How outsourcing can lower your employee cost by up to 65%

Last Updated on October 21, 2021 by

Outsourcing has taken the US business world by a storm. And by 2018, it is no secret that sourcing your human resources offshore can save you a buckload of money on staff salary. You can succeed with casino 1€ einzahlen bonus. While, the saving that you can make on yearly salary is absolutely astonishing, but it is only half the story. The total deal is even more amazing when you consider some other major saving factors that are involved. And these factors can save your precious time, effort, energy and most importantly, Money.

Outsourcing saves on Taxes

Most US employers will agree that Payroll taxation takes quite a toll on their capital and saving at the end of each year. Payroll taxes are taxes imposed on the employers and employees and are usually calculated as a percentage of the salaries that employers pay their staff. It is used to pay for the social security and Medicare of the staff. The employer paid portion of the payroll tax is 7.65%. It can set a massive limitation on your business expansion and growth by forcing you to dial down your investments.

This is where outsourcing can set you free. When you hire your employees from an offshore company, they will not be subjected to US payroll tax laws. You will not have to worry about W-2s, w-4s, benefits, Social Security taxes, Medical care, 1099s, disability, unemployment or other IRS chases. In fact, you will have no obligations to report your wages for the staff to IRS. The offshore company will be the only one responsible for the staff’s payroll taxes to their own government.

However, we will suggest creating just a few documents for Audits that will make sure you safely save a tremendous amount of tax payments every year.

  • The W-8BEN

The W-8BEN is a simple form where you will need to clearly state that your employees are from a foreign country and they are receiving American payment for their service. These document will be useful in case of an audit and should be stored on your personal records.

Here is the template:

  • Invoice from the company

These companies will include the cost for each stuff on their service invoice. Which will act as a proof for your payroll and other tax relief.

  • Statements from the Staff

You can also use signed statements by each staff provided by the offshore company which will say that they are working on foreign soil and are not part of the US. This is also for your personal records to be used in case of an Audit.

  • The 1120’s

Many US companies need to file an 1120 documents displaying all its expenses. In this document, you will need to display wages for your foreign staff as “Deductible business expenses” or “Other Deductions”.

You can also show your “Other Deductions” as a separate attached document. There you will list all your expenses such as Subcontractors, Domain fee, Meals and Entertainment, Mailing fee, ISP, Miscellaneous etc. You will have to list the salary cost for the staff we provide on the “Subcontractors” Row.

And that is all that you need to do. This is called simplified taxing and it will really make your whole expense operations much simpler.

No holiday pay, No sick pay

You often have to worry about your staff getting sick and taking days off. Which will not save you from paying your staff the full salary. If you outsource, you do not have to worry about these things. These companies will make sure that there is always someone there to attend to your work.

No Extra benefits

Other benefits that you will have to end up paying for domestic recruits can include housing, vision and dental plans, disability income protection, retirement benefits, daycare, tuition reimbursement, employer student loan contributions and other specialized benefits. According to statistics, on average you will have to pay almost 30% of the total salary as benefits in the US. Absolutely none of that will be included on the payment that you will need to make for your outsourced service.

Savings on Office Space

Another major benefit of hiring from overseas companies is that you do not have to worry about making any physical room for them. They are your virtual workforce providing you the service virtually from a great distance. And this allows you to save a massive chunk of money that you would have to otherwise spend on desk space, facilities, and a bigger office. And your business will keep growing despite that.

Savings on Infrastructure

Without a virtual workforce, you will also have to invest for things like the latest computers, High-speed internet, stationeries, work tools, furniture and lot more. But these companies will do all of that for you should you hire from them.

Savings on HR

A great deal of money and time is spent looking for a decent staff, and a great deal more for training and managing them. You can unload all these responsibilities on to the outsourcing farm. They will create and nurture the perfect workforce for all your needs, whenever you need, wherever you need and whatever you need. You do not have to suffer the loss of bad turnovers nor do you have to pay handsomely to an HR official.

Massive savings on Salary

And finally, the most important factor – Salary. You can save more than 60% cost by outsourcing your staff. The workers that you will hire will cost you a minimal fraction of what you would have to pay a domestic recruit. This does not mean that your outsourced recruit is underpaid. It simply means that the market value of salary for them is much lower than that of your own country. And this can create a huge opportunely in their lives as well. It is really a Win-Win situation.

Now, let’s put these factors into numbers

So exactly how much as a US employer can you save by outsourcing your workforce? In one word? Huge. Not only will you find brilliant and dedicated people for all specific tasks, but they will actually devote themselves to taking your business to the next level. Here we have tried to portray a picture of your potential savings in three separate scenarios. We have presented the average cost of hiring from the USA and compared it with the cost of hiring from a foreign company like ours. This will give you an idea of hiring from developing countries. The stats may vary a bit depending on the country you are hiring from. Please, note that we have included most possible benefits paid to the employees but excluded Profit Sharing that many companies also provide to their staff.

Web developer scenario

  • – Yearly Salary: The salary for a web developer in USA ranges from $38,215 – $85,047/ Year. Let’s assume it is a medium sized firm and the salary is round about $40,000 per year.
  • – The payroll tax (Employer paid): Now, let’s calculate the employer paid a portion of the payroll tax which is 7.65% of yearly salary. These account for health and insurance provided by the state. Which amounts to $3,060. Keep in mind that you might also need to provide various other kinds of benefits depending on the class and size of your organization.
  • – Insurance benefits: Insurance benefits can amount up to 8.2% of the total yearly pay. So that will be another $3,280.
  • – Health-related benefits: Health-related benefits can cost up to 7.8% of total compensation which will be another $3,120.
  • – Retirement benefits: Retirement benefits can cost up to 3.6% which will be about $1,440.
  • – Supplemental Pay: Supplemental Pay which includes overtime pay, bonuses and other additional pays can cost up to 2.5% which will calculate $1000
  • – Paid time off: Paid time off can account for as high as 6.9% of total compensation on average US firms which in this case amounts to $2,760
  • – Spacing cost: Spacing cost can vary from city to city in the USA. But considering you provide 200 square feet of space for a staff, it will cost a yearly average of $4,000 per year for a single employee.
  • – Overhead utility and equipment cost: For a web developer, you must get the latest computer and internet technologies. Along with other equipment and utilities, for a single staff, the annual cost will be minimum $2,500 excluding 3 years depreciation value.
  • – Total expense per year: So in addition to a yearly salary of $40,000 you will also have to pay (in most cases) an additional $24,280. And that brings the total yearly expense for a Web developer to $64,280 for a medium sized organization.
  • – Total expense if you Outsource:

But if you hire from a company on any of the South Asian countries, you can save a huge amount of money. If you consider a few critical facts when hiring from abroad (which we discuss in detail in another article) you should be able to get almost a similar level of expertise from an outsourced web developer that you can get from an average US web developer. And the cost will be around an astounding $1000 – $1500 per month without any benefit, tax or any additional pay. Your yearly cost will be about $15, 000 per year on average. Giving you a dramatic save 76.66% of per year.

Graphic Designer Scenario

  • Yearly Salary: In USA a Graphic Designer earns an average salary of $35,000 per year. This is also for an average sized company with regular design requirements.
  • The payroll tax (Employer paid) is 7.65% = $2,677
  • Health related benefits 7.8% = $2,730
  • Insurance benefits 8.2% = $2,870
  • Retirement benefits 3.6% = $1,260
  • Supplemental Pay 2.5% = $875
  • Paid time off – 6.9% = $2,415
  • Spacing cost per employee in a year = $4,000
  • Overhead utility and equipment cost = $2,500 (excluding 3 years depreciation value).
  • Total expense per year: Add those ($35,000 + $2,677 + $2,730 + $2,870 + $1,260 + $875 + $2,415 + $4,000 + $2,500) and the total pay for a Graphic designer can amount up to $54,327
  • – Total expense if you outsource

When you outsource a Graphic Designer from an offshore company, you usually get the same quality of work and sometimes better if you can find a gem designer. The cost for a designer per month will be around $1000 – $1500. Your average yearly cost can be $12,000 – $18,000. You save about $67%. Think about it for a moment.

Ecommerce data manager Scenario

  • Yearly Salary: The cost for E-commerce data manager and other data entry operators in the USA can vary from location to location and depends on the size of the organization. According to statistics it can range from a salary of $20,243 – $35,040 per year.

Again let’s assume it is a mid-sized company paying an average yearly salary of $21,000 to a data entry operator.

  • The payroll tax (Employer paid) is 7.65% = $1,606
  • Health related benefits 7.8% = $1,638
  • Insurance benefits 8.2% = $1,722
  • Retirement benefits 3.6% = $756
  • Paid time off – 6.9% = $1,449
  • Supplemental Pay 2.5% = $525
  • Spacing cost per employee in a year = $4,000
  • Overhead utility and equipment cost = $2,500 (excluding 3 years depreciation value).
  • Total expense per year

So the total payment ($21,000 + $1,606+ $1,638 + $1,722 + $756 + $1,449 + $525 + $4,000 + $2,500) becomes $35,246. Which is totally excluding your massive expenses for training, recruiting and managing the ecommerce managers.

  • – Total expense if you outsource

Hiring an e-commerce data manager from an offshore company that specializes in e-commerce solutions, can be the catalyst that you that you need for real success. These e-commerce staff will cost you about $800 – $1000 per month giving you a yearly cost of about $12,000 per staff. So you are saving more than $66% per year by outsourcing your e-commerce activities. And by investing this massive saving, you can easily take your e-commerce business to the next level.

Few Final words……

So you see that outsourcing has many amazing financial benefits. However, there are some pros and cons. Outsourcing undoubtedly reduces the number of domestic jobs. But if we think about of it like this, if you invest this gigantic saving back into your business, you are actually creating more opportunities in your domestic market that you would not otherwise be able to create. Besides, you are not outsourcing your core business activities. You are only using the foreign workforce to accomplish the tasks that can be done virtually and cost-effectively. And by doing this you can grow your business, capture a bigger market, produce more and grab a much bigger piece of the pie. As I said, it’s a win-win situation for all the parties involved.

But you obviously have to be really cautious while hiring your workforce from a foreign country. There are many trap companies who are just looking to grab your money with lucrative ads and then provide you a below average service. Check out our article “Top things you need to consider when outsourcing”. And in the meantime, have a nice day.

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