Have you ever thought of a reason that leads companies to outsource? Some of them can’t hire relevant specialists in-house, some have no resources and expertise to manage a tech team and finally, the vast majority just dreams to cut the costs.
The overheated market or why software developers are a rush?
Now it’s a high time to clear the air and reveal all aspects that make outsourcing so attractive.
The number of IT jobs grows yearly despite economic recession and the tendency is stable. For example, this year the US labour market has grown in demand for tech specialists in the range from 28% to 32%* depending on speciality and technology. Today the average annual salary of a software engineer very often equals $100 000**.
European labour market has alike situation with the highest demand for IT specialists and expected growth before 2025.
* rate projected by the BLS was characterized as “anemic” by Victor Janulaitis, CEO of Janco Associates, a research firm that analyzes IT wage and employment trends.
** Source: U.S. Bureau of Labor Statistics Occupational Outlook Handbook
Another point that “heats” the market is influence of technologies and difficulties to hire developers of some rare specialities.
If we consider the market by popularity of technologies we will have the following breakdown:
- C++ is also of a great need with $75 000 on average;
- Java developers are the most in demand for now with average pay of $74 000;
- Then goes C#, .NET and SQL with average salaries $73 000. ***
Is there a breakeven point?
Here we’ll talk about “all that aspects” except salary that employees pay to hire, maintain and fire an employee.
Social Benefits and taxes
The amount of this sum may vary and reach about 26% of developer’s salary. Let’s take to pieces the situation of an imaginary US employee with annual salary of $70 000. Being ahead of the game we’d like to mention that he’ll cost approx. fine $88 000 to a business owner. What do these $18 000 include*:
- $4,340 – Social security tax;
- $1,015 – Medicare tax;
- $478 – State unemployment insurance (assuming average rate of 2,8%);
- $10,119 – Health care insurance benefits;
- $1,750 – 401(k) benefits (retirement plan with average rate of 2,5%).
*According to CNN research 2014
Impressive? And now just add such common expenses like free coffee, recruiting, training, annual corporate events and etc. Since in order to hunt a relevant in-house developer you’ll have to pay his monthly salary as a bonus to the recruitment agency or a referee that is not less than $3 500. So if we put all that figures together we’ll get $91 202 annually.
How much does it cost to fire?
Well, here it’s obvious that hiring is a great challenge, but what about firing an employee?
To tell the truth for Eastern European citizens that might sound strange. Why firing an employee should cost you money? Really, non-EU countries have much simpler layoff process than any US state, European country and especially the UK. But first things first.
Despite so common in the USA “At-will” approach, it’s not always easy to say goodbye to your employee. For example, companies that have employment contracts with their staff can’t fire them for reasons other than stated in the contract, otherwise they’ll have to pay extremely high compensations (up to $70 000).
UK was considered to be the most expensive country to get rid of unwanted staff. So how easy is it in practise for UK employers to fire employees in any event, even without the US-style “fire at will” culture?
Well, in 2012 the UK labour system got some changes. If you started a job after April 6 2012, then your employer has a right to fire you anytime during the first 2 years without any fears of being blamed to be unfair. But in the UK they still have “full employment right” preserved.
In UK the compensation amount may reach £92,585 in case of unfair dismissal
If 2 years have passed your employer has to prove the reason you’ve been fired (namely by reason of performance, misconduct, redundancy, contravention of statute or “some other substantial reason”). We even omit that in such case your employer has to give you several warnings before and a chance to improve.
If the situation gets worth and employee who has been notified doesn’t agree with such decision, the employer will get a claim. If the claim is satisfied there is a bad news for employer and up to £78,335 compensation for unfair dismissal together with the cap on weekly pay in the amount of £475 (x12 months). So the maximum award for the dismissed employee may increase up to £92,585!
“A bit” complicated and strict, no?
By the way this is another reason US and European countries choose outsourcing. According to the majority of agreements for outsourcing the customer has a right to fire or replace the developer “just in a moment” in most cases.
Of course it’s not cut and dry, there are also some limitations and compensation scales, but it’s a common and acknowledged fact, that outsourcing let’s you get rid of unwanted staff much faster and cheaper where all dismissal issues (financial as well) are up to your provider.
So now it becomes clears that outsourcing is not only about cutting the costs but also avoiding bureaucracy. So once a company owner has decided to outsource there is a plenty of issues arising so let’s discover them together.
Who deserves your project?
We understand that you got tired of articles with kinda “Best outsourcing destinations”, “5 tips to outsource to…” and etc. We’d like to discuss with you difference between TYPES of outsourcing.
Perhaps you get numbers of emails daily with outsourcing offers. Where do they come from? There are 3 main types of outsourcing schemes that work today. Different companies choose different options according to their needs. Let’s see the benefits of each one:
A freelancer
Frankly speaking, hiring a freelancer is the cheapest option. In addition, you can even bargain and get some feature for free or pay a lower rate. Recent research reveals that average rates for outsourcing for IT&Programming are $20 hourly (based on Elance report). The rate vary according to technology, expertise and of course region.
Price is not the only criteria for smart customers, so make sure you considered the following points:
- Most freelancers don’t work full-time and do your project after they get home from office tired and exhausted or during weekends which is not your business hours;
- You and your project are not protected since freelancers seldom agree to sign up any agreements (since they are not legal entities) and bear no responsibility towards the customer.
So you have to be a lucky guy to choose a reliable and responsible freelancer who won’t put a chill on you in the moments of a writer’s block. “No guts, no glory” that’s how this option can be described the best.
An outsourcing company
This option works best for long-term commitments. Companies usually have fixed rates and offer an undisputed benefit – 24/7 availability. Moreover, any company will sign up an agreement with you and an NDA at your convenience. Average rate that Ukrainian outsourcing companies offer is $25-$35 hourly.
Oftentimes, companies turn to be less flexible in terms of choosing a technology, offering working models (T&M, Fixed price or dedicated development teams), so it can happen that you’ll need to hire several providers to satisfy all your needs.
An outsourcing agency
This is a perfect combination of services that customers need. An outsourcing agency has no development staff that allows to concentrate on their customers and communications. You can be sure that all your emails, skype calls and even “pokes” on Facebook will get a respond.
Another benefit is that agencies mostly act at their local markets and are aware of “who is who”. They won’t offer you unreliable team because it would be their own fail and responsibility if the team underperforms.
In most cases agencies have agreements with companies for lower or the same rates, so the price rarely differs from companies’ offers. They keep a close eye on your projects, inform you with all updates and progress.
For those who have done their best to read this article up to the end, we have an insider information. Our industry colleagues and partners reveal that almost 30% of their customers from the USA and EU are brokerages.
Just imagine: you’d like to get a mobile app in-house, let’s say from some IT company in California. They estimate your app to cost XXX. But let’s face it, they outsource your app development to a fine Ukrainian company, for example. Which estimates your app to cost XX. Such a scheme. They just play with your trust.
So would you like to overpay your “in-house” development company or work directly with that team and pay only for work done?
We not only offer you development company but provide support through all project stages. We can share info on the most appropriate and reliable EE provider for your project/company. Get to know more by leaving us a quote.
