Comparing the costs of dedicated staffing and in-house hiring is not as straightforward as it initially seems. One of these hiring strategies consolidates multiple costs and presents them transparently as one, single service fee, while the other spreads expenses across multiple stages of the hiring process and includes several costs that are hard to identify right away.
In this article, we will compare these two hiring models head-to-head and attempt to determine which is the more cost-efficient option. In addition, we will try to flush out their hidden costs, but also reveal the hidden cost savings of dedicated staffing.
Introduction to Each Model
Every business reaches a point when its existing workforce can no longer effectively support the operational needs, and bringing in additional talent becomes necessary.
When this happens, there are multiple avenues that companies can take to close this gap, and the two most common ones are:
- Hiring a full-time in-house employee
- Outsourcing a specialist from a dedicated staffing provider
Each of these hiring strategies has its own advantages and is the more practical choice in different business situations.
Before we can discuss the cost savings of dedicated staffing and understand how it can be a more cost-efficient option over in-house hiring, let’s first define the models and see what their differences are:
Comparison Area | In-House Hiring | Dedicated Staffing |
Talent Pool | More restrictive, limited to local talent market | More flexible, taps into global talent markets |
Hiring Speed | Slower, requires recruiting, screening, interviewing, and onboarding | Faster, providers maintain a pool of available qualified professionals |
Oversight | Higher, requires direct supervision, HR support, payroll, and admin tasks | Lower, only requires supervision, admin tasks are handled by the staffing provider |
Turnover | Disruptive, introduces operation interruptions, termination costs, and new hiring costs | Manageable, the provider can easily replace the specialist |
Costs | Fragmented across different areas of the recruitment process | Consolidated into a single vendor fee |
Hidden Costs of Dedicated Staffing vs In-House Hiring
For businesses that are looking to expand their teams, the cost of hiring is one of the most decisive factors that can have a great impact on their decision. Companies naturally want to increase their capacity with as little financial strain and interruptions to their operations as possible.
However, comparing the two hiring strategies head-to-head can be a bit misleading, because the costs of direct hiring, as well as the cost savings of dedicated staffing, may not be immediately visible.
While some of the expenses related to in-house hiring can be predicted and accounted for in the budget ahead of time, this hiring strategy also introduces several hidden, or indirect costs, that are much harder to estimate upfront. Such costs include:
- The cost of management involvement: Hiring in-house requires managers to review candidates, conduct interviews, and make hiring decisions instead of focusing on more productive work.
- The cost of prolonged vacancies: Recruitment processes can often take months to complete, during which managers are occupied with hiring, the active team is overworked, and productivity is affected.
- The cost of bad hires: The longer the hiring process takes, the more pressure mounts, standards start to decline, and hiring mistakes are made. This can result in poor performance, a need for extra training, or, worst-case scenario, turnover and restarting the hiring process from the top.
Each of these costs can be difficult to predict or quantify, as it is impossible to know what talent is available in the market, how many qualified candidates will apply, and how much demand exists for the same professionals ahead of time.
On the other hand, offshore staffing costs are typically presented as a consolidated vendor fee, which makes them completely transparent.
Dedicated Staffing vs In-House Hiring Cost Breakdown
The best way to understand the cost savings of the dedicated staffing hiring strategy, is to compare its costs with those of in-house hiring:
Cost Category | In-House Hiring | Dedicated Staffing |
Advertising and marketing costs | Attracting qualified talent can be quite costly | Handled by the provider as part of service fee |
Recruiting and administration costs | Candidate selection can take both time and money | Handled by the provider |
Payroll processing costs | Managing full-time employee compensation comes with an extra cost | Handled by the provider as part of service fee |
Training and productivity costs | It can take some time before a new hire is full productive | Most providers procure qualified professionals, ready to start working right away |
Turnover costs | Replacing a full-time employee is very costly | Most providers offer replacement options |
Vendor service costs | N/A | The main cost of the model that covers almost all other hiring costs |
As you can see from the table, companies that use dedicated staffing services to fill vacant roles pay one consolidated vendor fee to the staffing provider, and avoid paying a wide range of costs they would pay if hiring permanently in-house.
These costs include:
- Job advertising fees, premium listings, and social media ad campaigns they’d need to invest into to attract qualified professionals. With dedicated staffing, they can avoid these costs because staffing providers handle these as part of their fee, and also maintain pre-vetted pools of available talent.
- Background checks, recruitment software, ATS subscriptions, recruiter bonuses, interviews, and other components of the employee screening and selection process required to make a good hire. Dedicated staffing providers take care of these activities before you interview and hire talent they recommend.
- Calculating and processing employee salaries, deductions, taxes, benefits, and contributions comes with an additional cost for administrative work and software. With dedicated staffing, managing payroll is the provider’s responsibility.
- New hires often need onboarding, in-house training, and mentoring before they fully understand their responsibilities and start working productively. Dedicated staffing providers aim to recruit fully qualified and experienced professionals who can start contributing with minimum preparation. They also often have in-house training available on a variety of topics to ensure continuous upskilling and workforce readiness for each candidate.
- Hiring the wrong candidate or having a full-time employee quit restarts the whole hiring process and reintroduces all the costs that come with it. Dedicated staffing providers allow clients to add new team members to scale up, remove workers to scale down, or even replace specialists who don’t meet expectations.
In other words, it is not only the differences in salary expectations in more and less competitive labor markets that make dedicated staffing the more cost-efficient option than in-house hiring.
This model allows hiring companies to also save on the hidden costs associated with in-house hiring, including the expenses related to attracting qualified talent, screening, processing payroll, and other opportunity and productivity costs.
This cost comparison reveals that even though dedicated staffing may appear as the more expensive option, when the in-house hiring costs are broken down, and the services included in the vendor fee are clearly presented, the offshore staffing costs become much more reasonable.
In fact, in situations where companies want to scale their workforce with minimal overhead or need to quickly respond to an urgent business need, dedicated staffing can be the more cost-efficient option. This is especially true when considering the productivity and opportunity costs discussed earlier in this article.
Summary
Hiring in-house employees may be a familiar approach, but it carries hidden risks. Considering that it is hard to predict just how long the recruitment process will take, how much it will disrupt the ongoing operations, and whether or not the selected candidate will be the right fit, no one can forecast its total cost with certainty.
On the other hand, dedicated staffing eliminates much of this uncertainty by providing companies with pre-vetted, qualified professionals who can start contributing right away. What’s more, they handle much of the administrative load and make employee replacement quick and easy when things don’t work out.
Guest writer
