Hiring Developers in the US: In-house vs Offshore Costs

Hiring Developers in the US: In-house Expenses vs. Offshore Costs

Businesses of all sizes offshore their software development for one key reason – to access an affordable workforce. Although cost is a key concern for many, it is still not the sole motivating factor for putting offshoring into practice. Hiring developers outside the US lets companies reduce a wide range of supplementary expenses, from overhead to employee retention services.

In this post, we will deconstruct the cost of hiring developers in the US and compare it with building a tech team in Eastern Europe based on our experience as a vendor of offshore development units for software development companies in the US. Let’s begin!

What are US-based in-house teams worth?

To corroborate the statement that delegating your software development is a true cost-cutting tool, we need to peel back the onion to see the layers of internal software development teams. Let’s take a closer look at what you pay for exactly when you hire developers in the US.

Cost-per-hire

A recent survey by the Society of Human Resource Management found that the average cost of adding a team member in the US can exceed $4,000. This sum includes the following aspects:

Investment associated with the company’s branding;
Subscriptions to various candidate search resources;
Payment for resources for a candidate background check;
Costs associated with screening and interviewing candidates;
Expenses on recruitment and HR teams (salaries and bonuses).

This list isn’t exhaustive: The cost-per-hire may include other expenses related to the peculiarities of your industry. Moreover, the cost of backfilling technical roles, such as hiring developers in the US, tends to be higher than for non-technical vacancies.

Time-to-hire

Time to fulfill a vacancy can also add to the cost of your software development venture. Since unemployment among software developers is extremely low in the US and the number of tech positions is growing, an average vacancy for a software developer is open for 35 days, as per Glassdoor. This is the direct result of an increasing tech talent shortage businesses have to inevitably face when hiring developers in the US.

The situation is even more exacerbated by the growing competition among companies for tech talent, especially when it comes to hiring seasoned specialists and ones with rare skill sets. Juggernauts like Google, IMB, and Meta keep poaching the best-in-class talent, leaving smaller companies and startups scrambling for IT specialists.

This pushes many software development companies in the US to increase their software development budgets in a bid to adjust to the realities of the IT labor market or consider the option of offshore development teams.

Developers in the USA: Rates

The salary of developers is probably the most significant part of any IT budget. Just like in other parts of the world, the rates of developers in the US vary based on a candidate’s education, experience, seniority level, skill set, and, most importantly, location.

When you hire developers in the US, location can be a significant factor that affects your budget. The rates of developers in the USA are often defined by the region’s supply of software developers, taxes, and salaries of local tech talent. For example, the highest-paying states for software developers are Washington, California, New York, Massachusetts, and the District of Columbia.

According to Accenture’s report in 2020, you can count on the following rates of developers in the USA:

Source: Accenture. Developers in the USA: Rates

Retention services

The reality of the market dictates that not only should you hire developers in the US but also implement solid retention strategies to keep them around. It is common knowledge that the net salary of a developer constitutes only 70% of total compensation. With that in mind, a benefits package is a standard and expected part of an employee’s total compensation package. In addition to a salary, you should also count in the following expenses, which are must-haves for modern tech teams:

Health insurance;
Paid time off (holidays, vacations, sick days, etc);
Life insurance;
Medical insurance;
A retirement plan;
Continuous learning plans;
Wellness and mental health programs;
Gym membership;
Home office supplies;
Team building activities.

According to a more general breakdown, when hiring a developer in the US, you should also cover the following parts of the employee’s benefits package:

Performance bonuses: 3.2%
Insurance: 8%
Paid leave 7.1%
Retirement and savings: 3.8%
Mandatory Employee Benefits: 7.6%

Overall, the benefits package amounts to 30% of the total compensation per employee. Based on the minimal rates of developers in the US, we roughly calculated how much it costs to retain one developer per month as part of your team:

We excluded taxes, but it’s worth mentioning that they vary from state to state. The average payroll taxes can amount to as much as 29.7% in the US. Thus, we can say that hiring developers in the US can be a costly endeavor.

Overhead costs

Although the pandemic has changed the game for many businesses that used to invest in a physical office, it is still a must for many companies who believe that to produce great software developers should all sit next to each other. Looking at the numbers below, you can see how much it’ll cost you to rent an office in different cities across the US:

Average Office Rent Cost per square foot:

Houston: $31.00 per square foot
New York: $54.6 per square foot
Boston: $19.00 – $83.00 per square foot
Philadelphia: $26.00 – $40.00 per square foot
Los Angeles: $42.41 per square foot

In North America, the average office space per employee is between 150 and 175 sq. Obviously, the bigger team you have, the more you’ll have to pay when renting an office space for your software development company in the US.

A software development company: US-based vs. Offshore Teams

The good news is that by building your tech unit using an offshore vendor instead of hiring developers in the US, you can save up to 50% of your budget. With a vendor like nCube you can cross out the following expenses:

The cost-per-hire, including HR and recruitment teams;
Team retention services;
Rates of developers in the USA;
Office rent and IT infrastructure.

Going with an offshore provider, your software development budget will be down to a bare minimum: An hourly pay for an offshore team member, plus a vendor’s fee.

For example, we at nCube will take care of all expenses related to team administration, retention, and overhead. Our fee includes all the costs, including ones that are associated with payroll, employee bonuses, office space, and IT infrastructure. Additionally, when you build your software development company outside the US, you can count on the following perks:

Lower developers’ rates. According to Accelerance’s report, on average, a developer in Eastern Europe per hour earns:

Source: Accenture

Compared with developer rates in the USA, you can count on a significant cost reduction if you opt for an offshore team in Eastern Europe.

Qualified tech talent. As a company that works with Eastern European developers, we can say that they have proven to have equal or even better skill sets than developers based in North America. This statement can be proven by many of our clients who chose this region to set up their development teams, including AstraZeneca, Dentsply Sirona, Life360, CrossEngage, doTerra, and many more.

Fast team launch. We at nCube prioritize a fast team launch, which lets you expedite the development process. It takes 2- 4 weeks on average for us to build a standard development team. We understand that the faster you build your software unit, the higher your chances of outrunning your competition and starting earning money.

No cost-per-hire. The recruitment process is always free for all our clients. Our internal recruitment and tech team does all the heavylifting when it comes to finding candidates that match your requirements. All you will need to do is to interview our pre-screened developers and make a decision to add them to your team.

No team retention expenses. We invest extensively in employee retention services to keep the motivation of your developers high. The average retention rate of a developer with us is 3.5 years. It means that your offshore unit will work for as long as you need it.

No overhead investments. We also invest in building out a secure and reliable remote IT infrastructure for every team so that you can cross out this costly point off your budget. We ensure your Eastern European team works efficiently and help you build solid communications between your software development company in the US and your offshore unit.

You can definitely cut your expenses by hiring developers outside the US. Contact us to learn more about how to set up your offshore development unit. We will gladly address any questions you may have.

MARYNA DEMCHENKO