Caffeine Economics Part 4: IT Staff Augmentation vs. In-house Teams in Canada

Planning for your staffing needs is vital to operating a software development company. It goes beyond simply budgeting for compensation packages. The business must consider what other resources are needed to have a functional team on-site. And this is where the administration costs of having an in-house team become prominent. However, relying on IT staff augmentation services reduces the headache. Here’s how it can help Canadian businesses.

Cost of coffee in Canada

Andrew, a 47-year-old COO of an IT company in Toronto, has experience with the hidden costs of working with in-house developers. For over eight years, his company has leveraged a team of 58 people to deliver extensive data development services for the B2B market segment. With 41 of these full-time employees being developers, Andrew’s obligations to his staff and the back-office costs have made up a large chunk of his expenses.

Breaking down operating expenses for an in-house team in Canada

Andrew and Sarah have known each other for a decade, having been business partners in a different venture. One weekday, they were at an IT conference, and Sarah asked how Andrew’s company coped with a global talent shortage and cost increases. She shared her discoveries over a cup of coffee. And then it dawned on Andrew how much simpler it could be to hire a dream team without the burden of administration and supporting back-office personnel to keep everything running smoothly and compliant. To this, Andrew decided to dive into all the operating expenses his company faced acquiring, maintaining, and retaining such a big team.

Here is a breakdown of what a software company in Toronto would be needing to stay in business:

*Our team calculated the average salaries of key people of the operational team, without whom the functioning of the business becomes difficult. Also, there are a number of services, such as insurance or renting an office, which also fall on the shoulders of the business owner, but we did not count them, because the costs can vary greatly depending on the quality of these services.

Compensation and Benefits

At the center of all of Andrew’s pain points is the high compensation for developers in North America. With the threat of talent shortage hanging over the COO’s head, he must ensure his base salary offer is competitive enough to attract and retain talent.

Quarterly and annual bonuses are also expected in addition to significant housing and transport allowance. In many Canadian companies, staff are offered office snacks, coffee, or meal allowances, all of which must come from the company’s pockets. As is common in software, the company must also budget overtime payments following Canadian labor laws.

Whether Andrew’s firm decides to hire consultants or have an in-house legal counsel, part of the budget must be allocated to legal services. This will cover the contracting and document signing with his 41 developers and more. Thanks to the talent shortage, he may also need to cater to the work permits and visas for developers with unique skill sets that he cannot find in the local labor market. The overall cost becomes inflated with relocation allowances as well.

Local Payroll with Tax and Labor Law Compliance: Management

Andrew must meet local payroll expectations in Canada, including tax and labor law compliance. The back office is, therefore, staffed with professionals capable of calculating these taxes for each employee in Canada. Personal accountant services are therefore required for talent. Not to mention, the various Payment Systems used also incur fees that the company must foot.

Office management

The office space itself also adds administrative expenses to Andrew’s bill. Office management is necessary with the added tasks of branding the area to represent the business’s corporate image. Andrew has already taken some initiative to shrink his company’s office rent by housing part of the developers with a global coworking service.

However, the costs in Canada are still relatively high. At some point, especially during the pandemic, he had to opt for the home office arrangement for his staff, and even then, making the necessary Tech and equipment available put a dent in the company’s finances. Doing so on a more permanent basis adds the additional work of purchasing and delivering hardware for each team member. There are also the internet and phone bills to think about.

Equipment Management

Companies must purchase and deliver special equipment to the team, whether working from the office, global coworking spaces, or the home office. The actual cost will vary based on the project’s requirements. However, IT infrastructure costs from setup to maintenance are fixed. The business needs these to function and continue to produce quality software.

Software and Hardware Installation

Building tech labs is often a good choice for a company the size of Andrew’s. Although establishing the premises is a one-time expense, other expenses like equipment upgrades, security, network, and server maintenance are recurring. Both software and hardware costs are regular costs for the company.

Operating SaaS

Andrew leverages operating software-as-a-service like ERP, CRM, HCM, LMS, DMS, DS, and BIS to keep things running smoothly. The annual costs of these can be pretty steep for the enterprise. The expenses of popular packages range from $9000 per user per month, with more advanced features increasing the price.

Talent Management Costs

Talent onboarding costs per employee include extras like branded welcome kits, which cost $370 each. Ultimately, this cost encompasses the expenses associated with the onboarding process for new employees, including training, orientation, and administrative tasks, which can be pretty hefty. Andrew also needs to consider the resources required to conduct performance reviews, evaluate employees’ performance, and provide recommendations for their professional development in addition to the daily support provided to the team.

There are also costs involved in managing and tracking employees’ time off, including vacation, sick leave, and other absences. HR professionals will be needed in developing and disseminating company policies and procedures to ensure employees are aware of and comply with organizational guidelines.

Operating Staff Cost

As COO, Andrew relies on the operational team consisting of a legal specialist, an accountant, an HR manager, and a system administrator, amongst others. As permanent staff members, these professionals are salaried employees, increasing the wage bill. The cost of hiring operational staff for a software company in Canada varies depending on the company’s location, as different provinces and cities may have varying salary ranges and living costs.

Toronto, also the capital, is expensive; hence, compensation is typically higher than other areas. Generally, operational staff in Canada, such as project managers, operations managers, and administrative personnel, command competitive salaries due to the high demand for skilled professionals in the tech industry.

team retention cost calculation

From Canada’s Costs to Eastern European IT Opportunities

Andrew calculated the so-called cost of a cup of coffee and thought to consider the alternative Sarah had told about – IT staffing in (Eastern) Europe. Taking this avenue meant he could find developers in a country with a low level of taxation but also transfer all back-office concerns to “other shoulders.” His main benefits would be the ability to hire more expert developers at less cost and practically no additional workload.

However, as someone who used to work with teams in the office, Andrew did have a few questions on how effective remote staff would be. At the top of the list was the issue of maintaining the offshore team. But he need not worry because his augmented squad would be in the hands of an experienced project manager responsible for all the day-to-day office management. All Andrew would do is set his objectives for the team and communicate his expectations and how his company culture works. From here, the project manager will handle all the nitty-gritty details of how the remote unit will keep up with others on projects.

Mastering IT Staffing: Communication, Quality, and Security

Companies may have common misgivings about IT staffing agents because of the potential lack of integration and alignment with the existing team. However, several online collaboration tools and strategies like Slack, Zoom, and other tech are effective communication channels. With clearly defined roles and responsibilities set for every developer, seamless collaboration is possible. Even though the rest of his developers will be clocking in from a different country and timezone, the entire team could work in sync with proper planning and scheduling.

Clear communication is a big part of working with augmented staff; fortunately, it is easy. Especially because language barriers are less prominent, with most developers and project managers in Eastern Europe having business proficiency in English. IT staffing solutions ensure project management is mainly in the hands of the partner firm. However, your company is in charge of the direction the team takes.

Another concern is the quality of the augmented staff’s skills and expertise. Companies can thoroughly vet the augmentation providers to address this, reviewing their track record, client testimonials, and technical assessments. Lastly, there may be worries about data security and intellectual property. It is crucial to have robust non-disclosure agreements, confidentiality clauses, and security protocols to safeguard sensitive information. Companies can also consider engaging IT staff augmentation services from firms with a strong reputation for data protection and adhering to industry-standard security practices.

Be like Andrew – focus on development. And all the worries about people are ours alone.

IT staff augmentation is one way to introduce new efficiencies within your operations. Rather than dedicating a significant amount of your resources to back-office work, you can focus on your core business while an IT staffing company takes over the mundane tasks. Although the in-house team does have its competencies, leveraging the right IT staffing partner can help you achieve the same results with a lesser workload.

Leveraging IT staffing companies in Canada is becoming the new norm. If you can relate to Andrew’s pain points then Newxel can match you with the talent you need minus the high bill and stressful administration tasks. You can gain access to experienced European developers and embrace the perks of IT staff augmentation. Contact us today to begin your journey into IT staff augmentation.

FAQs

What is IT staff augmentation?
IT staff augmentation is a hiring strategy where organizations expand their existing workforce by hiring external professionals on a temporary or project basis. The augmented staff works alongside the company's internal team to provide additional skills, expertise, and support to meet specific project or operational needs.
How does IT staff augmentation differ from traditional hiring?
While traditional hiring involves recruiting full-time employees to fill permanent positions, staff augmentation involves hiring external professionals for a specific duration or project. Augmented staff are typically contracted for a defined period, and their engagement can be scaled up or down based on project requirements, allowing more flexibility.
What are the benefits of IT staff augmentation?
Staff augmentation offers several benefits to organizations, including: Access to specialized skills and expertise; Scalability and flexibility; Cost-effectiveness; Faster project completion
How do organizations manage augmented staff?
Organizations must have clearly defined project requirements and expectations to manage augmented staff effectively. Communicating project goals, deliverables, and timelines to augmented staff is crucial to ensure alignment and minimize misunderstandings. In addition, ensure that augmented staff have access to the resources, tools, and information they need to perform their roles effectively. Monitoring performance and providing remote team with feedback also helps create progress.
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