The volume of cost savings that can be achieved due to the difference in labor cost and salaries between the outsourced country and own one is always among the most important points under question in outsourcing software development activities.
Due to the facts that:
- the competence levels such as junior-medium-senior are completely subjective
- salary levels even within the same country differs considerably from one city to another
it is not always possible to make an apple-to-apple comparison and have exact figures on cost savings for a project on hand.
Still, and since this is a very popular topic, there are many news and discussions on-going regarding this topic each day.
Below is an article recently published on itonews.eu on the topic of salary differences between resources in Ukraine and high-labor cost countries like USA, UK and Germany.
Last year, Verizon caught one of their US software developers versed in C, C++, Perl, Java, Ruby, PHP, and Python outsourcing his development job to a Chinese developer while having fun in the workplace (surfing eBay, viewing YouTube videos, etc.). He allegedly paid him one fifth of his 6-digit salary and granted access to the company’s internal systems.
Recently, one girl has tweeted she had a bad day because she ran over a curb while driving her boyfriend’s brand new $70,000 sports car around the city. It’s shaken the twitter community a bit after it turned out that her boyfriend was an average game developer working in a prominent US games studio. Such cases make many people wonder how much money software developers should be making in the Western world to be able to afford $70,000 sports cars or hire Chinese developers to do their job.
Any business and IT leader knows well that most of their development budgets will eventually go to developers’ wallets. This year, the annual gross salaries in the US IT sector saw a 7% to 9% increase from 2012 and the current salary ranges look as follows:
- Mobile app developer (iOS, Android) – $92,750 – $133,500
- Middle Web Developer – $65,750 – $106,500
- Middle Software Engineer – $83,500 -$127,750
That said, the average salary in IT in the United States is around $81,000 per annum, which means that a company running a 10 people software development team will pay nearly $810,000 in salaries alone, not to mention at least 3 different taxes and bonuses it will have to pay on top of salaries. As such, a 10-person IT team will cost a US company around $1 million. A software product should really be very cool and disruptive to be able to earn a company $1 million, shouldn’t it? Maybe this is the reason why companies such as Skype, Amazon Web Services and PayPal regularly come to Ukraine to screen the talent pool and hire specialists (mainly C, C++, Java, C#, front-end and mobile) that are too expensive and/or in short supply in their home countries?
While a trend to distribute development across several locations beyond a home country is hot, allowing Western companies to significantly save costs, source better technological expertise, accelerate time to market and do more for less, we have created an up-to-date guide to IT salaries in Ukraine, one of Eastern European leading pools of software development resources, and compared them to those in the United States, the UK and Germany.
In Ukraine you can find a Project Manager for $2,500 – $3,000, and a Scrum Master for $2,500 – $3,500 per month depending on the city. The actual cost of employee compensation in Ukraine is almost equal to the salaries specified above, as all taxes and benefits will account for less than 10% of the employee income.
It goes without saying that the actual total cost of employee compensation in the United States is almost twice the amount of salary. As an employer, you will have to pay at least 3 different taxes including social security, unemployment insurance and half of employee’s Medicare tax. In addition, you may have to pay certain local taxes depending on the specific requirements of a certain state. In order to stay competitive, businesses will also have to cover employees’ social benefits and on- or off-job training, so the total cost of an employee may actually be up to 3 times higher than the salary.