Although the country has a culturally diverse workforce, the hefty cost of hiring in the US is no laughing matter. It’s not just the high labor cost that’s making companies have second thoughts in hiring locally, but also the stiff competition caused by the war for qualified talent, along with the post-pandemic trend of early retirement and the rise of entrepreneurship among employees and the youth.
That’s why businesses in the United States are integrating outsourcing into their business model. With outsourcing, companies can optimize their workflow without driving up the total cost of hiring employees. Having said that, weighing the cost of hiring in the US versus outsourcing remains an important step in building or growing your workforce.
How Much Is the Cost of Hiring In the US?
This is a million-dollar question for business owners. While in-house employees are valuable, they’re actually one of your most expensive investments! According to the Society for Human Resource Management (SHRM), a new hire costs $4,683 USD. However, this is only a benchmark figure, a point of reference. In reality, recruitment costs vary from company to company, and can be higher depending on internal and external factors.
When calculating the cost of a new employee, salaries, benefits, and bonuses are just one part of the hiring equation. If you sprinkle recruitment efforts, employee training and retention, office infrastructure, and IT software, you can expect a surge in cost per hire and overall recruiting costs.
Let’s not forget an employee’s experience level. Entry-level hires are cheaper, typically averaging $39,525 USD a year. But if you’re hiring candidates for senior positions, they’ll set you back around $122,377 USD to $174,508 USD per year.
Industry demand, America’s aging population, Federal Insurance Contributions Act (FICA) and federal and state unemployment and taxes, and the cost of living per state can likewise influence the total cost of hiring in the US.
4 Factors Driving the Cost of Hiring In the US
Business owners shoulder the cost of office infrastructure, utilities, and recruitment. The above section briefly mentions factors influencing the overall cost of hiring in the US. This section, however, will only cover the four main drivers of hiring costs.
1. Recruitment
Recruitment efforts are costly. Creating a job posting on different job search platforms may be a minuscule investment, but these can accrue additional costs on your recruiting budget. On Indeed, for example, you can create Sponsored Jobs (i.e. paid job postings) to improve your posting’s visibility and reach more candidates, resulting in faster time-to-hire.
When combined with paying HR staff, background checks, and HR management tools, your recruitment expenses can soar over time. Expect the cost per hire to be as low as $4,683 USD or as high as $28,329 USD — that is, if you’re hiring executives.
2. Onboarding and Training
Onboarding means acquainting a new hire with your company’s culture, organizational structures, and internal policies. Part of the onboarding process is providing them with a dedicated office space, computer, and software — all of which cost money.
New employees undergo training, as well. This, again, costs money as businesses invest in training manuals and resources. Outside of that, training employees causes a temporary loss in productivity and efficiency since newbies need time to catch up and get used to the workflow.
According to Training Magazine and HR Daily Advisor, training costs are around $1,207 USD to USD$1,512 USD per employee.
3. Employee Benefits
Health insurance, social security, and PTOs — these benefits are a win for employees. For employers, it’s a different playing field, mainly because the cost of employee benefits depends on various factors, including the type of benefits offered, company size, demographics, and industry.
The average cost of benefits for employees in the private sector is $12.19 USD per hour, slightly less than those who work in the civil sector ($13.58 USD per hour). State and local sector employees have the highest cost of benefits, averaging $22.81 USD an hour. While costs add up, employers use benefits to balance return on investment and employee satisfaction and retention.
4. Employee Turnover
When a company can make employees stay, that’s retention. For any employer, retaining top talent is as essential as ensuring positive growth and outcomes. Of course, it’s not always possible to retain employees. They part ways with your company for higher salaries or better career growth, or sometimes, employees relocate or want a company that values them more. When this happens, it’s called employee turnover.
Like recruiting new hires, employee turnover is also costly. The cost of a turnover can vary, though. On average, each hourly worker who quits can set you back $1,500 USD. If a C-suite employee leaves your company, turnover will cost you around 213% of their yearly salary. For technical roles, the percentage ranges between 100% to 150%.
Beyond the financial aftermath of employee turnover, this can also lead to institutional knowledge loss as well as reduced morale and productivity.
Why Outsourcing Is the Solution for Your Hiring Woes
In-house employees have their perks. They know the US market well and are easily available on-site. However, maintaining an in-house team is expensive due to high overhead and labor costs. That’s why it makes sense to outsource jobs.
Outsourcing means delegating tasks or a whole department to a third-party service provider, usually based in a nearby or faraway country. Hybrid teams are also the norm, combining in-house and offshore teams for increased flexibility and cost savings.
It’s never too late to venture into outsourcing. Because we live in a hyper-connected world, leveraging outsourcing and other business strategies is the only way to go up. Here’s what makes outsourcing a worthwhile business endeavor.
1. Outsourcing Is Cheaper
Cost-effectiveness is what draws companies to outsourcing. Brazil, India, Mexico, and the Philippines make the best outsourcing destinations because of their low cost of labor, which increases your savings while maintaining high-quality work.
The average cost of a Filipino BPO employee is around $7,890.47 USD to $9,635.4 USD, which can vary according to role and seniority level. From these figures alone, there’s no denying the significant cost savings that outsourcing brings to recruiting new employees.
2. You Can Expand Your Talent Pool
Outsourcing opens your talent pool to a wider scale. That means you’re not only limited to candidates in San Francisco, Los Angeles, or any US city or state. Outsourced employees are as knowledgeable and skilled as local hires, providing a delicate balance of credentials, experience, and cost-effectiveness.
Because outsourced staff are cheaper, you can easily source talent that is otherwise not available or financially feasible in your local area. This makes filling open job positions and closing talent gaps easier, helping you grow your team at a lower cost.
Overall, international hiring gives you a competitive edge in the market, rewarding your efforts with customer growth and success.
3. Outsourcing Companies Handle Recruitment Efforts
BPO companies in the Philippines (and other parts of the world) take care of the recruitment process from start to finish. Clients provide the project specifications and employee qualifications, and the outsourcing company will source, vet, and hire potential candidates based on those requirements.
This reduces the likelihood of employing a bad hire who can cost your company thousands of dollars. Not only does outsourcing reduce your recruitment expenses and streamline hiring processes, your in-house team also has more time for job functions that require their attention and expertise.
4. Your Outsourced Staff Can Produce High-Quality Work
Outsourcing and low-quality work don’t go hand-in-hand. Outsourcing companies have a designated project manager or team leader who handles the account, trains team members, and ensures quality assurance. The right service provider will not only promise a significant reduction in hiring costs, they will also meet your performance standards.
5. There Are Little Cultural and Linguistic Barriers
Outsourcing means embracing diverse perspectives from a diverse group of people. It also comes with overcoming cultural and linguistic barriers. In the Philippines, outsourced employees are fluent in English and culturally compatible with Western values. This leaves little room for misunderstandings arising from language and cultural differences.
6. Outsourcing Ensures 24/7 Productivity
Time zone differences are not necessarily a liability. By outsourcing, your business can operate 24/7 without interruption. Whether it’s outsourced data entry, customer service, or graphic design, your offshore team can cover your post-business hours and provide round-the-clock support while your onshore team sleeps.
Then, on the following working day, all deliverables will be processed by your in-house employees. This minimizes delays and improves operational efficiency. BPO companies have employees working different shifts, so you can definitely find offshore team members who can align their schedules with US time zones.
5 Factors That Affect the Cost of Outsourcing
Evaluating the cost of outsourcing is key to any successful business venture. Below are factors that influence outsourcing costs.
1. Benefits
Outsourced employees receive benefits from their BPO employers. In the Philippines, for example, these benefits include night differential pay, social security, Home Development Mutual Fund (HDMF) or Pag-IBIG, PhilHealth, and the like.
Since BPOs are private employees, night differential pay is 10% of the individual’s salary per hour of work starting from 10:00 pm to 6:00 am. The contribution rate for social security is 15%, 2% for Pag-IBIG, and 5% for PhilHealth. Though dependent on the employee’s salary, the total cost of benefits can start at least $120 USD a month.
2. Employee Quantity and Expertise
An employee’s expertise and seniority level play a role in influencing outsourcing costs. For example, an entry-level Filipino graphic designer costs around $430 USD a month, whereas a senior graphic designer costs $924 USD. Junior employees have less professional knowledge and experience than their senior peers, so the difference in rates is understandable.
The number of entry-level or senior outsourced employees also affects outsourcing costs. A realistic budget and a clear vision of your project help you and the outsourcing partner plan your workforce headcount and balance expertise with cost.
3. Project Complexity, Urgency, and Volume
Complex projects require specialized talent and are therefore costlier than tasks that don’t involve specialized expertise. Larger and urgent projects also command higher price points, as BPOs need to reallocate their workforce or hire more staff to complete your project. Be transparent about expected turnaround times so the BPO company can provide an accurate price quote.
4. Pricing Model
There are different types of outsourcing pricing models. The fixed price (FP) model is a common pricing structure among BPOs. As the name implies, you pay an agreed fixed price for the outsourcing provider’s services. The hourly pricing structure is another popular model, which charges you according to the number of hours rendered by your outsourced staff.
With the savings-based pricing model, the overall cost of outsourcing is based on how much you can save from a BPO company’s services. Finally, the outsourcing cost under the full-time equivalent (FTE) model is determined by several factors, including employee expertise, headcount, project complexity, and output quality.
These models add a complex layer to budgeting and determining total outsourcing costs. Do your research so you can identify which model fits your project.
5. Training and Service Fees
Outsourcing companies are businesses, too. Service fees cover overhead costs, including infrastructure, technology, equipment, and office lease or rent. Unlike in-house hiring, the service provider covers the training cost of employees.
Save On Labor Costs With KDCI’s Offshore Solutions
The cost of hiring in the US remains high and will continue to soar in the following years. For businesses, outsourcing is a blessing. It expands your hiring pool, keeps hiring costs down, and maintains efficiency. Like any business venture, outsourcing requires financial investment. Being strategic with your outsourcing endeavors is key to getting the return on investment (ROI) your company deserves.
If you’re looking for a reputable BPO company to partner with, consider KDCI Outsourcing. Since 2011, we have worked with brands from different parts of the globe, providing them with tailored, high-performance offshoring solutions that promise innovation and growth.
Request a price quote, send a proposal, or inquire with our outsourcing expert. The sooner you contact us, the faster we can build your Filipino offshore team.
