The Real Cost of Offshore Staff

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The real cost of offshore staff

My company spends millions of dollars yearly promoting fantastic offshore staff at ridiculously low salaries.

However, people are often surprised – or shocked – if there are costs on top of the salary.

Who’s profiteering?

Some clients get incensed that outsourcing firms try to make a margin on top of the hard work of others.

Let’s look at some typical costs (USD):

  • $600/mo salary
  • $120 Govt. contributions (@20%)
  • $600 outsourcing service fee (facilities, employment, etc.)
  • Total cost: $1,320/mo

For those shocked that a $600 salary can turn into a $1,320 total cost, let’s dive deeper into this for a minute…

The real cost of employment

In real life, in every country, there are whopping costs on top of a basic salary. Usually:

  • Employee benefits
  • Payroll taxes
  • Training and development
  • Recruitment and onboarding
  • Equipment and supplies
  • Office space and utilities

In the US, the typical total cost of employment can be anywhere from 1.25 to 2 times the base salary, meaning if someone earns $50,000, the total cost could be anywhere from $62,500 to $100,000.

In the Philippines, employee benefits and taxes typically cost 20%-25% of the base salary. Then the recruitment, onboarding, and any costs for hardware and office space are on top of that (just like in your country).

The real cost of employment
The real cost of employment

How outsourcing firms work

Typically outsourcing firms provide all of these services for a fixed fee. They provide staffing, compliant employment, and facilities so that the client can focus on running their own business.

Often, these fees would cover (i) office facility and infrastructure, (ii) hardware and IT, (iii) legal employment, compliance, and payroll, and also (iv) the account management between client and staff.

It’s basically like the WeWork model – on steroids.

Outsourcing firms typically charge $300-$1,000/mo for these services.

Necessary margin

Before people accuse the outsourcing industry of exploitation (which happens all too often), it’s worth remembering that ‘markups’ happen all the time in the US, UK, and beyond.

A typical SEO, marketing, or design agency usually ‘charge out’ their staff costs at a 3x multiple. If an agency has three employees earning $100k each, they will need to charge $900k just to cover expenses and make a safe margin. In fact, this 3x billing ratio applies to most professions – accountants, lawyers, and management consultants.

Necessary margin
Necessary margin

That’s a 300% gross markup!

In the case of outsourcing, the markup is usually in the region of 60%-100%. And that covers all the facilities, hardware, and employment.

It’s a good deal!

Wait, there’s more!

The question for your business

What are the all-in costs of your employees?

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the average all-in employment costs in the
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Philippines United Kingdom Australia United States
Software Developer
HR Manager
Team Leader
Copy Writer
Customer Service
Virtual Assistance
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Philippines $7,221
United Kingdom $39,913
Australia $62,653
United States $81,994

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About OA

Outsource Accelerator is the trusted source of independent information, advisory and expert implementation of Business Process Outsourcing (BPO).

The #1 outsourcing authority

Outsource Accelerator offers the world’s leading aggregator marketplace for outsourcing. It specifically provides the conduit between world-leading outsourcing suppliers and the businesses – clients – across the globe.

The Outsource Accelerator website has over 5,000 articles, 450+ podcast episodes, and a comprehensive directory with 3,900+ BPO companies… all designed to make it easier for clients to learn about – and engage with – outsourcing.

About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.