Offshore Hire Cost Delta
The saving after productivity, management overhead and timezone friction.
Replaces: Outsourcing vendors’ own business cases
How to use it
Price both hires fully, then divide by how much work each actually delivers. Comparing salaries answers the wrong question; comparing cost per unit of output answers the right one.
Where the number comes from
- Each hire’s cost is salary plus employer costs, and the offshore figure adds any agency or employer-of-record markup on top.
- Extra management is the additional coordination hours per week, across 52 weeks, at the loaded cost of the manager spending them.
- Additional onboarding is treated as lost output: the extra months to full productivity as a fraction of a year, applied to the offshore run rate.
- Cost per unit of output divides total cost by the productivity ratio, so a hire delivering 80% costs 25% more per unit than their salary implies.
- Break-even productivity is the ratio at which both options cost the same per unit delivered.
What goes wrong
The part most calculators leave out.
- The productivity ratio is the input that decides the answer and the one nobody can measure honestly in advance. It is not a statement about capability — it reflects domain context, tooling, codebase familiarity and access to the people who know things.
- Timezone overlap is not modelled directly but drives the management overhead. Four hours of overlap is a different arrangement from none, and the difference shows up as decision latency rather than cost.
- Permanent establishment and worker classification risk is real. Employing someone in a country where you have no entity can create a taxable presence and back-tax exposure — the reason employer-of-record markups exist.
- Attrition is often materially higher in competitive offshore markets, which reintroduces the onboarding cost repeatedly rather than once.
- Intellectual property, data residency and security obligations vary by jurisdiction and may prohibit the arrangement regardless of cost.
- This models one role. Offshoring an entire function behaves differently — it can build its own context and reach higher productivity than any individual hire would.
The 68% saving that becomes 39%
A local engineer on 105,000 with 30% employer costs is a 136,500 hire. An offshore equivalent at 34,000 with 22% employer costs looks like a 68% salary saving. Add an 18% employer-of-record markup and the base is about 49,000. Then count four hours a week of extra coordination at 85 an hour — 17,680 — and the ongoing cost is about 66,600 a year. Three extra months of ramp push the first year to roughly 78,900, but that part is paid once and should not be charged against every year after. Finally divide the ongoing figure by 80% productivity: the true cost per unit of output is about 83,000 against 136,500. Still a genuine saving at 39% — and a little over half the one the salary comparison promised.
Questions
- Is the productivity ratio about capability?
- No, and treating it that way leads to bad decisions. It reflects context — familiarity with the codebase, the customers, the internal shorthand, and access to whoever can answer a question in thirty seconds. It rises over time for the same person.
- Why count management hours separately?
- Because distributed work moves coordination from hallway conversations into scheduled calls and written handover. That time is real, it lands on your most expensive people, and it does not appear on any invoice.
- Does the saving improve over time?
- Usually yes — productivity rises as context builds and onboarding costs stop recurring. That makes tenure the variable to protect, and high attrition the thing that destroys the business case.
- Does anything I type get sent anywhere?
- No. The whole calculation runs in your browser. Nothing is transmitted, stored, or logged, and there is no account to create.
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