Cost of Hiring a Software Developer: In-House vs. Remote Developers
19 February 2023
Should I hire a freelancer or outsource a chunk of work to an outsourcing agency?
The software development industry is so dynamic and fast-moving that you can't expect to cover all your dev needs with one team for ages. From time to time, you'll need to replenish the team with new resources, add an innovative tech stack, and hire additional staff to manage the mounting workload.
Is it time to hire a freelancer or outsource a chunk of work to an outsourcing agency?
So, whenever your team starts complaining of the overload, and you face the need to hire new members to the team, you may be facing a challenge of hiring model choice. Should the new programmer work in-house? Is it time to hire a freelancer or outsource a chunk of work to an outsourcing agency? Or should you pick some middle ground and opt for outstaffing?
To deal with this challenge effectively and make the right choice specifically fitted to your business needs, you should:
To deal with this challenge effectively and make the right choice specifically fitted to your business needs, you should:
- Clarify the terminology and understand the distinctions between these hiring options,
- Weigh the pros and cons of hiring alternatives,
- Pick the right outstaffing/outsourcing destinations,
- Calculate the cost of hiring a coder in each of these ways.
Outstaffing: A Way to Hire Remote Coders to the Team
Outstaffing is a subtype of outsourcing that presupposes hiring a remote developer from another dev company to your team. Thus, in a nutshell, the coder you employ works full-time at another agency that "rents" that expert to you for the agreed time (in days, hours, or as long as the project takes).
Outstaffing is a relatively new sphere in the outsourcing industry, but it has already become a popular mode of closing tech stack gaps and hiring coders for temporary tasks. First, it speeds up the kick-off time and simplifies onboarding. Second, it's more affordable and manageable than in-house recruitment, as you don't need to reserve hardware and office space for your new team members. Third, you have guarantees that the developer won't disappear or go out of control, as some freelancers may do.
Thus, given that the outsourcing market size is going up by a CAGR of 8%+ and is expected to exceed $1 trillion by 2030, you should consider outstaffing as the next big thing in this industry.
Outstaffing is a relatively new sphere in the outsourcing industry, but it has already become a popular mode of closing tech stack gaps and hiring coders for temporary tasks. First, it speeds up the kick-off time and simplifies onboarding. Second, it's more affordable and manageable than in-house recruitment, as you don't need to reserve hardware and office space for your new team members. Third, you have guarantees that the developer won't disappear or go out of control, as some freelancers may do.
Thus, given that the outsourcing market size is going up by a CAGR of 8%+ and is expected to exceed $1 trillion by 2030, you should consider outstaffing as the next big thing in this industry.
Outsourcing vs. Outstaffing: What's the Difference?
Though it may seem that outstaffing and outsourcing are largely the same, some distinctions still exist. They may affect your work quality and budgets for remote staff, so it's better to consider the differences in advance. Here's a quick comparison.
What are the Pros and Cons of outstaffing?
Outstaffing is often seen as a convenient and affordable hiring option. However, it also comes with specific downsides that you should also know.
Pros of outstaffing
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Low-risk employment terms
As the outstaffing provider is an official employer of your hired staff, you can avoid labor disputes, fines, social package payments, taxes, and other administrative hassles.1 -
Simpler management
The outstaffing company handles all managerial issues and documentation, so your task is onboarding only. Accounting procedures also occur on the provider's side; you don't need to reserve time and human resources for accounting, payroll, tax estimation, etc.2 -
Lower costs
You assume responsibility for the outstaffed team's management, so you don't pay for the PM's services. Thus, it's a more cost-effective model than full-scale project outsourcing.3
Cons of outstaffing
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Communication bottlenecks
You must set well-organized communication channels and protocols to ensure that your in-house and outstaffed team members work in synergy.1 -
Full responsibility for project outcomes
You are the one responsible for the project, as your managers conduct day-to-day process management.2 -
Privacy risks
As oustaffed team members work remotely, there is still a risk of data leakage, even if everyone signs NDAs.3
In-House Hiring: Pros and Cons
Now that we've clarified the intricacies of remote work (outsourcing and outstaffing), why not consider in-house recruitment? It's still the best option for many businesses, but it may not work ideally in some conditions. Here are the pros and cons you should consider.
Pros of in-house hiring
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On-site presence
All in-house staff is readily available in your office, simplifying communication and day-to-day project management immensely. It's enough to go to a room next door to you to solve all issues in a couple of minutes without tedious online meetings, calls, and emails.1 -
Unique business understanding
The in-house staff understands your business's core values, philosophy, and approach as they live within that atmosphere. Thus, they can produce designs, products, and content much more relevant to your brand identity than outsiders would.2 -
Internal resource use
In-house employees know your IT infrastructure and resources much better and can use those resources for maximum productivity.3
Cons of in-house hiring
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Costly staff maintenance
Besides paying your coder's full salary, you need to provide a developer with a new computer, office space, and software for them, coupled with taxes, social perks, and vacation payments.1 -
Absenteeism
Being at the workplace doesn't mean working by default. Some staff members may be too slow or lazy at work, thus causing the project to stagnate.2 -
Turnover
Investing in staff recruitment, onboarding, and training often doesn't pay off because your talented coders may get better job offers and leave the company anytime.3 -
Lack of local talent
Hiring in-house staff is impossible in some locations (e.g., North America, West Europe, and Israel) because of very high coder rates and scarce coder availability.4 -
High cost of hiring
It takes around 60 days to hire a new in-house staff member – too long and costly for effective business operations. Recruiters' commissions for closing the position vary from 10 to 15 percent of an annual gross salary of a hired developer.5
A Step-by-Step Guide to Outstaffing
So, what should be your steps to successful team outstaffing? Here is a tried and tested algorithm for hiring remote staff hassle-free.
1
Decide who you need
You should first outline your needed staff's tech stack, experience, and specialization to search for the right talent. These criteria will help you filter candidate resumes.
2
Prepare a job description
Lay out the core and optional knowledge and skills you're looking for in the candidates. Specify their roles and duties within the project and detail the project's scope as much as possible.
3
Find a vendor
Find a reliable outstaffing company with reasonable rates, transparent policies, and a solid reputation. Partner with the vendor and share your staffing requirements with its recruiters.
4
Interview candidates
Hold a series of tests and interviews with the candidates the outstaffing vendor offers to you. Make your final choice based on the interview results.
5
Make a job offer
Contact the selected coders and make your job offer. Once the chosen candidates accept the job offers, you can finalize the contract with the outstaffing vendor.
6
Onboard staff
Greet the new team members and integrate them into the daily operations of your in-house team. Give them access to internal software.
5 tips for hiring a reliable outstaffing vendor
How to Choose a Reliable Outstaffing Vendor? Tips to Consider
Choosing a vendor to work with is an essential, responsible step. Focus on the following criteria to make the right decision:
Service Range
Study the candidate companies' portfolios to see what projects they have under their belt and what service range they cover. Obviously, it's not about hiring a jack of all trades; we mean that the company should have many services to cover your current and future development needs.
Communication Quality
The provider's team should be prompt and competent in communication. The quality of remote communication is critical in outstaffing, and you can evaluate it during your initial contact with the provider.
Pricing
Opting for the cheapest offer is not recommended, even if you're on a tight budget. Still, it would be best to look for an optimal balance between pricing and quality to ensure you're getting a fair deal for your money.
Tech stack and services
The team you're hiring should possess a broad tech stack and should be well-tuned to modern technologies. Otherwise, your team's scaling may become problematic soon.
Domain-specific expertise
Double-check that the outstaffing vendor has expertise in your market niche. It's much easier to work with people who're on the same page as you.
Top 5 Destinations for Hiring a Remote Developer, with Costs
As soon as you're planning to outstaff your team sky is the limit for your talent search. However, there are several tried and tested outsourcing destinations where you can get a great combination of price and service quality.
#1. The EU
Many European companies still prefer to outsource and outstaff employees within their region due to the proximity of travel, convenient time zones, and a similar culture and business mindset. However, outsourcing in Europe varies broadly in terms of price; coders in Germany, the Netherlands, and the UK may charge $50-$100 per hour, while in Switzerland, an average hourly rate is $200-$300. Austrian and Belgian coders work for $100-$150 per hour, so you may decide whether to outstaff locally by comparing the rates in your country and those in the neighboring states.
#2. Asia
Asia is a large region with different countries offering different IT outsourcing service quality and prices. On average, an Indian coder would charge around $25-$50 per hour, Chinese coders work for $50-$80 per hour, and the Philippines and Vietnam have affordable dev workforce at $25-50 per hour. However, Japan is a very expensive country in terms of developer rates; you shouldn't expect rates lower than $200 per hour here.
#3. North America
Outsourcing to North America is a popular solution for companies operating in locations with skyrocketing coder rates, such as Australia, Israel, or Switzerland. Naturally, US-based companies are a hallmark of quality and state-of-the-art technological solutions, but you shouldn't expect to find coders with rates lower than $70-$150 per hour here. Learn more about the Top 10 offshore development centers in the US.
#4. Latin America
Latin America is a highly attractive outstaffing destination for American companies, as most major IT hubs in the South American continent are located in the same time zone as US-based corporations. The average hourly rate of outstaffing here is $30-$55, which is highly affordable. Besides, Latin Americans possess a good command of English.
#5. Eastern Europe
Eastern Europe is a very popular location for IT outsourcing. It's not cheaper than in Asia or Latin America. Still, Eastern European coders are usually highly proficient in English, have a solid technical background, and are more affordable than the dev workforce in Western countries. Outstaffing a coder in Poland or Portugal will typically cost you from $28 to $55+ per hour – much cheaper than in other places. Besides, developers from this location are hard-working and responsible, sharing most of the business values and work mindset with North America and Western Europe.
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Hidden Costs of Getting a Coder on Board
Many clients think of coder hiring only in terms of the salary they negotiate with them. However, a full-time (or outstaffed) employee usually involves additional expenditures, such as:
-
Sick leave
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Vacation
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Learning
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Lay-off pay
Plus, you should factor in the costs of onboarding, offboarding, overheads, etc. These cost aspects may go unnoticed by many, but they affect the final cost of your workforce considerably.
Questions? Answers!
Generally, IT companies of any specialty can engage outstaffed coders in their projects. Outstaffed development experts and teams offer flexible, cost-effective solutions for agencies that need help with specific project aspects and lack a particular tech stack. Working with outstaffed teams is easier than with freelancers, as the process is well-organized and handled by the outstaffing provider.
However, you should use in-house hiring if your project is too sensitive and secret so that you can't afford to share the data with someone living far away and staying beyond your control. Besides, it's not the best option for startups that want to build a reliable profile for investors, as fundraising is pretty challenging for companies lacking core staff in physically existing headquarters. So, you should hire in-house staff if you want to build a solid company from scratch and consider outstaffing only after the initial setup period.
However, you should use in-house hiring if your project is too sensitive and secret so that you can't afford to share the data with someone living far away and staying beyond your control. Besides, it's not the best option for startups that want to build a reliable profile for investors, as fundraising is pretty challenging for companies lacking core staff in physically existing headquarters. So, you should hire in-house staff if you want to build a solid company from scratch and consider outstaffing only after the initial setup period.
Dealing with freelancers is definitely the cheapest and most flexible hiring option. You can hand-pick staff for every task and find an affordable, talented, and experienced expert for your project. Yet, managing a freelancer team is not easy; you should have a separate Project Manager who will bring all freelancers together and orchestrate their efforts for maximum productivity. Communication may also suffer in a remote team, which is a performance bottleneck.
A professional outsourcing company, in turn, is a ready-made solution that doesn't require further input or control from you. Such service vendors usually assign their own Project Managers to the teams working on your tasks and keep you in the loop with regular reports and documentation. This option is a bit costlier than freelancers, but it has obvious benefits in terms of organization.
A professional outsourcing company, in turn, is a ready-made solution that doesn't require further input or control from you. Such service vendors usually assign their own Project Managers to the teams working on your tasks and keep you in the loop with regular reports and documentation. This option is a bit costlier than freelancers, but it has obvious benefits in terms of organization.
You can streamline the process of hiring remote coders by engaging staff with remote recruitment experience. For instance, your recruiter should have a fixed procedure for searching for new staff that removes the need to do everything from scratch every time. Your agency should have Project Managers with expertise in remote work organization and a set of task and project management tools to unite everyone in the collaborative work process. This way, you can onboard remote staff effectively and reduce communication-related friction. Read more ...
Sergio Art is the entrepreneurial mind behind the Offshore Development Center (ODC), which he launched in 2010 to support U.S. businesses in their digital transformation efforts through access to skilled software engineers.
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Ready to Hire a Coder to the Team?
As you can see, hiring remote staff is a science in itself. However, by mastering this art once, you get access to a global talent pool and can remove the limitations of local, in-house hiring to improve your business performance. Study these tips, analyze your business needs, and you're sure to arrive at optimal hiring solutions at any point of your project development.