Choosing a provider · 2.6

How offshore pricing is actually built up

How offshore pricing is actually built up. What actually decides it, and what to do about it.

An offshore price is a stack of components. Knowing what is in it tells you which parts move over time, which is the question that decides what year three costs.

What the stack contains

Salary. The largest component and the one that determines who applies. A quote assuming a lower band is not a cheaper version of the same thing; it is a different candidate pool.

Statutory contributions. Social security, health insurance and the housing fund, each with its own schedule, paid partly by employer and partly by employee. They move when the schedules move, which is a matter of national policy rather than of anybody's negotiation.

The thirteenth month. A mandatory additional month's pay, which the entry on statutory pay covers. It is roughly another twelve thousandths of the annual salary bill and it is frequently absent from a client's mental model.

Leave. Statutory service incentive leave plus public holidays, of which this country has a substantial number, several with premium pay rates.

The seat. Office space, desk, machine, connection, power backup, facilities and security.

Recruitment. Real and amortised over expected tenure, which is why a provider's attrition rate is embedded in your monthly price whether or not it is itemised.

Supervision and support. The on-site supervisor, human resources, payroll administration, information technology.

Margin.

Which components move

Salary moves annually, with the market and with the individual's progression. Statutory contributions move with legislation. Everything else is broadly fixed.

Which means the question to ask is not what the price is but how the price changes: indexed to what, reviewed when, and with how much notice.

Itemised or single figure

A single monthly figure is easier to compare between providers and conceals what happens when a component moves. An itemised breakdown is harder to compare and tells you what a pay rise actually costs you.

Ask for the itemised version even if you are quoted the other, and notice whether the provider is comfortable giving it.

The salary conversation nobody has

Whether you know what the person is paid, and whether you have any say in it. Some providers disclose, some do not, and both positions are defensible.

It matters when the person is doing well and you want them retained: if you cannot see the salary and cannot fund an increase, your only lever is a conversation. Establish which arrangement you are in before you need it, because the entry on attrition explains what happens otherwise.

Currency

A contract priced in one currency and paid from another moves with the exchange rate, and over three years that movement can exceed the margin the arrangement was saving. Whether the rate is fixed, reviewed periodically or floating should be in the agreement.

What cheap usually means

One of four things: a lower salary band, a shared rather than dedicated person, work from home rather than an office, or a thin margin that will be revisited. Each is legitimate if disclosed and each is a different product.

Asking which one it is turns a price comparison into a comparison of things that are actually alike, and it is the only way to do that honestly.

The comparison that is fair

Total annual cost of the role, including the thirteenth month, an assumed increase, and one replacement cycle amortised over expected tenure. That number is comparable between providers; a monthly rate is not.

It also compares honestly with a local hire, which a monthly rate does not, because a local hire's on-costs are usually left out of the other side of that comparison too.

What a rate card cannot tell you

Whether the person at that rate is the person you would hire. Rates are quoted against role titles and titles cover a wide range of capability, particularly in technical roles where the gap between the median and the upper quartile is large and so is the salary difference.

Interview before comparing prices, or you are comparing labels.

The annual review

Ask what happened at the last one, across the provider's client base: what the average increase was and how it was communicated. Past behaviour on this is a better guide than any clause, because the clause usually permits more than the practice.

Paying for something other than a person

Some providers charge separately for recruitment, for onboarding, or for a replacement. Others build all of it into the monthly figure. Neither is wrong and the second hides the cost of your own attrition from you, which matters if you are the reason for it.

Also in choosing a provider