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Introduction
When choosing between hiring an IT specialist on an employment contract and opting for outsourcing services, companies must carefully analyze both direct and indirect costs. In Poland, where the IT market is dynamic and competitive, considering all financial aspects becomes a critical matter.
Hiring an employee on an employment contract
Direct costs:
- Gross salary – This is the basic cost that the company must bear monthly.
- Social security contributions (ZUS) – The employer is obliged to pay contributions to social insurance, which constitute approximately 20% of additional costs to the gross salary.
- Labor Fund and Guaranteed Employee Benefits Fund (FGŚP) – Additional contributions that the employer must pay from the employee’s salary.
- Employee benefits – Such as private medical care, sports card, life insurance, etc.
- Recruitment costs – Costs of advertisements, remuneration for HR, possible remuneration for a recruitment agency.
- Training – Costs of introduction to the company, administrative and HR training, and skills development.
Indirect costs
- Office space and equipment – Costs of renting space, purchasing computers, licensed software, etc.
- Administrative costs – Maintaining employee documentation, and payroll accounting.
- Risks associated with absences – Vacations, sick leaves, etc. can generate additional costs.
- Termination costs – Potential severance payments, costs of rehiring process.
Utilizing outsourcing
Direct costs
- Fixed monthly rate – Agreed upon in the contract without additional costs from the contracting party.
Indirect costs
- Contract management costs – Time dedicated to coordination and management of the contract with the supplier.
- Potential contract termination costs – If stipulated in the agreement.
Conclusions
In this example, the annual cost of hiring an employee internally is higher (by 61,680 PLN) than the cost of hiring an IT specialist in an outsourcing model. However, it is important to note that the analysis did not consider all potential indirect costs (e.g., training, administrative costs, the risk of sick leaves, etc.), which could alter the final comparison. Additionally, these values are estimations and may vary depending on the specific terms of the agreement and the operational needs of the company.
The decision to choose the appropriate method of employment should be made after a thorough analysis of project needs, potential future development, potential impact on organizational culture, and other business factors that may extend beyond direct and indirect costs.
Comparison
Outsourcing offers flexibility and cost predictability, allowing companies to quickly scale IT teams and efficiently manage budgets. Companies don’t have to worry about additional employee costs, administrative burdens, or recruitment and training processes. Furthermore, outsourcing enables the reduction of risks associated with long-term employee commitments. Internal hiring is a traditional model that may be more cost-effective in the long run, especially if the company has a stable level of demand for IT specialists. Despite higher initial costs and responsibilities, it provides the opportunity to build internal expertise and have direct control over the work and development of specialists.
Comparison in specific amounts:
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Employing a worker on an employment contract
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Outsourcing costs: (Let’s assume that the IT specialist works full-time, which means an average of 168 hours per month.)
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Direct costs (annual)
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Indirect costs(annual) |
Indirect costs (annual) |
Direct costs
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Gross salary: 20,000 PLN x 12 months = 240,000 PLN |
Office space and equipment: (assuming, for example) ~1,000 PLN per month = 12,000 PLN
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Hourly rate: 150 PLN/h x 168 h/month x 12 months = 302,400 PLN
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Potential contract termination costs – If stipulated in the contract.
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Social security contributions (approximation ~20% of gross): 20,000 PLN x 20% x 12 months = 48,000 PLN |
Employee benefits (e.g., medical care, sports card): (for example) 300 PLN per month = 3,600 PLN
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Contract management costs – Time dedicated to coordination and management of the contract with the supplier.
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Labor Fund and Guaranteed Employee Benefits Fund (approximation ~2.45% of gross): 20,000 PLN x 2.45% x 12 months = 5,880 PLN
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Recruitment costs: 20,000 PLN net (let’s add approximately 23% VAT if the company is not exempt from VAT) = 24,600 PLN gross
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Total annual costs of employing an employee on an employment contract: 364,080 PLN |
Total annual outsourcing costs: 302,400 PLN |
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Conclusions
The decision between outsourcing and employment on a contract should be based on the individual strategic goals of the company, the nature of the projects, as well as an analysis of risk and profitability. It is also important to consider the current IT job market, which in Poland is characterized by high turnover and competitive salaries. Ultimately, choosing the best solution requires a comprehensive analysis, and the above calculations can provide crucial support in this process.
