Quick Summary - Review search locations, recruitment expenses and taxes, and more tips on how to save on team selection and still get high-quality employees.
Do you track Cost per Hire in your company for Software Engineers? This metrics gives many insights!
4 mins read
December 13, 2022
Global IT spending in 2023 will grow by 5% to reach $4.6 trillion, according to Gartner, Inc.’s latest forecast. And the demand for IT is expected to be strong. At the same time, The 2023 State of IT report shows that 50% of the businesses are going to tighten their belts to prepare for an economic slowdown.
Budget cuts and adjustments to revenue forecasts next year will be major challenges for tech companies, along with talent shortages and pandemic-related disruptions, according to the 2023 Global Software Outsourcing Trends and Rates Guide.
How to calculate and reduce the cost per hire of IT specialists?
The cost of each employee includes not only the amount of wages, but also the expenses of finding and hiring him, taxes, direct and indirect spendings of ensuring his work. And each of these points can be optimized.
1. Hire a qualified outsourcing team
The Deloitte Survey shows that the main reason most companies turn to outsourcing is to cut budget. And according to Accelerance, hiring outsourcing or offshore software development firms can save companies from 40% to 70% of total costs.
When hiring in-house developers, the total cost of sourcing includes the hourly rate plus health insurance, pension contributions, paid vacations, etc. When you outsource, most of these internal costs are gone. Also, an established team already has its own infrastructure and enough experience not to need training. Another important advantage is the wide geography of searching for the most suitable teams at the lowest rate.
In such economically developed regions as North America or Western Europe, the average rate of a programmer will be the highest. At the same time, Latin America, Eastern Europe and Asia demonstrate much more acceptable figures.
Where to hire programmers in 2023:
regions with the most expensive and cheapest software developers
Programming cost per hour depending on specialization
However, when selecting a team from other regions, it is worth considering the additional costs, which amount to up to 20% of the base hourly rate, according to Accelerance. Especially when it comes to areas as far away from Israel as India or Latin America. Despite the low salary, higher management and travel expenses may be required.
2. Choose a convenient location
If opening an office is necessary for the company’s development, then the “trick” is to save on the so-called fixed indirect labor costs. Rent, utilities and property taxes, as well as insurance and administrative salaries are all examples of indirect costs. Typically, this type of spendings is between 20% and 30% of total direct labor costs.
You can decrease this sort of expenses business by choosing the right location for your future office. Utility Bidder compiled a rating of cities around the world for opening an office, which took into account the price for renting a square foot, the cost of the Internet and electricity.
The rating includes 70 cities. According to calculations, the capitals of the countries of Central and Eastern Europe turned out to be the most profitable. Tel Aviv, by the way, took 10th place. The most expensive cities to do business, according to the ranking, are San Francisco, New York and Tokyo.
The most profitable cities in the world to open an office
As for the option to save tax, it is worth taking a closer look at other countries where there are incentives for the innovation sector.
For example, the Romanian government creates incentives to support the technology sector. Research and development companies do not have to pay 16% income tax for the first 10 years. This allows IT firms to significantly reduce tax bills.
In Georgia, information technology providers can obtain the status of a virtual zone entity. They are exempt from profit tax and VAT.
Moldova has a law on information technology parks. There is a single tax of 7% on income for IT park’s residents instead of seven different taxes paid by other Moldovan workers and employers.
Ukraine has a simplified system, which allows you to pay tax up to 5% of the revenue. Also, Bulgaria has relatively low income tax with a flat rate of 10%.
In Poland, corporate tax for companies with turnover less than EUR 2 million per year is 9%. There is also a special tax of 5% for product companies if they create new intellectual property, patents and frameworks and are able to prove it.
3. Reduce cost of recruitment process
This type of spendings includes the costs of your recruiting team (taxes, salaries and benefits) and all paid software for sourcing, selection and processing candidates. If you use referral bonuses, add them to the total.Then you need to multiply that number by the time it takes your team to place the hire. Sponsored job postings and professional services subscriptions, advertising vacancies in social media, and logistics expenses may extend the price even higher.
Commonly, in small companies it is not customary to calculate the cost per hire, although this information could bring a lot of insight and save significantly.
And, surely, there are plenty of ways to cut regular recruitment costs. Here are a few of them:
Instead of maintaining your own recruiting team, you can involve an agency.
In the USA, recruiting agencies charge a commission of 20-30% of the annual salary of the employee. For example, to hire a Senior Software Engineer, given that the average annual salary for this position is $128,293, the agency’s compensation is over $25,600. And searching for a candidate in this specialty takes an average of 49 days.
Іn Eastern Europe, prices in recruitment agencies are about 1,5-2 monthly gross salaries of the person you hire.
The average cost to hire a senior specialist at PerceptionBox is not more than $3,000-4,000. And the time to hire a candidate from the market in 2022 averaged 25 business days. This is due to the effective focus and establishment of the process. We have a professional global recruitment team based in Poland and Turkey. And we use top-notch recruitment ATS – Greenhouse + paid sourcing tools.
If you’re not ready to pay extra for recruitment, you can approach staffing companies that already have qualified engineers in place. They don’t charge anything for the recruitment and also save you time (usually engineers are available to start in 1-2 weeks). If the candidate doesn’t pass the probationary period, you’ll be offered a replacement at no additional cost.
Considering the overheated market and the high cost of bad hire, partnering with an experienced staffing company is the best tip to lower costs of hiring process.
Why choose PerceptionBox to reduce the cost of hiring top-notch programmers?
The figures speak for themselves, due to the quality selection of candidates, the retention rate of hired IT specialists has been 93% over the past two years. A stable team and lack of turnover are the main factors in saving the budget.
Moreover, we have vast experience and plenty of insights on how to choose the most favorable location in terms of taxes and budget for finding your perfect team. PerceptionBox received 2 awards in 2022 as the Top Staffing vendor in Israel on Clutch and the TOP Global reviewed HR Staffing partner according to Manifest.
Contact us for the details.
