A consulting engineer may seem more expensive than a full-time employee in terms of hourly rate. However, the additional costs involved in each type of contract are very important: these costs are normally much higher for an employee and, in many cases, consultancy services are a better option from a financial point of view. For example, companies pay their employees' travel and accommodation expenses, as well as the price of any measuring equipment used, but consultants must factor these expenses into their hourly rate when offering their services.
This article will provide an overview of the factors that increase the cost of engineering consulting services and why they are recommended in many situations.
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1) Consulting engineers pay their own taxes
Although employees are taxed based on their income, the company that hires them takes care of managing and paying taxes; The same cannot be said for consultants, who must pay their taxes personally and therefore include them in their hourly rate. Hiring an engineer as a permanent employee may seem cheaper in terms of net hourly wages, but consider that taxes generate two additional costs for companies:
- Paying your own taxes.
- Administrative costs associated with calculating and reporting taxes, as well as payment processing costs.
Remember that the US has tax brackets with increasing rates based on income. For example, 2016 tax rates for single professionals start at 10% for the first $9,275 or annual income, progressing through several tax brackets, up to 39.6% for all income over $415,050. Highly experienced consultants charge higher fees because of the experience they bring to companies, but the fact that taxes represent a higher percentage of their income also plays a role.
Taxes applicable to consulting engineers in the US include federal income tax, state income tax, social security tax, and Medicare. There are also city-specific taxes; for example, New York City applies the Unincorporated Business Tax to self-employed professionals.
2) Consulting engineers bring their own equipment
No engineering consultant can work effectively without a computer as well as the measuring equipment required for his or her area of expertise. In some engineering fields, it may also be necessary to purchase expensive software packages – MEP design and energy modeling are two clear examples.
Workstations and laptops are now affordable, but the same cannot be said for advanced equipment needed for consulting. For example, both power quality analyzers and thermal imaging cameras are commonly used in energy audits and can cost several thousand dollars each. If a company plans to carry out an energy audit with its internal staff, this expensive equipment must be purchased or rented; With consultants, these costs are included in the hourly rate.
Additionally, consider that equipment owners bear their costs if it is damaged by factors that cannot be directly attributed to any of the parties involved.
3) Consulting engineer fees increase if there are travel expenses
When consultants work with companies that have a presence in multiple cities or countries, travel expenses are typically unavoidable. If an employee needs to travel, the company assumes the costs of air tickets, accommodation and food; however, consultants must bear these expenses themselves, and they are added to the total project budget because they represent a necessary cost to serve the client. Therefore, hiring engineering consultants locally, whenever possible, is a simple and effective strategy to reduce costs.
Even when local consultants are hired, remember that they must still assume many expenses that are normally covered by companies in the case of employees, such as the following:
- Medical insurance
- A smartphone, plus your monthly operating cost
- A work vehicle, plus monthly fuel and maintenance expenses
4) Companies can save on talent development by hiring consultants
An engineer must have accumulated vast knowledge and experience to call himself a consultant. Hiring a full-time employee to be trained as an in-house consultant is feasible, but consider the time required as well as the risk of losing a valuable employee to competitors in the future. Consultants may seem more expensive, but they guarantee that knowledge will be immediately available and are completely loyal to the client for the entire term of the service contract.
For critical business processes that require advanced knowledge, in-house training from an expert is typically warranted. However, in companies where engineering is a supporting process, consultants offer expertise at the lowest cost and time commitment, even though their fees may seem higher than employees' salaries at face value.
5) Consultants have no downtime
A company must pay wages even if the workload is not high enough to keep all its staff employed 100% of the time. On the other hand, consultants can be hired on an hourly basis, meaning only hours worked are paid; With employees, this is not always the case. Additionally, remember that employees are paid for sick leave and vacation time, while consultants must take a temporary break in their earnings in these situations. When an employee's annual salary is divided by the actual hours worked in a year, the hourly earnings are greater than the nominal value.
6) Engineering consultants depend on the services of other professionals to operate
Remember that engineering consultants have legal and tax obligations, just like companies, and these are topics outside their area of expertise, so they must hire legal and accounting services to operate effectively. In the case of employees, these costs are assumed by the company that hires them.
Final Observations
Consulting services allow companies to access expert knowledge immediately and as needed, while also allowing for a temporary increase in staff if a project requires it. Hourly rates for consulting engineers may seem higher than those for employees, but consulting services are a better choice in many scenarios once all the extra costs and implications are considered. internal staff and external consultants.
