IT staff augmentation involves contracting independent contractors or third-party vendors to supplement an organization’s existing IT workforce on a flexible, temporary basis. Traditional hiring is typically more troublesome and brings fewer positive financial implications than hiring staff augmentation providers. Considering all the necessary aspects, we can easily calculate the difference.
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Staff Augmentation vs. Traditional Hiring
Financial Benefits of Staff Augmentation
Staff augmentation typically operates on a pay-as-you-go model. This means that expenses are directly aligned with the specific project requirements and the duration for which external staff are needed.
Unlike traditional full-time hires, where you’d bear the ongoing costs of salaries, benefits, and overheads, staff augmentation allows you to control costs more precisely. You only pay for the services you use, optimizing resource allocation and cost management.
Also, staff augmentation can significantly improve the cash flow, free up some resources and allocate them to core activities. 80% of companies surveyed by Forrester think deployment services from IT providers allow IT staff to spend more time on innovation.
Saved time, money, and effort can be invested in further improvements instead of fruitless attempts to cover everything at once. Divide first, focus on what you currently need, hire additional help to cover the background process, and then conquer.
Those are only scratches on the surface when we talk about the positive financial implications of staff augmentation.
After those six months, a long-term commitment will make you pay the same amount of money even during the idle time since you can’t use the pay-as-you-go model with in-house staff.
Expenses Eliminated with Staff Augmentation
Unsurprisingly, IT staff augmentation saves much more on hidden costs of employees, not only on salary.
Before this job posting, that is not always for free, but we aim to calculate the minimum cost, so we assume that HR uses free channels for candidate search.
According to the statistics, 75% of professionals face difficulty getting top talent in the US. Therefore, on average, candidate screening and background checks, interviews, sorting, and negotiating take 50 days. Add the onboarding process and acceptance monitoring, and you will get two months.
The average salary of qualified HR is 6K USD, so that you will spend 12K USD only for HR services. All this time, your project deadlines will shift further, indefinitely delaying the release.
Staff augmentation providers typically already have a large pool of pre-screened and qualified candidates ready to start working immediately. This means that you can avoid the costs associated with advertising job openings, sorting through resumes, and conducting interviews. The provider will also handle all necessary background and reference checks, reducing recruitment costs.
Also, you don’t need an in-house HR team to manage the recruitment process. The provider will handle everything. Check a few tips on choosing the right staff augmentation provider in our comprehensive article.
According to a Forbes Advisor article, the average price for some of the most functional and widespread applications for employee training is about 60 USD per month for one member. Also, the mentoring and specialized training programs will take about 700 USD per employee. This example assumes it would take the bare minimum – one month, 760 USD.
Statistically, smaller businesses are prone to spend more on training. Large companies can effortlessly get a corporate plan discount for training software or application and elaborate their own specialized training programs instead of buying them. They can afford already perfectly trained expensive specialists.
Efficient training takes weeks for new hires to achieve optimum productivity, initially slowing down the development process. If you think that onboarding is enough and you can skip this step, consider that 94% of employees would stick with an organization longer if it invested in their training. Investing in training prevents staff turnover. Or you can hire SAP and forget about the risks of turnover, being stuck, and training.
Taxes and Employee Benefits
Hiring in-house developers means paying taxes. Amount and percent rate depends on many factors, including salary and location, so we will take a minimum not to scare you too much.
- Federal income taxes: 5,700 USD
If the federal income tax rate is 10% (although it can vary up to 37% according to the salary), it would be 57,000 x 10% = 5,700 USD for six months.
- Social Security taxes: 1,777 USD
The current Social Security tax rate is 6.2% of the employee’s salary. The employee’s Social Security tax liability for six months would be 57,000 x 6.2% = 3,554. It is split equally between the employer and the employee, costing 1,777 USD.
- Medicare taxes: 416.75 USD
The current Medicare tax rate is 1.45% of the employee’s salary, split equally between the employer and the employee. 57,000 x 1.45% x 0,5 = 416.75 USD.
- State income taxes: 1,425 USD
The employer will also have to pay state income taxes on the employee’s salary, depending on the state where the employee works. Let’s assume the state income tax rate is 5% of the employee’s salary. 57,000 x 5% x 0.5 = 1,425 USD.
- Other taxes: 3,000 USD
Depending on the state and local government, there may be additional taxes that the employer must pay, such as unemployment insurance taxes or workers’ compensation insurance taxes. Let’s assume that these taxes total $500 per month. The employer’s other six-month tax liability would be $500 x 6 = $3,000.
- Total taxes are 11 928.75 USD.
- Health insurance can range from around 400 USD to over 1,000 USD monthly. Still, we assume the minimum, so let’s take it as 2,400 USD.
- Minimum dental insurance: 120 USD
- Vision insurance: 80 USD
- Life insurance: 150 USD
- Disability insurance: 500 USD.
- The minimum wellness program: 1000 USD for six months.
To summarize, your company will spend at least 16 178.75 USD on taxes and employee benefits. Here we skip paying for paternity leave, sick leaves, days off, and other days out of work, but they are also significant expenses.
Imagine you do not have to pay for this because the staff augmentation provider handles all the taxes and perks.
When companies want to cut rent, utilities, and hardware costs, they send their employees online. Nevertheless, paying for coworking and buying costly software is necessary, even with the remote team. The price depends on the type and essential functionality, but the software has to be top-notch to deliver quality solutions.
This is where staff augmentation presents a distinct financial advantage. Reputable staff augmentation providers possess the requisite licenses and access to cutting-edge software tools.
Also, during periods of reduced project demands, businesses still bear the financial burden of compensating their in-house team members, even though employees are left idle or “on the bench.” Staff augmentation eliminates those expenses since companies can hire SAPs for a particular stage of development and quickly scale up or down the team.
Cost Benefits of Offshore Staff Augmentation
Offshore staff augmentation is the ultimate solution for cost reduction, starting with employee rate. There are some of the most popular regions for offshore staff augmentation with an average hourly rate of IT specialists:
- Eastern Europe: 20-50 USD
- Asia: 20-40 USD
- Africa: 20-45 USD
- Central and South America: 30-50 USD
Impact of IT Staff Augmentation
According to the Forrester report, 17% of the companies observed a reduction in overall IT costs by using staff augmentation services. The more augmented staff you hire, the more significant amount of money you save.
In addition, 26% of the companies monitored the increase in staff productivity by using staff augmentation services — consequently, enhanced productivity leads to reducing time to market.
Staff augmentation is a popular staffing solution due to its positive financial implications and proven favorable impact on efficiency. A properly chosen staff augmentation provider is your reliable partner on the way to company success.
Offshore staff augmentation almost halves the cost per employee compared to traditional hiring owing to lower prices for high-quality services, eliminating overhead costs, and a lightning-fast hiring process.
Facilitate the development with a dedicated team of Lengin! Contact us and unlock the whole potential of your company.