When you make a $100,000 base salary offer to a local software developer, the figure doesn’t exactly tell the whole story – a reality many seasoned hiring managers might miss in their budget calculations.
Direct Costs: More Than Just Salary
In the USA or Canada, the financial commitment to employees goes beyond just the paycheque. This includes, but isn’t limited to, holiday pay, health benefits, contributions to retirement plans, paid leaves, stock options, and various other employee incentives.
For Canadian employers, remember to factor in the Canada Pension Plan, Employment Insurance, and holiday pay contributions. Generally, you’ll find the total direct cost to hover between 120% to 140% of the base salary of an employee. Thus, that seemingly straightforward $100,000 quickly escalates to $130,000. Yet, this is merely the beginning, as indirect costs further inflate this figure.
Indirect Costs: The Hidden Expenses
The recruitment and integration of new staff entail significant expenditures, including job advertisement fees, recruitment agency commissions, candidate evaluation tools, and the extensive time invested by HR and hiring managers in the recruitment phase. These expenses remain constant across varying market conditions – be it in a candidate-scarce or a candidate-rich scenario.
Utilizing a recruitment firm? Prepare to add another 20% of the base salary for the first year on top of your initial calculations, translating to an additional $20,000 on your $130,000.
Moreover, the costs associated with maintaining in-house developers extend to office space, utilities, hardware, software licenses, and continuous education and training. A detailed look into these expenses reveals (pick what applies to you):
- A MacBook or laptop priced at $2,300, depreciated over three years: $64/month
- Office furnishings and peripherals, spread over five years: $27/month
- Office rental (100 sq.ft. per developer at an annual rate of $40/sq.ft.): $333/month
- Utilities (electricity, heating, water): $100/month
- Daily essentials (coffee, snacks, meals): $150/month
- Human Resources (1 HR staff per 20 employees at a $50k annual salary): $200/month
- Administrative overheads: $50/month
- Extra insurance (employee liability or professional indemnity): $225/month
- Miscellaneous (fitness memberships, team events, holiday gifts, relocation expenses): $100/month
Without indulging in extravagant benefits, the additional monthly cost of maintaining a software developer in your local team amounts to $1,249, or $14,988 annually. This brings the total annual cost for a $100,000 salary through a recruitment agency to an astonishing $164,988.
Conclusion: The True Cost of Local Hiring
So, revisiting our initial point, a $100,000 base salary is actually closer to $165,000 all-in when it comes to employing software developers locally in North America.
For those considering this investment in terms of hourly rates, dividing the sum of fixed and recruitment costs by 1850 hours (the average yearly working hours, factoring in vacations and sick leave) indicates a cost of $81.00/hour for a developer with a $100K salary, though this can vary based on negotiation skills and market conditions.
This analysis underscores the potential savings and value when opting for a thoroughly vetted South American developer at a rate of $50-60/hour through DevEngine.
Note: Keep in mind, the recruitment agency’s fee is a one-time cost for the first year. Subsequent years see a reduction in overall expenses, and potential government incentives (like SR&ED credits in Canada) can further offset costs, refining your financial planning.
DevEngine is also developing an easy-to-use calculator for directly comparing the costs of hiring locally versus remote engineering talent from LATAM via DevEngine. A link will be provided here and on our website once available.
Anton Poseshchennyy is co-founder of DevEngine, helping Canadian companies build distributed engineering teams across South America.