Contract engineer vs. full-time hire: the real cost math

When teams compare a contractor’s monthly rate against a salary, the salary usually looks cheaper. That comparison is wrong on both sides, and since we place engineers on contract for a living, it’s worth showing the honest version of the math — including the cases where hiring full-time is the right call.

What a full-time senior engineer actually costs

Take a senior engineer in the US or Western Europe with a headline salary somewhere around $150–200k. The real number is bigger:

Employment overhead. Payroll taxes, health insurance, pension contributions, equipment, software seats, office or stipend. Finance teams typically model fully-loaded cost at 1.25–1.4× salary. Your $180k engineer costs the company roughly $230–250k a year before they write a line of code.

Recruiting. An agency fee runs 20–25% of first-year salary — $35–45k for one hire. Do it with an internal recruiter and you’re paying their salary plus your engineers’ interviewing hours, which are real hours that stopped producing software.

The vacancy itself. Time-to-hire for senior engineers is commonly two to three months, plus notice period. That’s a quarter of roadmap that either slips or lands on the rest of the team. Nobody books this to a budget line, which is why it’s the most underestimated cost on the list.

The exit. If the project ends, priorities shift, or the hire doesn’t work out, you’re into severance, notice periods and — in much of Europe — a legal process. The option to stop paying has a price, and full-time employment doesn’t include it.

What a contract engineer actually costs

The monthly rate — and that’s mostly it. No recruiting fee, no payroll overhead, no severance exposure. The engineer starts within days rather than months, and when the project ships you scale down without a process.

There are real costs on this side too, and pretending otherwise would be salesmanship: onboarding time to your codebase, a management relationship to maintain, and knowledge that walks out when the contract ends unless you deliberately capture it. (We wrote about running contract engineers well — most of these costs are controllable.)

The break-even question

The comparison isn’t “rate vs. salary.” It’s:

• Horizon. If you’re confident the role exists in three years, employment amortizes its fixed costs and wins. If the need is a project, a migration, a spike in roadmap — the fixed costs never amortize.
• Certainty. Hiring is a two-to-three-month commitment to a guess about your future roadmap. Contracting converts that guess into a monthly decision.
• Knowledge type. Core product architecture compounds in a long-tenured employee’s head. Skills like “build the Databricks pipeline” or “stand up the Retool console” are transferable — you’re buying the capability, not the tenure.

Where we tell people to hire instead

If the work is your core product and the horizon is years, hire. A staff engineer who has lived in your codebase for four years is worth more than any rotation of outsiders, and no honest staffing company should claim otherwise. Contract engineers win at the edges: projects with an end date, skills you need now but not forever, and teams that need senior capacity this month, not next quarter.

Run the fully-loaded numbers for your own case before deciding. If the contract column wins, this is what our version looks like.