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Published: 22/11/2023

Outsourcing vs. in-house developers - real costs comparison and benefits of having a dedicated software team in Poland - Pt 1

This article is sourced from Radosław Szmit’s Linkedin newsletter. If you want to delve deeper into the IT business and stay abreast of the latest updates, follow Radek on Linkedin for continuous insights!

From whom do insights come? 

At DAC.digital, Radek performs the role of Head of Growth and executes growth and business strategies for one of Europe’s fastest-growing software and AI companies. With over 14 years of experience in the IT industry, he has helped numerous clients and partners achieve their digital transformation goals and create value for their end customers.

Outsourcing vs. in-house developers

Finding a dependable and cost-effective technology partner is crucial to your company’s success in today’s fast-expanding technological landscape. As a C-level executive or senior manager at a startup, scale-up, or company requiring continuous software development support, you are likely facing challenges in swiftly finding skilled software developers in the USA. This is where Poland, an emerging technology hub in Europe, can help

Poland is becoming known as a top destination for outsourcing software development and establishing dedicated engineering teams. This article focuses on the primary advantages of selecting Poland as your long-term technology partner to support your New York-based team with a dedicated software engineering team.

We’d start by emphasizing the actual costs of hiring and employing a senior backend software developer in New York and Poland, respectively. To cover the big picture, we’d look at several work issues.

First, let’s look at New York. The following is a breakdown of various costs associated with hiring and employing a backend developer in New York. You can use this list as a starting point to set up a spreadsheet in Excel or Google Sheets to calculate the exact expenses for yourself and the type of software development activities you’re looking for. The list includes various elements of compensation, taxes, and other expenses.

Costs of software development employment in the USA (New York example)

1.Base Salary

2. Payroll Taxes

  • Social Security Tax (6.2% of salary up to a certain limit)
  • Medicare Tax (1.45% of salary)
  • Federal Unemployment Tax (FUTA, 0.6% of first $7,000 of salary)
  • State Unemployment Tax (SUTA, varies by state)
  • New York State Disability Insurance (0.5% of salary, capped at $65.61 per employee)

3. Health Insurance (employer’s contribution)

4. Dental and Vision Insurance (optional, employer’s contribution)

5. 401(k) or Retirement Plan (employer’s contribution or match)

6. Bonuses (performance-based, signing bonus, etc.)

7. Stock Options or Equity Grants

8. Annual Training and Professional Development Budget

9. Recruitment Costs

  • Job Postings (job boards, social media, etc.)
  • Recruitment Agency Fees (if used)
  • Background Check and Pre-employment Screening Fees
  • Time spent by HR and hiring managers for interviews and selection

10. Onboarding and Orientation Costs

  • Training materials and resources
  • Time spent by HR, IT, and team members for onboarding and orientation

11. Office Space and Equipment

  • Office rent or coworking space membership (if applicable)
  • Desk, chair, and other office furniture
  • Laptop, monitors, and other required hardware
  • Software licenses and subscriptions

12. Employee Perks and Benefits

  • Commuter Benefits
  • Flexible Work Arrangements
  • Paid Time Off (Vacation, Sick, and Personal days)
  • Paid Parental Leave
  • Employee Assistance Programs
  • Fitness or Wellness Reimbursement
  • Company events and team-building activities

Please note that the percentages and amounts provided here are general guidelines.

Using the most probable figures and market averages, we calculated the total costs of employment for a backend developer (e.g. Java or Kotlin backend developer in New York) with a base gross annual salary of $120,000 for three years (an average time to work continuously in the USA  for one company). Keep in mind that these figures are estimates and may vary depending on the firm, the method of recruiting remote software workers, or the type of engagement.

1.Base Salary: $120,000/year

2. Payroll Taxes (assume New York state average SUTA tax rate of 2.5%):

  • Social Security Tax: $7,440 (6.2% of $120,000)
  • Medicare Tax: $1,740 (1.45% of $120,000)
  • FUTA: $42 (0.6% of the first $7,000)
  • SUTA: $3,000 (2.5% of $120,000)
  • NY State Disability Insurance: $65.61

3. Total Payroll Taxes: $12,287.61/year

4. Health Insurance (employer’s contribution, assume $6,000/year)

5. Dental and Vision Insurance (employer’s contribution, assume $1,000/year)

6. 401(k) or Retirement Plan (employer’s match of 3% of salary): $3,600/year

7. Bonuses (performance-based, 10% of salary): $12,000/year

8. Stock Options or Equity Grants (assume $5,000/year)

9. Annual Training and Professional Development Budget (assume $2,000/year)

10. Recruitment Costs (one-time cost, assume 15% of the first-year salary): $18,000

11. Onboarding and Orientation Costs (one-time cost, assume $2,000)

12. Office Space and Equipment (assume $5,000/year)

13. Employee Perks and Benefits (assume $3,000/year)

Now, we’ll calculate the annual and total three-year costs:

Annual Costs (excluding one-time costs):

$120,000 (Salary) + $12,287.61 (Payroll Taxes) + $6,000 (Health Insurance) + $1,000 (Dental and Vision Insurance) + $3,600 (401k) + $12,000 (Bonuses) + $5,000 (Stock Options or Equity Grants) + $2,000 (Training) + $5,000 (Office Space) + $3,000 (Perks) = $170,887.61

One-time Costs:

$18,000 (Recruitment Costs) + $2,000 (Onboarding and Orientation Costs) = $20,000

Three-Year Costs:

($170,887.61 * 3) + $20,000 = $532,662.83

The total approximate cost of employing a backend developer with a $120,000 annual salary in New York for three years is $532,662.83, including salary, taxes, benefits, and other associated expenses.

Costs of a dedicated software developer in Poland from a technology partner

In order to calculate the total cost of employing a backend software developer in Poland on a B2B contract (the most popular form of employment in Poland in the software industry), we’ll need to consider the base monthly salary, tax rate, and any additional costs related to employment. I’ll assume that the additional costs are similar to the ones in the previous example, adjusted for the Polish context. The exchange rate used in this calculation is 1 USD = 4.35 PLN.

1.Base Monthly Salary: 27,000 PLN net (tax included)

2. Health Insurance: included in the base monthly salary, paid by a developer.

3. Bonuses (performance-based, 10% of salary): 2,700 PLN/month

4. Annual Training and Professional Development Budget (assume 2,000 PLN/year or 166.67 PLN/month)

5. Office Space and Equipment (assume 1,000 PLN/month)

6. Employee Perks and Benefits (assume 1,000 PLN/month)

7. Additional Company Operational Costs (assume 15% of the monthly salary): 4,050 PLN/month

Monthly Costs:

27,000 (Net Salary) + 2,700 (Bonuses) + 166.67 (Training) + 1,000 (Office Space) + 1,000 (Perks) + 4,050 (Additional Company Operational Costs) = 35,916.67 PLN

Three-Year Costs:

35,916.67 (Monthly Costs) * 12 (Months) * 3 (Years) = 1,293,000.04 PLN

Adding a 25% company margin:

1,293,000.04 * 1.25 = 1,616,250.05 PLN

The total approximate cost of employing a backend developer with a 27,000 PLN monthly net salary in Poland for three years, including benefits and other associated expenses, may be 1,616,250.05 PLN.

To convert the cost to USD for comparison purposes, let’s divide the total cost in PLN by the exchange rate:

1,616,250.05 PLN / 4.35 (exchange rate) = 371,609.21 USD

Let’s compare the total costs of employing a backend developer in the USA (New York) and having an outsourced technology partner Poland based on the calculations we’ve made.

USA (New York) costs:

  • Annual: 170,887.61 USD
  • Monthly: 170,887.61 USD / 12 = 14,240.63 USD
  • Hourly: 14,240.63 USD / 160 hours = 89.004 USD/hour

Poland Costs (in USD using the exchange rate 4.35):

  • Annual: 371,609.21 USD / 3 years = 123,869.74 USD
  • Monthly: 123,869.74 USD / 12 = 10,322.48 USD
  • Hourly: 10,322.48 USD / 160 hours = 64.515 USD/hour

What is the ultimate cost difference between in-house vs outsourced backend developer?

Difference:

  • Annual: 170,887.61 – 123,869.74 = 47,017.87 USD
  • Monthly: 14,240.63 – 10,322.48 = 3,918.15 USD
  • Hourly: 89.004 – 64.515 = 24.489 USD

Percentage Difference:

  • Annual: (47,017.87 / 170,887.61) * 100 = 27.51%
  • Monthly: (3,918.15 / 14,240.63) * 100 = 27.51%
  • Hourly: (24.489 / 89.004) * 100 = 27.51%

The total costs of a backend developer in Poland hired in a dedicated team model with a technology partner behind are approximately 27.51% lower than in the USA (New York).

All the calculations and data clearly depict the costs of employing developer from Poland and New York. More comparisons will be made next week! What exactly can you expect?

  • Comparison of costs New York based team vs Poland outsourced team
  • Additional benefits of creating a dedicated team in Poland
  • Summary of the first issue

Stay tuned and sign up to be the first to get notifications on new updates!

Are you looking for a reliable technology partner? Reach out to DAC.digital Team to talk about your project and get a free estimate – check how much you can save by outsourcing software development.

Radosław Szmit
Radosław Szmit Business & Growth Expert

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