I've heard this rule of thumb and can't make it make any sense. My company's contribution to my health insurance and retirement doesn't come anywhere near 25% of my salary, and there's simply no way my office space costs more than $500/mo for my share of it.
Well rule of thumb or no, this is basically how much universities add on to grant applications. The highest postdoc salary in the UK (prior to permanent positions) is roughly £40k on the national spine scale. But if you put in funding for a postdoc, the uni will claim something like £80-100k per year. Say we get a half million pound grant. That will typically cover two postdocs for two years, plus capital and incidental costs.
Where does that £40k go? For a start we don't require private health insurance in the UK (we pay out of our taxes). Some of it is estates upkeep (offices, labs, capital equipment, cleaning etc), internal grants, support infrastructure (IT, computing), interview/acquisition cost, legal/HR costs, training, insurance, bonuses, employee benefits/pension matching and employer tax burden. Most universities put the rest into an "overheads" pot which can be used for a variety of things.
Most grants have a separate section for conference travel, publishing expenses, etc. In a smaller company, all of these things need to be added on (unless you're grant funded). So you're also considering expenses on top. If you pay someone to headhunt a candidate, that can be thousands plus a percentage of salary. We have access to a lot of training courses, most of which bill the university thousands per head.
The labour and legal costs alone of hiring candidates can also be very high. Think of a company like Google where your interviewers may well be on six figure salaries. In the US a typical hire costs about $4k. If your company depends on bums on seats to make money, the time between someone leaving and someone starting is costing you a fortune.
Depending where the company makes money, your overheads may also be paying for other staff. For example the university has an HR department, finance, legal, cleaning, estates, etc. None of those people generate any money for the university directly, though they are necessary for it to function. Some of their salaries are paid for by IP royalties, tuition fees and government subsidies, but a big chunk is from research grants.
I've heard this factor of two from people running consulting/contracting businesses. The biggest reason according to one of them is the the inconsistency of work over the longer term. You can't always keep everyone busy, sometimes to keep clients you need to be available and waiting on them.
And that is the cheapest kind of firm with minimal overhead. For larger firms it is probably an even bigger multiplier.
exactly, furthermore if you are a self-employed consultant depending on your country's rules if you do not have a job to do at the moment you can't get any government benefits until you get a job.
For example in my country if I lose a job and I have a consultancy that I have made money on in the last year or two (I forget) you have to close it down, and then wait some months, and go through some bureaucratic thing to get them to say ok he really shut down the company before you can get the normal government payment for someone unemployed.
Obviously as starting a company is also not without its work and costs you don't want to do that, which means you need to have the money to last a few months between gigs.
It's not about health insurance and 401k contributions. Freelance workers have a lot of non-billable hours that they spend "working" but can't charge for (e.g. marketing yourself to clients, networking, administrative overhead).
Yeah, it's a bad rule of thumb. It might at least be in the right ballpark for someone making a near median salary of say $50K, but non-salary costs don't scale even close to 1:1 with salary increases.
the rule of two is for if it makes financial sense to be a consultant, if you can make 2 times per hour as a consultant that you make as a full-time employee, then it might be sensible for you to become a consultant. It exists basically so you don't look at the crazy money you're being offered and think hell yes, when in reality you are only being offered a 30% raise.
The less important part of the rule of thumb is for businesses to determine if it makes sense to have someone as a consultant or a full-time employee. But whoever is doing hiring should be able to figure that out for themselves because they should know how much the employee actually costs - but hey, even they might need help sometimes.
