Saturday, 13 August 2016

The Month's Proceeds Is Not Your Salary

Because of how translation is not a material product with a clearly visible cost structure and cannot be compared to other services easily, compensation of salaried employees is a natural point of reference.

Such comparisons are not necessarily correct, however. In fact, I would say in most cases they probably are not. They are more likely to be apples and oranges.

Here's why:

For starters, there is more to the total cost of maintaining a salaried position in a company than just the salary paid to the employee who fills that position. In other words, any function in an organization is more expensive than just the incumbent's salary.

Here are some examples of what the employer has to pay to keep a salaried position:

  • 'naked' salary
  • additional benefits and incentives, if any
  • taxes and insurance
  • paid holiday leave
  • overtime pay (extra pay but often also extra rates)
  • training, CPD etc.(usually at least a little, sometimes quite a lot)
  • physical workplace — room, furniture, computer hardware and software, other specific expenses required for the job
  • some tiny corresponding part of the organization's total costs and expenses — rent and bills, utilities, facilities, support staff, external services and everything else that's relevant

The applicability and size of these costs will vary from one situation to the next, but the point is that:

  • any job or function in an organization costs at least a little more than the holder's salary
  • freelancers pay anywhere from some to all of those costs out of their own pocket
  • even if the 'employer' still has to pay some of those, the freelancer also does, unlike an employee, who does not
  • freelancers only get unpaid leave — to take a month off and still have the same per annum, they would need to increase the invoices by 9% (to account for 11 rather than 12 months of actually working)

… Hence, comparing the totals on freelancers' invoices to 'naked' salaries of salaried employees for the same duration of a task is comparing apples to oranges, unless the freelancer is on an exclusive full-time (or non-exclusive significant part-time) contract with similar benefits to an employee.

You can't even subtract 'company expenses' from a year's worth of invoices and call it annual salary, let alone arriving at a monthly salary by dividing that by 12. This is because of the 'company' part, which — apart from actual costs and expenses — also include reserves and contingencies beyond what a salaried employee needs in private life.

More importantly, one can't — and that's the dumbest of all mistakes — just take a freelancer's invoice for a full day of work and multiply it by 365 and think that's how much the freelancer actually makes per annum! Nobody works 365 days! (And few people work 30-day months or 7-day weeks.)

See, a year has 52 weeks, which is 104 days off of the 365, then a variable number of public holidays and annual minimum paid leave that varies by country, from 0 in the USA to 38 in Austria and 52 in Iran, where a bit shy of 30 could be said to be the approximate intuitive average.

So it should be even more evident that one can't just say: 'An in-house counterpart makes 36.500 widgets a year, so we're going to pay you 300 widgets for three days of work,' and think that's sound logic, because it's not. 1/365 is a spending limit, not an earning target; even the greenest of all accountants or HR people should know the difference.

… And especially not when those days are longer than 8 hours each and an employee would be paid overtime in the same situation. For example, under Polish labour law 8 hours +4 hours overtime would add up to 15.5 standard hourly rates. Obviously, the very concept of recognizing overtime requires that 12 hours must be paid at least 12 hourly rates, not 8. This is normally absent from the per-project kind of contracts that freelancers usually work with.
To be on a level with salaried employees, a freelancer would have to work a maximum of 220–230 days a year and still make the same annual salary as salaried counterparts, increased by the kind of taxes and insurance contributions that self-employed people pay for themselves rather than having them paid by the employer, plus the value of whatever extra benefits salaried employees are getting that the freelancer is not, including overtime pay, and finally a sizeable extra to finance the 'freelancer' part, i.e. the fixed assets and overheads and other costs of the tiny 'home office' — computer, software, phone, increased utility bills, increased fuel consumption, occasional legal advice or litigation, the accountant's fees, marketing etc. — and some reserves and contingencies (such as replacing or repairing any broken equipment and being unable to work and earn money in the meantime).

Otherwise one simply needs to compare freelancers to solo traders and small-business owners. The  costs may be less than those of a solo firm or clinic, but the cost structure is still that of a solo practice and not that of a salaried employee.

Even if the freelancer in question functions more like a temporary worker, then there are still at least some costs associated with being self-employed that do not apply to salaried employees — and some benefits such workers don't receive while regular employees do, which means their respective wages are not directly comparable.

For starters, the idea of being a freelancer is not to work for the same money minus benefits, without paid leave and paying for your own equipment, unlike what some hopeful business geniuses seem to think.

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