We have a very expensive but ineffective contractor at work and I'm wondering how much money we could save if we were to replace him with a cheaper and more effective permanent resource.

To do that I'd like to understand the full costs (including all those fiddly things like tax, NI, overheads, etc.) of employing a contractor and permanent staff.

Are their any accountant gurus who can summarise the calculations?

If it helps the contractor earns about £700 per day, and I think the agency charges the company about £850 per day.

I'm thinking we would probably be able to replace the contractor with a permanent employee on a salary of around £50k.

Would the numbers add up?

Its not an easy calculation, but in simple terms, a contractor on 850 a day is costing 170,000 for 200 days work.

Even a 100% markup on a 50k salary is only £100k.

IME you get the best benefit out of expensive contractors for short periods maybe less then 40 days. Once they've gone native, you may as well have someone on the payroll, because their productivity will be equivalent.

that's a very expensive contractor, if you'd expect to replace them with a salaried employee on 50k – even allowing for benefits etc. Is it technical, or management?

Consider offering a 25% drop at renewal – if they take it well and good, if not, hire fresh fodder.

He is very expensive, and he's not really doing the role he should be doing, but instead is working at a level that is quite a bit lower.

To some extent he probably has gone native.

The role is managerial – portfolio/programme management in an IT environment – and I'm not certain we yet have the volume of work to justify that sort of role but instead need one or two cheaper project managers to deliver our projects.