Our previous post about how to think about the “true cost” of a Software Engineer laid out the many variables and “hidden costs” to consider when scaling your technical team. Now, we’re excited to share our Interactive Hourly Rate Calculator to help you actually crunch the numbers. Whether you’re evaluating the impact of a potential full-time hire on your budget or looking to bring in an hourly contractor, our calculator is here to help!
The Hourly Rate Breakdown
The calculator will guide you through quantifying the all-in costs of a full-time hire along with the total number of working hours spent focused on project delivery. As you can see in the formula below, those values are divided to determine the effective hourly rate of your full-time employee (FTE):
The effective hourly rate is the genuine cost of hiring an in-house Software Engineer. When you have this rate — and only when you have this rate — you can make an apples-to-apples comparison between the cost of hiring a new full-time engineer and bringing in an outside, hourly consultant.
Calculating Annual Costs
We first tackle the numerator in the formula above, with a bottom-up approach to determining the total financial cost of your internal Software Engineers. On top of employee salary, the calculator includes line items that represent additional overhead costs for the company:
- Benefits: You can edit bonus, 401K contribution and insurance line items to determine how these critical perks add up. While we suggest default values for these fields — and for all fields in the calculator — you are invited to adjust them up or down to reflect your company’s unique costs, benefit offerings and expectations.
- Taxes: The total amount in taxes across Federal, State and Local jurisdictions that you are required to pay for each employee on top of their salary.
- Other Costs: We list one-time costs, such as recruitment fees and signing bonuses, and additional costs that – in our experience – many folks leave out of their own calculations when thinking about this topic.
After the effective hourly rate is calculated, how should I think about the total annual costs when making a comparison between full-time hires and hourly consultants? Each of the costs in this portion of the calculator is an important element of your overall compensation and benefits package for employees, especially when it comes to long-term retention.
At APrime Technology, we provide that same level of competitive benefits and dedicated management and company resources to each one of our engineers. However, when you work with us as a client, we absorb the entirety of that overhead, leaving you with a straightforward hourly rate dedicated entirely to the time our engineers spend working for you.
Calculating the Annual Project-Focused Hours
For the denominator of the hourly rate formula, we determine the annual number of hours spent by a Software Engineer on project delivery and product launches–and nothing else
Determining the project-focused hours per week.
This portion of the calculator allows you to first set your typical expected hours for a full-time employee (likely in the ballpark of 40), which we refer to as weekly “working” hours. We then subtract the typical amount of time spent by an employee on tasks and activities that are not directly focused on projects and product delivery. You can customize each hour-related input to ensure that the calculator accurately reflects the norms and culture of your company.
These activities – including team-building and personal and professional development efforts — are important for creating an environment in which each employee can continuously deliver their best work, but it’s important to separate them out from project-focused time.
At APrime, we also provide the time and opportunity for these meaningful non-project activities — but we don’t charge you for those hours. You pay only for the time directly spent on delivering your product goals.
You can customize each hour-related input to ensure that the calculator accurately reflects the culture and expectations of your company.
Determining the number of effective “working” days per year.
This portion of the calculator starts with the typical number of days and weeks per year worked by your employees and then subtracts all paid holidays, onboarding, and other days that do not directly contribute to your projects. You can customize the inputs as needed to better reflect the number of days that you provide to your salaried Software Engineers.
Calculating the project-focused hours.
Finally, the calculator takes the project-focused hours per day and multiplies this figure by the effective “working” days per year to determine the total project-focused hours per year for one of your in-house Software Engineers.
Bringing it all Together
As the last step, we divide the total annual costs by the effective “working” hours per year to arrive at the effective hourly rate that you are paying a full-time employee on your team. You can now use this rate to do an apples-to-apples cost comparison with an hourly consultant, like those you would engage at APrime.
Where did the final value land? Are you surprised by that effective hourly rate? Let us know what you think — whether to share an insight or provide feedback on our methodology — by sending a note to email@example.com If you’re interested in adding our engineers to your team, schedule a meeting to talk us through your needs and explore our services.
We plan to add additional features to the calculator, and to build more tools to help companies like yours navigate your software engineering needs, planning, and implementation — if you found this page helpful, please share and bookmark it, and follow us on LinkedIn for more updates!
Interactive Cost Calculator
Available on mobile and as a standalone, bookmarkable page here.