Hiring guide
Freelancer, agency or a full-time hire? The real cost of each
By Samuel Marndi · Updated
The short answer
The deciding factor is not the rate — it is how much work you genuinely have, every month, for the next year. Below roughly half-time of sustained need, a freelancer is cheaper and faster on every axis. Above it, a full-time hire starts to win on cost per hour, and starts to lose on breadth, because one employee is one skill set and most projects need four.
The comparison people get wrong is the salary. A ₹12 lakh developer does not cost ₹12 lakh: statutory contributions add 10–20%, and equipment, recruitment, management time and the weeks before they are productive add more. Year one is realistically ₹15–₹17 lakh, and that is before you ask what happens to the knowledge if they leave in month ten.
What a full-time developer actually costs
Start with the salary, then add the things that are not optional. The percentages below are statutory rates, not estimates — though note that EPF and gratuity are calculated on basic pay rather than the full package, so how the salary is structured changes the total.
One correction worth making, because it appears in a lot of online calculators: ESI at 3.25% does not apply to a developer. It is only payable where gross pay is ₹21,000 a month or less, which no developer salary is. Leaving it in overstates the cost.
| Line | What it adds | Notes |
|---|---|---|
| Agreed salary | The headline number | The only part most people budget for |
| EPF, employer share | 12% of basic | Roughly 13% once EDLI and administration charges are counted |
| Gratuity accrual | 4.81% of basic | Payable on exit after five years — a real liability you accrue from day one |
| ESI, employer share | Not applicable | 3.25%, but only up to ₹21,000 gross a month. It does not apply here |
| Bonus, insurance, professional tax | Varies | Statutory bonus where applicable, group medical cover, state professional tax |
| Statutory sub-total | 10 – 20% over salary | Driven by the basic-to-gross split |
| Laptop and software | ₹80,000 – ₹2,00,000 once | Machine, licences, a monitor somebody will ask for |
| Recruitment | ₹0 – 8.33% of annual CTC | Nothing through referrals; an agency fee if you use one |
| Ramp-up | 4 – 8 weeks of reduced output | Real, and almost never budgeted |
| Management load | 2 – 4 hours a week, yours | Someone has to decide what they work on and review it |
What an agency costs, and what the margin actually buys
An agency bills two to four times what it pays the person doing your work, and that margin is not purely profit. It pays for a bench that absorbs someone leaving, a project manager who chases things so you do not have to, an account manager, sales, an office, and the ability to put three people on your project in the same week.
What the margin does not reliably buy is the seniority you met. The most common complaint about agency work is the pitch-to-delivery swap: the person who impressed you in the meeting is the person who sold it, and the person who builds it is two years out of college. This is not universal and it is not dishonest, but it is common enough that you should ask, by name, who will do the work and what else they are on.
- Ask who writes the code, by name, and what their other commitments are that month.
- Ask what happens if they leave mid-project. A real bench is the main thing you are paying extra for — make them describe it.
- Ask what the project manager does that you are not already doing. Sometimes the answer is a lot. Sometimes it is a weekly status email.
- Check whether the code and accounts end up in your name. Agencies are more likely than freelancers to keep hosting and repositories on their own infrastructure, which is comfortable until you want to leave.
What a freelancer costs, and the risk you are taking on
A freelancer removes the layers: no account manager, no margin funding an office, no handover to a junior after the pitch. On a defined project that typically lands 40% to 60% below an agency quote for the same scope, and the communication is direct rather than relayed.
The risk is concentration, and it is real. One person gets ill, takes a flight, takes on a bigger client, or stops freelancing. There is no bench and no night shift. The honest position is not that this risk is small — it is that it is cheap to mitigate, and the mitigation is the same list that makes any engagement safe.
- The code lives in your repository from the first commit, under your organisation's account.
- Every account is in your name — domain, hosting, cloud, app stores, gateway — with you as owner.
- Documentation is a paid milestone, not a favour you ask for at the end.
- There is a named fallback developer who could pick the work up.
- Response windows are stated honestly, including the hours they do not cover. Nobody solo can meet a real 24/7 commitment.
The three side by side, for a steady year of work
This is the comparison that matters: not a rate, but a year. The assumptions are stated so you can disagree with them and redo the sum — which is the point of showing them.
Where each one genuinely wins
| Freelancer | Agency | Full-time hire | |
|---|---|---|---|
| Cost for occasional work | Best | Worst | Poor — you pay when idle |
| Cost at sustained full-time need | Fair | Worst | Best |
| Breadth of skills | Good — one person across web, app, cloud | Best — a team | Worst — one person, one specialism |
| Speed to start | Days | Weeks | 2–3 months including notice period |
| Continuity if someone goes | Weakest | Strongest | Weak, and the knowledge leaves with them |
| Who you actually talk to | The person building it | Usually a manager | The person building it |
| Scaling down | Immediate | Notice period | Hardest, and the most unpleasant |
| Institutional memory | Good while engaged | Patchy across staff turnover | Best — until they resign |
| Management load on you | Low | Lowest | Highest |
The hybrid most small businesses actually end up with
Almost nobody needs one of these for everything, and the arrangement that works is usually a mix: a freelancer or consultant to build the thing and to hold the architecture, a small retainer to keep it alive and improving, an agency hired in for a burst that genuinely needs five people at once, and a full-time hire only when there is provably a full-time job.
The order matters. Hiring a full-time developer before you know what you are building is how companies end up with an expensive employee maintaining a decision nobody senior made. Working out what to build first — see software consultant or developer? — then resourcing it, costs less and ends better.
Match the honest description of your need to the sensible answer.
FAQ
Related questions
Is a freelancer cheaper than an agency?
For a defined project, usually 40% to 60% cheaper for the same scope, because you are not funding a bench, a project manager, an account manager, sales and an office. What the agency margin does buy is parallel capacity and continuity if someone leaves. If you need five people in the same fortnight, no individual can sell you that at any price.
What does a full-time developer really cost in India?
Salary plus 10% to 20% in statutory contributions — EPF at 12% of basic, gratuity accruing at 4.81% of basic — plus ₹80,000 to ₹2,00,000 for equipment and any recruitment fee, plus four to eight weeks of reduced output while they ramp up, plus two to four hours of your own week managing them. A ₹12 lakh salary is realistically ₹15 to ₹17 lakh in year one. ESI does not apply: it stops at ₹21,000 gross a month.
At what point is hiring a full-time developer cheaper than a freelancer?
Roughly when you have sustained need above half-time that you are confident will continue for a year or more. Below that, you are paying a salary for idle capacity. Above it, the employee's cost per productive hour drops below a freelancer's — but you have also swapped breadth for depth, because one employee is one skill set and most projects need web, mobile, cloud and design.
What is the biggest risk of hiring a freelancer?
Concentration: one person who can be ill, busy, or gone. It is a real risk and a cheap one to mitigate — your code in your own repository from the first commit, every account in your name with you as owner, documentation as a paid milestone, and a named fallback developer. The risk that is not mitigable is a genuine 24/7 response commitment, which no single person can meet.
Will an agency put its best people on my project?
Ask, by name, and ask what else that person is working on that month. The pitch-to-delivery swap is the most common complaint about agency work: the senior who impressed you was selling, and the build goes to someone much more junior. It is not dishonest and it is not universal, but it is common enough to be worth a direct question before you sign.
Can one freelancer really cover web, app, cloud and AI?
One person can cover several of those competently and will be stronger in some than others — ask which, and be suspicious of anyone who claims equal depth in all. What an individual genuinely does better than a team of specialists is the joins: the same person deciding how the app talks to the website and what it costs to run makes decisions a committee cannot. What they cannot do is five things at once.
Should I hire in-house or outsource development?
Outsource until the work is provably continuous, then hire. The expensive mistake is the reverse order: hiring an employee before anyone has decided what to build, which produces a salary maintaining an unreviewed architecture. Decide what you are building, get it built, and hire in-house to run it once there is demonstrably a full-time job in it.
How quickly can each option start?
A freelancer in days. An agency in two to six weeks, once scoping and contracting are through. A full-time hire in two to three months realistically, including search, interviews and a notice period — and then another four to eight weeks before they are fully productive. If the thing is urgent, the employee route is not an option for this quarter, whatever it costs.