Offshore Labor vs Local Hiring for Small Businesses – A Cost Comparison

Local hiring has long been the wellspring for American small businesses. Much of this was simply because it was the only option. Technology hadn’t caught up to where it is today, and working inherently implied being in the office. Times have changed, though, and even small businesses have more options than ever. 

The necessity of the local employee is gone from our world today – and so is the necessity for even a domestic employee. Technology has opened up the world, and small businesses can, and should take advantage – but why? What is the benefit of offshoring labor? Why outsource when a local employee can do the same work? 

While there are countless reasons to hire someone who isn’t local, or even someone who isn’t in the US, the leading reason is price. Local employees are now more expensive than ever, and businesses are naturally scrambling to find any solution they can to the growing expenses, and offshore labor can offer that solution.

The Costs of the Local Employee

The price tag of a domestic employee can vary significantly, but in America, it’s invariably going to be high, far higher than that of an offshore employee.

The federal minimum wage in the United States is $7.25/hour, but that could change soon. There’s a growing political will in America to see the federal minimum wage increase, and increase significantly. Some have suggested going as high as $15/hour, and this figure doesn’t even include federally mandated benefits.

Non-negotiable costs in the US include various payroll taxes, such as Social Security, Medicare, and Federal Unemployment Tax, all of which raise the costs associated with an American worker by a minimum of 7.65%. Nearly every state also requires workers’ compensation insurance and unemployment insurance. If a business has over 50 full-time employees, they are also required to offer affordable health insurance, only adding to its burden.

White-collar workers carry an even greater burden than just minimum wage. A software developer can cost a business upwards of $120,000/year. Even an entry-level software developer can command a salary upwards of $80,000/year. Graphic designers can set a business back upwards of $70,000/year, and a digital marketing specialist or social media manager can cost a business more than $60,000/year. A data analyst can cost a business more than $100,000/year, and even data entry can carry a price tag of $40,000/year. These salaries don’t even include the many benefits and taxes required by both federal and state governments.

Businesses are struggling to keep up under the mounting pressure, but by offshoring labor, a business can find that desperately needed outlet.

Why is Offshore Labor Cheaper?

Offshoring labor revolves around the fact that it saves businesses money – but why? Some of the reasons can be quite complex, but they can generally be broken down into a few key trends.

Oftentimes, nations other than the United States have a higher supply of labor than a demand for it. Weaker economies mean fewer available jobs, making the supply of labor significantly higher than the demand, pushing down prices. Additionally, a number of nations have economies still built around agriculture or manufacturing, which don’t pay as much as white-collar service jobs.

The lack of available jobs that often exists in weak economies extends from the bottom to the top, with even skilled workers having fewer available opportunities. This opens up an opportunity for businesses in need of qualified workers to hire employees at a lower cost.

In a number of other countries, currencies are also weaker relative to the US dollar. Wages paid in local currencies can go further, even if they are low by American standards. This means that individuals have greater spending power, despite a lower income.

The increased availability of workers and weaker currencies come together to further reduce prices, often driving down the cost of essentials. Healthcare, food, housing, and transportation are all cheaper in a number of countries. The cost of these essentials is often collectively referred to as “cost of living,” and a lower cost of living means that a smaller salary in one country can go just as far or farther than a larger salary in another.

The costs associated with workers in other countries are only further reduced when regulations and tax laws are taken into account. Other countries often have lower tax and benefit burdens compared to the United States. This means businesses can hire workers without the regulatory financial burden.

When put together, this increased availability of workers, the lower costs of goods and services, weaker currencies, and fewer government-driven cost burdens reduce the overall wages in a country, meaning that an American business can hire an offshore employee for less than their domestic counterparts.

A Cost Comparison

So, where do we see these factors best play out? What are the best countries for offshoring labor?

Well, there are a number of countries where various wage-lowering factors are at play, and they should be among the first choices for any business looking to hire offshore workers.

United States

Average Salary – $80,710/year

• The United States is the baseline measurement for salaries, and as we’ve already discussed, they can be very high. A number of regulations, including a high minimum wage and a competitive hiring field have all driven up salaries in the US.
• In the US, average salary doesn’t even include factors such as state and local taxes, benefits, and labor requirements, much of which isn’t a burden for businesses that are offshoring labor.

Canada

Average Salary – $54,660/year

• Canada is capable of maintaining lower wages than the US thanks to its smaller economy and comprehensive social safety nets, including universal healthcare and public education.
• Canada has one of the best education systems on the planet. English is also the most widely spoken language in the country, and many Canadians are already experienced with the American working environment and work culture, making any transitions minimal.

India

Average Salary – $2,580/year

• India’s massive labor force creates significant competition amongst workers, which effectively keeps salaries down. India also has a lower cost of living than many other countries, meaning even lower salaries can take people farther.
• India has long been seen as a go-to destination for businesses offshoring labor. It has one of the largest English-speaking populations on the planet (129 million) (1), and a top-tier tech education system.
• India is an old and reliable destination for offshore labor, and every business should take advantage of what it has to offer.

Mexico

Average Salary – $12,000/year

• Mexico’s lower average salary mainly comes from its informal business structure and less stringent regulations, meaning wages can remain lower. Mexico also has a lower cost of living than other countries, meaning that lower wages can go farther.
• Mexico has traditionally been seen as a manufacturing hub, but it has one of the best education systems in Latin America, making Mexico an increasingly desired destination for offshoring labor.
• While Mexico might be rather new to the world of labor offshoring, it’s an up-and-comer and should never be overlooked.

Philippines

Average Salary – $4,320/year

• Fewer regulations and burdens, a predominantly agricultural and manufacturing economy, and a competitive work environment have collectively given the Philippines a significantly lower salary than what can be found in the rest of the world.
• The Philippines has one of the largest English-speaking populations on the planet and has a highly regarded education system.
• The Philippines is one of the best destinations for labor offshoring and will likely continue to be on for the foreseeable future. 

Romania

Average Salary – $16,690/year

• Romania’s average salary remains lower than in a number of other countries, thanks to a lower cost of living and its continuing status as a developing economy.
• While Romania might not seem like an obvious destination for labor offshoring, its status as a member of the EU has significantly opened up its economy, improved its education system, and allowed it to produce skilled and competitive workers.
• Romania is very new to the world of labor offshoring, and businesses should see it as a fresh opportunity.

South Africa

Average Salary – $6,480/year

• South Africa’s salary remains quite low thanks to an overabundance of workers and a lower cost of living, pushing down wages compared to the rest of the world.
• South Africa has some of the best universities on the continent and is considered a tech hub of the region.
• While South Africa is rarely seen as a destination for labor offshoring, it should definitely be on every business’s mind.

These are just some of the nations where offshore labor can be found. The truth is that nations all throughout the world offer the right conditions for producing the best workers at the best price. It’s only a matter of looking for them.

What Positions Are Best for Offshoring?

So what positions are best for offshoring? What jobs are most suited to labor offshoring?

The list is endless, but there are a few common trends –

Virtual Assistants

Virtual assistants have become a staple of offshoring. They can help pick up where executives and managers can’t. They can help manage schedules, plan events, answer calls, help with HR, and fill small roles that other employees don’t have the time for. Above all else, virtual assistants boost productivity. Virtual assistants keep executives and employees from having to concern themselves with business-related minutiae and help them focus on the real tasks at hand, like running the business and making the work happen.

Accountants

Most wouldn’t consider accounting a job for offshore labor. Many employers are worried about the ability of an offshore accountant to keep up with local accounting regulations and codes, and rightly so. Local tax laws can be complicated, and even business owners may have a difficult time understanding them, but they need not be worried. Accountants all over the world are trained in tax codes and regulations in the United States and in many other countries as well. The principles of accounting are almost universal, and if an accountant is trained in one tax code, it isn’t much of a leap for them to adapt to a new one.

Customer Support

Customer support has long been the backbone of offshore labor. Hiring offshore workers to act in a customer support role opens up a whole new list of possibilities beyond just saving money. Differences in time zones mean that employees can be kept on the clock and answering the phones when local employees simply can’t. With offshore labor, any business can make its customer support 24/7.

Tech Support

Modern software allows an employee anywhere in the world to fix bugs on any user’s computer. The principles of IT are the same no matter where one goes. Operating systems are standardized, as are many applications and pieces of software. Tech support can happen from anywhere in the world today, and it can be done for less by using offshore labor.

The options are endless. Businesses today can find employees offshore that specialize in everything from software design to bookkeeping, data entry, and data analysis. Even managers and product development teams can be found offshore, and they can all be found offshore for less than their local competitors.

How Does a Business Get Started with Offshore Labor?

Businesses today have more resources at their disposal than ever when it comes to offshoring labor.

Finding a good offshore staffing agency is a great start. Offshore staffing agencies already have the preexisting infrastructure necessary to help any business find the employees they need. They can help craft job postings, vet candidates, and assist in the interview process. Many offshore staffing agencies also engage in rigorous role-specific testing of their employees to ensure that candidates are fully qualified for the positions they may fill.

Many businesses interested in offshoring labor see English skills as a significant obstacle, but offshore staffing agencies can assist by testing and interviewing potential employees to make sure they have the proper English skills to get the job done. 

The role of offshore staffing agencies can extend beyond just finding employees. Many agencies today offer their own software that allows for faster communication, easier tracking of hours, and simplified payment.

Dozens of offshore staffing agencies stand ready to help any business build up the best possible offshore workforce that they can.