Many companies are looking at India as a major market destination for building remote teams, considering the potential business opportunities in the country. Freelancing/contracting, outsourcing, subsidiary formation, and working with an employer of record (EOR) are some models through which overseas businesses get access to the Indian market.
When it comes to deciding the business model for remote work, it is the cost factor that plays a crucial role. In other words, companies decide on their remote work designs after clearly understanding the total expenses of their choice of model.
So, it is vital that every company be aware of the actual costs and expected return on investment (ROI) thoroughly before making the final call for investment in a model. Although the cost factor is one of the primary concerns for any business investment, it is not the sole deciding factor.
You may also need to consider other factors such as time duration, effort, and operational & management risks besides costs. The most crucial part is finding the right balance between the costs and other factors to opt for the best route for building a remote team internationally.
This blog offers an overview of the costs of different remote business models. It will give you a clear perspective on which remote model will fit in terms of cost while deciding team in India.
Costs of different remote business models in India
Without any doubt, building remote teams in India will ensure two advantages to foreign businesses — the availability of skilled resources and low rates of the workforce. It means you get access to a large pool of Indian talent at reduced costs by hiring remote resources in India.
Now, let’s understand the costs of hiring talent from the Indian market through existing different business models. The overall cost differs from one model to another and varies significantly depending on the project complexity, time duration, and workforce requirements.
To illustrate the average cost range of remote business models available in India, let’s assume the following conditions:
We calculate the cost of every business model based on the average salary for a 6-member team per month. Also, we mention if there are any additional costs above salary costs, which are prevalent in some business models.
For our analysis convenience, we make some assumptions about the work experiences and different positions in this 6-member team. The team comprises a manager having 8 plus years of work experience, two senior- or mid-level contractors with 5-8 years of experience, and three junior-level contractors with 2-4 years.
Based on these assumptions, we prepare the estimated costs of every model. See the table below about the cost structures in working with different remote business models in India. Let’s discuss all models in detail.
* Indicative per month cost of a team of 6 members. It is the average salary cost of 6 members (1 manager, 2 senior- or mid-level contractors, and 3 junior-level contractors)
Hiring freelancers or contractors in India is way more affordable compared to the West and is very convenient for businesses to resize their workforce on an urgent basis. Among business models, freelancing can be considered the cheapest option and you can easily upsize or downsize your workforce with the least costs.
The average cost of having a team of 6 freelancers will be around USD 9,146.34 per month, which means the per-person cost will be USD 1,524.39 monthly. This is an estimated salary of how much freelancers would earn when their wages are converted into a monthly salary. Freelancers earn their wages based on per hour, project, or job.
Moreover, you are liable to pay additional costs applicable to transaction charges and currency conversion fees (CCF) while transferring salaries to the self-bank accounts of your resources. The remittance charges in Indian banks range from USD 10-20 per transaction depending on the amount or type of transaction. The banks will also deduct some amounts as a CCF charge from the salary credited for your resources if it is not already paid by you.
However, you have a great risk of facing legal liabilities if your employees fail to comply with Indian regulations toward employment and legal responsibilities such as paying income tax.
In general, not every professional or freelancer is fully aware of the legal taxation system of a country and they need to consult a tax advisor regarding that. In India, as per the new tax regime, if an employee’s annual income is above INR 700,000 (USD 8,536.58), he/she is liable to pay tax.
A local-based employer of record (EOR) differs from a multi-national EOR as the former service providers exclusively offer services within one country. Although both models provide similar services, a local EOR has extensive knowledge about the pulse of local talent and their needs in a particular country.
Partnering with a local EOR can easily solve the main issue associated with freelancing, i.e. compliance challenges as it normally has a team of legal experts, who are well-versed in the country’s taxation, accounting system, and others. Moreover, you can also take advantage of additional EOR services such as recruitment, payroll, employee benefits, and human resources (HR) functions besides compliance benefits.
Local EORs handle recruitment, HR activities, payroll processing, and compliance of remote employees in India for you and would charge a meager USD 150-200 per person monthly as their service fees. So, keeping a 6-member team will cost you around USD 900 per month.
So, the per-month cost of working with a local EOR partner in India would be around USD 10,046.34, which includes service charges (USD 900) and salary costs of your employees of a 6-member team (USD 9,146.34).
A multi-country or global EOR offers services across different countries and does not focus on a particular country. Compared with a local EOR, a multi-country EOR usually charges higher service fees. Global EORs normally charge a flat service charge between USD 600-800 per person every month.
The per-month cost of working with a global EOR partner in India would come to around USD 13,346.34, combining the service charge and salaries of the 6-member team. You may consider taking the assistance of a global EOR partner if you plan to run business operations by hiring talent from different countries.
However, it will be more costly for you to work with one global EOR service provider for multiple teams located in different countries. Instead, it will be a wiser approach to hire a local EOR separately for each country since it will reduce your cost substantially.
Businesses tend to outsource certain tasks to outsourcing companies considering the cost benefits. Outsourcing, as a major business model for remote work, is often opted for specialized tasks that require third-party experts who have well experience in that field. Outsourcing firms usually have a ready-made team to execute your tasks.
Outsourcing companies work based on man-month cost and charge on a time and material basis. The per-person or per-hour charge is a bundled rate, which can be costly as compared to other business models such as EOR or freelancing. You can also explore the comparative study of outsourcing and EOR.
The per-month cost of hiring outsourcing companies in India with a team of 6 members would be USD 27,439.02, which is 3 times costlier than the hiring of the same team size of freelancers. The cost will be higher if the outsourcing companies need to hire an additional skillful workforce required for the project. Also, the cost is higher if it is a small project.
However, compared to the West, outsourcing in India is still a good option if you want a team of experienced professionals. Also, the outsourcing company will take care of the team selection for the assigned tasks.
However, you may face certain challenges such as intellectual property (IP) violation issues, lack of direct communication with the team, and unfair salary negotiation that often leads to a high attrition rate of the associates.
Incorporating a subsidiary in India will allow the direct hiring of local talent in the country as per regulatory compliance and several other benefits. However, it is cost-intensive to establish a legal entity as it requires a huge sum of capital for upfront expenses including infrastructure setup, office rental fees, legal fees, staffing, etc.
Considering the overall cost, the subsidiary formation will be 4.5 times costlier than the cost involved in hiring a 6-member team of freelancers. The per-month cost of incorporating a subsidiary in India would be around USD 41,158.53, which can be a major challenge for small & medium enterprises, having low budgets.
Subsidiary formation is also not an ideal option if you have a few employees in that particular country, where you want to establish your entity. A thorough understanding of Indian work culture and having proper knowledge of the legal formalities of the territory are must before you decide.
We suggest you take time and assess whether your remote team will work or not through the help of a local EOR before you decide to form a subsidiary company in India.
Remunance as a guide for cost-saving team building in India
Remunance, as a leading local EOR service provider in India, can assist you if you want a cost-effective approach to team building in India. We have a wide chain of networks and a team of experts that can help you tap into a large pool of highly-skilled Indian workforce at the lowest cost possible.
At Remunance, we offer all the support you need for building a team in India including IT infrastructure & office support, recruitment, payroll, taxation, and employee management. With our services, we also take care of your employees’ overall well-being by providing medical care and health insurance, which ensures their job satisfaction and security.
Having in-depth knowledge of recruitment and talent acquisition, Remunance can help you acquire suitable talent for your remote business operations in India. We are also very proud that we have hired over 800 Indian employees situated in 34 cities for our foreign clients. We are currently working with several clients from 16 countries across the globe.
We charge a flat rate service fee per employee and there is no provision for bundled charges or hidden costs associated with us. You can talk to us if you need any assistance or have any queries about our services.
This blog is made for information purposes. Everybody is requested to get advice from an expert before making a decision based on the information given in the blog. Remunance disclaims any liability/loss or damage caused by using the information, directly/indirectly, given in this blog.