7, 2018