Companies of all sizes are turning to virtual employees as a cost-effective alternative to hiring as opposed to US-based talent. While both options have their advantages, it’s essential to visualize the cost comparison between them.
In this blog, we’ll conduct a comprehensive analysis about the cost differences of US-based and virtual employees in terms of average salary, overhead costs, productivity, and overall salary costs.
Average Salary Comparison
The average salary for US-based employees varies widely depending on factors such as location, industry, and experience. In major metropolitan areas, particularly in tech hubs like Silicon Valley, salaries can be significantly higher.
According to Indeed, the average yearly salary of an accountant in the United States is $62,188. Meanwhile, Virtual employees, often based in countries with lower living costs, generally command lower salaries. For example, in the Philippines, the average monthly salary would be ₱28,165. This would be $5,965 annually. You stand to gain $56,223 in cost savings.
Overhead Costs Comparison
The benefits of hiring globally do not stop at salaries. Saving on office space is another major advantage for remote operations. For example, IBM slashed real estate costs by $50 million by running remotely.
Here’s a breakdown of how much you can save:
Office Space. Renting office space in a major metropolitan area like New York City could cost anywhere from $50 to $100 per square foot annually. For a small office accommodating 10 employees, this could result in an annual expense of approximately $50,000 to $100,000.
Utilities. The annual cost of utilities (electricity, water, heating, cooling) for an office space might range from $5,000 to $10,000.
Benefits. Providing benefits such as health insurance, retirement plans, and paid time off can add 25-40% of an employee’s base salary. For an employee earning $60,000 per year, this could amount to $15,000 to $24,000 in benefits costs annually.
Equipment. Outfitting each employee with a computer, software license, office furniture, and supplies might cost an average of $2,000 to $3,000 per employee annually, considering upgrades and maintenance.
Total Overhead Costs for US-Based Employees (10 employees):
- Office Space: $50,000 to $100,000
- Utilities: $5,000 to $10,000
- Benefits (25-40% of base salary): $150,000 to $240,000
- Equipment: $20,000 to $30,000
Total Overhead Costs: $225,000 to $380,000 per year
Office Space. Since virtual employees work from their locations, there are no office space costs associated with them.
Utilities. Similarly, you won’t incur utility costs for virtual employees.
Benefits. Benefits can still be provided selectively but may be lower in cost compared to full benefits packages. Assuming a 10% addition to base salaries, for employees earning an average of $40,000 per year, this could total $4,000 per employee annually.
Equipment. You might provide a stipend for home office equipment or cover the cost of necessary software licenses, which could amount to $500 to $1,000 per employee annually.
Total Overhead Costs for Virtual Employees (10 employees):
- Office Space: $0
- Utilities: $0
- Benefits (10% of base salary): $4,000
- Equipment: $5,000 to $10,000
Total Overhead Costs: $9,000 to $14,000 per year
The difference is clear, you can save up to $371,000 a year on overhead costs when you decide to go remote.
US-based employees often work in traditional office environments with set working hours. In the country, the productivity rate is at 3.50% in 2023, which is still above the long-term average that was 2.16%. Meanwhile, in the Philippines, the productivity rate increased by 28.9% in 2018— pointing to the excellent work ethic in the country.
When approaching this metric from a different standpoint, on-site employees are productive for only two hours and 23 minutes each day. Conversely, remote workers were revealed to be productive for 36 hours a week. The output-based culture ConclusionIn this cost comparison between US-based and virtual employees, it’s evident that virtual employees often offer significant cost savings for businesses. While US-based employees may command higher average salaries and come with associated overhead costs, virtual employees can provide similar skills and expertise at a fraction of the price.
The Bottom Line
Ultimately, the choice between US-based and virtual employees depends on your specific business needs, industry, and budget constraints. However, for companies looking to optimize their cost structure, enhance flexibility, and access a global talent pool, virtual employees present a compelling option. By carefully weighing the costs and benefits, businesses can make informed decisions that align with their long-term objectives and financial goals.