If you are looking for a senior developer with ten years of JavaScript experience, chances are, competitors are looking for such a person too. Industry giants like TerraCycle Inc. from the US, BAASS Business Solutions Inc. from Canada, and London School of Business & Finance from the UK outsource their IT staff. Competing with them is rather challenging for start-ups and small businesses. Companies with big names and strong brands are at an advantage.
Pretend that you interview several applicants to fill your IT positions, and you turn for help to such experts as PMs, BAs, or senior engineers to check and confirm the skills and experience of the candidates. Such external specialists are costly. That’s why you decide to charge every failed applicant for the time spent on interviewing them. Isn’t that funny? Not at all! If you estimate the real cost of each new hire, you’ll see that new DevOps can cost you an arm and a leg.
In many companies, the multi-stage HR process is fading into oblivion. Candidates aren’t happy about passing tests, multiple interviews, and other deep-rooted bureaucracy. It’s crucial to restructure the process of hiring and create a thought-out adaptation system. Let’s discuss the main staff augmentation benefits and downsides to see whether internal or external recruitment is right for your business. Should you go for the IT staff augmentation company?
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The Global Staff Shortage
Based on the statistics from LinkedIn, nearly 75% of all job seekers choose employers based on their reputation. The company’s main values and philosophy are what matters when it comes to competition, not salaries and vacation. At the same time, the international community Manpowergroup is stating that hiring is becoming more difficult with each new year. According to their statements, in 2021, the labor shortage reached its 15-year high.
Some time or other, every company faces a great concern when expanding its staff. At the same time, the hiring process itself, despite numerous new techniques and methods, is not becoming easier. For example, according to a study conducted by USA Today, an offer is no longer a guarantee that a vacancy is closed.
According to interviewed recruiters, about 20-50% of candidates do not make it to the job interview or show up on their first working day. At a certain point, there are so many interviews that the management is faced with the need to either create an internal HR department or outsource this task.
Intellisoft knows a better way out: how about outsourcing the teams of IT experts (e.g., back-end/front-end developers, QA engineers, and UI/UX designers)? In any case, businesses today should be aware of such terms as IT staff augmentation and in-house recruitment (recruitment vs staffing) or offshore staff augmentation vs outsourcing. Moreover, they should know how to estimate costs per hiring, training, retaining, etc.
A Fresh Look at the Outdated Formula
The common formula used by most businesses to estimate the cost per hire is the total number of direct/indirect costs divided by the number of workers recruited within a particular time frame.
For instance, you have recruited a freelance counselor that helped you to choose the most suitable applicant. You cover 6,000 dollars for the service of that person. Thus, the cost per hire would be 6,000/1=6,000. It means that you have spent 6,000 dollars to pick a suitable candidate to work on your project. In addition, further, you may pay even more for the same procedure. In case you are looking for a very narrow specialist like a React or Angular developer, hiring just one HR expert to assist you with it is not enough. You may need assistance from the entire team.
Most recruiting companies charge around twenty percent on average off new hire-s annual remuneration as their fee. Add this amount to the indirect expenses of your technical recruitment.
To calculate the final price per service more or less accurately, you should also consider the responsibilities of the experts you hire. While some offer search only, others may interview candidates for you, while some can even provide onboarding. Also, the time spent on each applicant may vary, depending on their skills and experience. Still, even around 15 hours per month wasted on interviews alone swallows twelve percent of every hiring expert’s working time.
For instance, a business analyst costs you 7,000 dollars monthly, and the time they dedicate to interviewing candidates is worth 1,500 dollars of their monthly salary. Multiply this number by five, e.g., if you plan to recruit at least five professionals.
What Makes In-House Hiring so Expensive?
So, what is the “net” value of your recruiting? The effective coefficient is times three. In other words, a staff hiring expert that costs you 5,500 dollars monthly will, in fact, cost $16,500, as many things will be required: from paid profiles on recruitment-oriented services like LinkedIn to on-job training and paid vacations.
Another factor to consider is the average cost of observing pools, looking for the right applicants, and interviewing them. Also, you should mind the lost revenue, which is from 0.2-2 times the basic rate of the senior-level applicant. The coefficient is estimated easily in case you make a linear relationship between the hidden loss and the margin for every staff member.
The lowest price of closing a job vacancy within the initial month of work equals two percent of the applicant’s wages, along with the fee per internal hiring. Let’s say a hiring expert cannot fill more than 3 vacancies for a couple of months. One of them is an Angular developer for 6,000 dollars, another one is a React developer for 8,000 dollars, and a Node.js expert for 9,000 dollars. The internal hiring expert’s cost per month equals 6,000 dollars. Thus, the lowest hidden loss would be 3*6,000*2+(6,000+8,000+9,000)*0.2*2 = $53,600. That is an outcome of missing professionals for two months, which is roughly the same as 19 percent of the annual wages of three needed applicants.
In case you realize the average time to recruit an applicant within your native country will be approximately up to two months. At the same time, the expenses are skyrocketing. Thus, outsourcing your full technical recruitment to a pro staff augmentation provider offshore. Now, it is time to have a closer look at other perks offered by the staff augmentation model of team extension.
What Is Staff Augmentation?
What is the most accurate staff augmentation definition? It is a flexible outsourcing approach that makes it possible to recruit tech talent worldwide and manage the team directly. Your company can then cut or extend the team at any time. Recruitment providers are intermediaries that search for candidates for a client company according to specified criteria. They search, select, interview and examine the applicant’s provided recommendations.
Recruitment companies are engaged in both mass and individual search for employees, as well as the search for temporary personnel. Their services include a selection of executives, administrative managers, top and middle managers, outsourcing, outstaffing, consultations on employee and labor protection, and the solution of documentary issues.
Augmentation agents do not only seek suitable candidates but also conduct interviews with them and help in solving employment issues. The process of recruitment has the following stages:
- Criteria clarification
- The search for a suitable candidate in the talent database
- Selection of the most suitable staff
- Organization of a face-to-face meeting between candidate and employee
- Accompaniment and support
- Signing an agreement and hiring
Now that you know the meaning of staff augmentation, let’s move on to discussing recruitment agencies. They have their pros and cons as well.
Why Do Companies Need Recruitment Agencies?
Let’s have a look at the main benefits of the IT recruitment agency.
Benefit #1: Niche Expertise & Tribal Knowledge
Augmentation allows businesses to close the gap in certain skills. If the team lacks specialists experienced in certain areas or technologies, employers often choose the most common, but not the easiest way – start recruiting such experts on their own. However, in many cases this leads to high costs, both for the selection itself, and in the future, when it turns out that such a specialist is not demanded by the company permanently. In contrast, IntelliSoft has a wide pool of narrow experts that are well-aware of web/app design and development, knowing multiple programming languages and tech tricks. Besides, we offer engineers with relevant experience and excellent English from Ukraine. Usually, it is possible to find professionals here for only 4,000 dollars monthly.
Benefit #2: Speed of Hiring
Minimizes the time required to hire employees. Independent recruitment is a time-consuming, difficult process. If it drags on, the company inevitably begins to lose money. Extending the staff is professionally handled by a specialized company, which means you don’t have to spend your resources on recruitment, and the right employee will get to work quickly and on time.
Benefit #3: Cost Savings
According to the review website GlassDoor, the average US company spends about 4,000 USD on hiring an employee and about 52 days to close a vacancy. Cooperating with augmentation providers reduces the staff cost by 20-30%.
What is more, recruitment agencies usually provide a guarantee for candidates they select. If the suggested candidate does not pass the probation period, a replacement for this person will be found free of charge, no matter if the company is looking for a UX designer or a software developer.
Benefit #4: Reduced Operating Costs
Company’s own staff are much more expensive than those who work through outsourcing. In short, an increase in staffing allows you to use human resources in the same way as if you had employees on staff, but without the cost of supporting and maintaining them.
Benefit #5: Flexibility
Makes the hiring process flexible. You can recruit the right number of employees quickly and exactly when you need them, without spending a significant amount of money and time. For example, it is convenient for short-term promotions and advertising campaigns, to close urgent projects or to replace a sick worker.
Benefit #6: Increased Reach
Today, experts agree that the odds are in the favor of employees instead of the employer. According to the statistics provided by the news portal CNBC, there are more job offerings than people open to work.
Another thing, the services of a recruitment agency are useful when looking for a field expert. You’re lucky if such a candidate is open to work, but most recruiters have a hard time hunting.
Benefit #7: Transparent and High-Quality Selection
In-house recruiters can afford to take their time, relying on their ideas of the perfect candidate. Recruiting agencies are interested only in the result.
Even if a company’s in-house recruiter is qualified enough, the applicant by default perceives them as biased. The advantage of an external specialist is that he or she is a detached and independent participant.
Turning for help to an outsourcing agency allows you to think about the business instead of the HR routine. The outsourcing company assumes all the responsibility for keeping personnel records for the provided employees. Thus, you don’t need to think about paying their salaries, deducting insurance premiums, taxes, etc.
Benefit #8: Brand Development
According to the search engine GlassDoor, 3 of 4 recruiters consider recruiting new employees their priority. However, only large companies with big HR departments can afford painstaking recruitment without neglecting their staff.
Instead of plugging holes, sometimes, it’s worth paying attention to the retention of employees and good corporate culture. In addition, it is not uncommon for offshore staff augmentation companies to provide feedback on the company’s internal processes as part of their customer service.
What Is an In-House Recruitment?
The main task of an internal HR department is to assist employees in solving personal or corporate issues. HR specialists usually seek, train, and reward talents. At the same time, recruitment specialists aren’t able to do this alone – in this regard, supporting departments are essential. HR specialists do not only search for candidates. They are also responsible for other important tasks. They help develop good corporate culture and do wage management. Yes, we are not telling you to totally give up internal teams. Some in-house recruitment advantages are worth paying attention.
Why Do Companies Need In-House Recruitment?
Today, it is hard to imagine an enterprise with the number of employees surpassing 50 people without an in-house recruitment process. Recruitment departments are not only a functional unit but the face of the company since it is the HR specialist who is seeking, selecting, and communicating with every new candidate.
The purpose of the recruitment department is to contribute to achieving the company’s goals by providing the company with the necessary personnel and creating a good corporate culture by communicating with the existing team and potential future employees. The search and selection of candidates are both carried out using the following recruitment strategies:
- Submission of detailed information about the open vacancy in different employment services
- Selection of suitable talent
- Organization of job interviews
- Support of new employees
The main task of internal recruiters is to examine the employees’ work. They write down the right number of working, off and sick days of employees and submit this information to the accounting department. Internal recruiters do also track the overall mood of employees. One of their tasks is also to notice any signs of mental health issues. Thus, they play a vital role in project outsourcing.
Let’s have a look at the main reasons to hold an internal HR agency or department.
Reason #1: Development of Corporate Culture
In-house recruiters help to create a corporate culture by helping their colleagues resolve any work-related issues. That’s why HR managers need to establish strong personal relationships.
Reason #2: Single Time Zone
Same time zone is something that attracts many companies when they choose between internal and external HR teams. In the case of the first one, all experts are on the same wave, in one region. That makes it possible to operate on the same schedule and address urgent problems fast.
Reason #3: Performance Monitoring
In-house specialists help managers to control the performance of employees, track their psychological state, and identify the causes of primary mental exhaustion. Therefore, companies get the chance to focus on achieving their business goals.
Reason #4: Full Control
Businesses possess greater control over the workflow. They can keep an eye on every stage of the work, having to provide training to each and every employee on their own.
Some Things to Consider Before Hiring an Internal HR Expert
The primary thing to ensure is that the target recruitment team is well aware of the recent trends and practices in the industry and that they are well-connected as well. Before creating an internal HR department, you should also consider the following negative factors.
Higher Operational & Administrative Expenses
Maintaining internal HR specialists can cost a company more than outsourcing recruitment. This is due to the fact that professional HR managers often have high salaries. Also, internal staff is often expected to contribute to retirement plans and cover premise rental, health insurance, bonuses, etc. If you choose to deal with augmentation services, you may significantly cut your labor costs.
Restricted Talent Pool
While it is not a big problem to find a junior in CSS or Java, it might be a challenge to hire a middle or senior expert in Node.js, for instance. Some engineers with the knowledge of narrow fields are in short supply, especially when it comes to small towns and non-urban areas.
Potential Conflict of Interest
Close relationships with employees can be a disservice to the HR department. On the one hand, the above contributes to the formation of corporate culture; on the other hand, it prevents HR managers from remaining completely impartial, as a result of which they cannot distance themselves from their colleagues and soberly assess conflict situations that might emerge.
Finally, tiny companies might not have sufficient work to justify recruiting full-time in-house staff.
When Is It the Right Time to Create an Internal HR Department?
The need for internal HR specialists usually arises at a tipping point in the company’s growth. This often happens when the number of staff exceeds 50 people. If the management loses control over their subordinates, the local team might get bogged down in internal conflicts. Good specialists resolve disputes among coworkers, contribute to the development of the company’s culture and remind the management of how to reach their goals.
In-House vs. Staff Augmentation
Both contractors and internal developers wish to obtain new skills and experience, as well as increase their credibility. They want to be treated fairly and boost their revenues when possible. That is why both groups are in a constant search. Most engineers are looking for long-term cooperation with further growth perspectives. They do their best to fill their portfolios with new successfully accomplished projects.
In-house and staff augmentation models of recruiting required attention from managers at the onboarding stage. Professionals should align the workflow, support clear communication between internal and distant staff, and schedule regular meetings for feedback analysis. These models are equally secure as each candidate undergoes a background check.
Where to Find and Hire In-House Software Engineers
If you have the time and finances, you can assemble your in-house team, using multiple sources. You can search for specialists on platforms like Glassdoor, Indeed, or AngelList. LinkedIn is the best social networking for placing vacancies and building professional networks. There are many other specialized recruiting platforms where you can hire dedicated developers. Those are mostly research and survey platforms, freelancing and recruiting services, and various social networking sites.
To attract the attention of the best candidates, you need to put their interest in the first place and provide value. Describe your project’s details and target audience, how it benefits your customers, and its potential for the future development. It’s also important to let candidates know, whether it’s a short- or long-term project, and what career growth opportunities it will offer them.
Conclusion
It’s up to you to decide which in-house or staff augmentation model to choose to hire new talent. Remember, no solution that fits the needs of every business.
Are you looking for tech-savvy specialists but can’t find the right candidates? IntelliSoft offers you three collaboration options: Dedicated Teams, Staff Augmentation, and Outstaffing. Your perfect development team is already waiting for you. Already interested? Contact us!
