Same wage. Different total cost. Contract vs permanent cost calculator.
Compare the annual landed cost of one contract worker with one permanent employee on the same wage — statutory loading on the ₹25,000 PF ceiling, agency fee, GST, attrition, the cost of replacing people who leave and your own HR overhead.
Your inputs
GST at 18% on the whole contract invoice is shown separately: registered businesses using the workers for taxable supplies usually claim it back as input tax credit.
Excludes supervision, productivity and compliance-risk effects, and assumes the contract and permanent teams have the same attrition.
Indicative only. Minimum wages and professional tax vary by State; leave, attrition and overhead are your own estimates.
Get a costed proposal →How the comparison is calculated
Both workers get the same wage and the same statutory costs. What differs is who carries the fee, the replacement effort and the HR overhead.
Worked example
One worker on ₹15,000 basic + DA and ₹3,000 allowances (gross ₹18,000), 5% leave provision. Monthly statutory load: PF ₹1,800, EDLI ₹75, admin ₹75, ESI ₹585, bonus ₹1,250, gratuity ₹722, leave ₹750 — a loaded wage of ₹23,257, or 29.2% above gross.
| Per head per year | Default inputs (10% fee, 30% attrition, ₹600 HR cost) | High-churn site (8% fee, 60% attrition, ₹1,200 HR cost, ₹12,000 per hire, 20 days lost) |
|---|---|---|
| Permanent | ₹2,91,799 | ₹3,08,992 |
| Contract (GST recovered) | ₹3,07,615 | ₹3,02,657 |
| Result | Permanent saves ₹15,816 | Contract saves ₹6,335 |
Contract staffing is not automatically cheaper. It pays where attrition is high, hiring is hard or seasonal, or your own HR and compliance overhead per head is significant. For stable teams with low churn, permanent — or fixed-term — employment usually costs less.
When each model makes sense
Contract staffing fits
Seasonal or project peaks, roles with high churn, new sites where you do not yet want a headcount commitment, and non-core support work such as housekeeping, security or loading.
Permanent fits
Core, skill-heavy roles you want to build over years, low-attrition teams, and roles where institutional knowledge matters.
Fixed-term employment
Under the Industrial Relations Code you can hire directly on a fixed term with the same wages and benefits as permanent staff, including gratuity after one year — a middle path for defined projects.
Core activities
The OSH Code restricts contract labour in an establishment's core activities, with exceptions — for example where the work is normally done through contractors, is not full-time, or covers a sudden rise in volume.
Principal employer liability
If the contractor fails to pay wages, PF or ESI, the principal employer can be made to pay. Ask for monthly ECR, ESI challans and wage registers. See our statutory compliance services.
Licensing
Contractors need a licence under the OSH Code (formerly the Contract Labour Act licence), and the principal employer must be registered for contract labour where the thresholds apply.
Contract vs permanent questions, answered
Is contract staffing always cheaper?+
Not always. At low attrition and low admin cost, permanent can be cheaper. Contract staffing wins where attrition, seasonality or compliance administration are high.
Who pays PF and ESI for contract workers?+
The staffing contractor deducts and remits them and bills them to you inside the loaded wage. As principal employer you remain liable if the contractor defaults, which is why the monthly compliance pack matters.
Can we claim GST back?+
Registered businesses using manpower for taxable supplies can usually claim the 18% GST as input tax credit. If your output is exempt, GST is a real cost — switch the calculator to “No”.
Is GST charged only on the agency fee?+
No. For manpower supply, GST is due on the whole invoice value — wages, statutory costs and fee — because the agency is the employer paying the wages. Advance rulings have rejected the “pure agent” argument for showing wages separately.
Do contract workers get bonus and gratuity?+
Yes, on the same rules as direct employees: statutory bonus where wages are ₹21,000 a month or less, and gratuity after five years — or one year on a fixed-term contract. The contractor provisions both and bills them in the loaded wage.
What does the agency fee usually cover?+
Recruitment and replacement, payroll processing, statutory filings, onboarding documentation, attendance and the contractor's licensing and insurance. See our guide to staffing agency fees in India for a line-by-line bill rate.
Does the new ₹25,000 PF ceiling change the comparison?+
It raises employer PF for anyone with wages between ₹15,000 and ₹25,000 in both models equally, so the gap between contract and permanent hardly moves — but the total cost of both rises.
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