The Cost of Remote:
34 real (and hidden) costs to consider when building a remote team
Introduction
There are countless benefits to building a remote team, such as increasing your talent pool, bringing on diverse perspectives, and reducing competition. But often, the catalyst for remote growth is reducing cost.
At Terminal, we help companies of all types build out a global presence. We’ve seen firsthand how unexpected costs and delays can crop up at nearly every turn. The knowledge we’ve accumulated to build, operate, and scale remote teams hasn’t come easy, and businesses draw on our experience to navigate the process and minimize costs along the way.
So, what exactly goes into hiring and retaining talent in global markets? Are you prepared for the time, expense, and mental resources that come with doing it yourself? Based on our experience launching teams across North and South America, this guide breaks down the hard and hidden costs to help you identify the best pathway for your business.
The elements of building a remote team
Whether it’s setting up a remote workspace, legally creating an overseas entity, managing payroll and benefits, or simply recruiting talent, it takes a lot of extra time, effort, and money to set up a global presence from a distance.
Many businesses opt to block and tackle the bigger tasks, outsourcing them to a firm that specializes in those areas. Here are the most common areas your business may seek help:
Human Resources
HR partners are the go-to resources for employee-related issues. HR partners typically manage tasks such as job design, employee relations, performance management, and the nuances of employment law in different regions.
Payroll + benefits
These partners handle payroll processing and oversee the benefits packages you offer your employees specific to the regions you operate in.
Recruiting
Recruiters will help you find the best candidates in the market where you’re building your team. They’re responsible for managing the search for potential employees, screening them, and matching them to available job positions. They’ll also likely have established candidate relationships in the region you’ve chosen, helping to fast-track your search.
Real estate + IT infrastructure
Corporate real estate partners will help you find the right place to establish an office and manage the property once you’re there. Keep in mind that even remote teams prefer an office to go into at least 1-2 days a week, an important consideration once stay-at-home guidelines are lifted.
Business operations
Each market will have a different business regime in which you will need to operate within to be compliant and ensure you respect the local laws and requirements. This varies by country and will even vary by state, province, or city. You will need third-party support consultants and partners for banking, insurance, tax, and accounting.
There’s no single way of embarking on your remote journey, but there are ways that may be more costly and time-intensive. This guide aims at breaking down all of the elements of remote to help you decide how to approach it at your company.
Legend
The three types of costs we’ll cover in this guide
Hard costs
These are the costs you’ve probably already considered, like travel time, salaries and equipment.
Hidden costs
As the name would suggest, these are all the costs that may not be obvious, like building your brand in a new market and retaining employees.
Time to team
Developing your own remote strategy means that it might take years before your team is hired, onboarded, and ready to work.
Want more details? Download this step-by-step list to going DIY remote – from hiring to setting up a legal entity, to finding real estate and more.
- Market exploration
- Business setup
- Recruiting
- Employee support and retention
- Ongoing administrative costs
- the Terminal Advantage
Market exploration
Choosing the wrong market is the most expensive mistake you can make while building a global presence. Typically, by the time you realize the market may not be a good fit for your company or talent needs, contracts will have been signed and hundreds of thousands of dollars will have been spent. That’s why the exploration phase is so crucial.
Hard Costs
Staff Salary
If you are just beginning to hire globally, it’s imperative that the appropriate team resources are set aside for this endeavor. You’ll need to dedicate two team members to research and explore the market, and make it their primary focus for at least a quarter. Otherwise, it won’t be properly prioritized, and it could take months before research starts in earnest.
Keep in mind that market exploration will go far beyond Google searches. You’ll need time to tap into knowledge sources on the ground in your target area to get the job done. Exploring a new market requires proactive team members that are ready to travel and forge relationships. That costs time and money. Ideally, at least one team member will have a firm grasp on the native language of each country represented on your list of target markets. A three-month commitment is 25% of their annual salary, and that’s before they even start to implement takeaways from their research and findings.
Travel costs
When travel allows, it’s ideal to actually spend some time in the area where you’re thinking of establishing a presence, both to explore local professional groups and meet with possible HR or recruiting partners. Once stay-at-home guidelines are lifted, it’s going to occupy a lot of your team’s time. Be prepared for the amount of travel needed to feel confident in your decision to commit to a market. At Terminal, we have collected enough data to know that you should narrow your search down to three markets and spend a week minimum in each one in order to get the essential legwork done. Those costs will start to add up.
Hidden Costs
Opportunity costs
Whoever you dedicate to scope out a market won’t be able to focus on other tasks, and depending on their experience, the learning curve can be quite steep. Sure, this person knows your business, but have they hired remotely before? And if so, was it based on existing relationships? If you put a more experienced person on the task, it might cost your company in other ways as well. If you take a cofounder or c-level executive out of their day-to-day role, what will that cost your company? Even if they aren’t doing the bulk of the gruntwork, your executives are probably going to have to travel to the markets you’re considering, which could eat up a significant portion of their annual salary and working time.
In-market relationship building
Getting set up in a new global market means getting to know the firms and professionals you’ll need to be working with. It can involve trips, phone calls, and general relationship building with real estate brokers, accounting firms, and legal teams. Without an experienced remote teams partner or market expert, this process can take up a lot of valuable time and money. Don’t neglect to factor this into your market exploration costs.
Time to team
Your international remote team is just a sparkle in your eye at this point. It’s going to be a long road until you have remote employees set up. Keep in mind that your company is likely an unknown entity in the new market, so it may take extra time to build a brand and attract top talent in market.
The market exploration phase takes, on average, about one year.
Estimated total market exploration cost: $90,000
Business setup
After you’ve chosen your market, you’ll have to get ready to legally employ people in the region. But keep in mind: The effort and financial commitment needed in this phase are substantial. The steps are neither straightforward nor uniform for every market. The most costly part of this phase is hiring outside consultants to navigate legal and regulatory issues, and it’s a cost that can’t be avoided. Your in-house team will almost certainly lack the specialization necessary for a new market. You’ll have to bring in outside help, and once you do, costs go up.
Legal questions to consider in your new market
- What are the local laws you need to know to hire and operate?
- What incentive programs might you be eligible for?
- What are the nuances of employment law?
- What are your legal liabilities if you need to let someone go?
- How can you mitigate exposure in how you hire, fire, structure, and employ your team?
Hard Costs
Setting up an entity
If you plan to hire a foreign team, you need to set up a new entity. Each country is unique and requires local legal expertise. You’ll not only need to pay to register your entity, you’ll also incur legal fees and accountant fees to get set up. Keep in mind you’ll also need to associate your entity with a registered local address. If you plan to have a physical location, this often prompts companies to start paying rent before they have the headcount to populate a new space.
Hard Costs
Bank accounts
You won’t be able to run your new entity through your domestic bank accounts. You will need a bank account in your local market to process everything from your payroll to tax credits. For setup, it’s most important to consider fees for account set up and deposits, as well as initial capital requirements. Keep in mind that both of these can vary by market.
Office buildout
According to a recent study, remote employees say they prefer going into an office at least 1-2 days a week. Even with stay-at-home guidelines in effect, you may want to start the search for an office or co-working space so you’re ready when things return to normal. That might involve construction and remodeling to get your office space up to snuff. It also means furniture, computers, and even kitchen supplies. And don’t forget that your new office will require just as much care as HQ. White walls and empty halls lead to faster turnover, so consider branded decor and maybe even a few mood-lifting plants. Even if you plan on using a service like WeWork, you’ll still have to add things like software subscriptions, telephone and internet services, and event space to your calculations.
Staff salary
As with market exploration, you’re going to need employees on your staff navigating the process of setting up your global remote presence. In this phase, you’ll be looping in more executive-level staff and getting feedback and buy-in from people across your organization. These staff members need to follow the legal and financial intricacies of launching in the decided market, and they’ll likely need to involve your legal and finance teams.
Broker fees
Finding real estate for your new office will be a big undertaking, and it’ll be hard to do it without a broker who knows the market. Real estate brokers can be expensive, but they are extremely helpful for a few reasons – they know your market and they understand local requirements to get into a space. They’ll take a commission of your rent after you’re set up, but they can help you negotiate rent, set a rent cap, and secure financial incentives on your behalf.
Hidden Costs
Opportunity cost
It bears repeating: Any time you have internal staff members working on your global remote presence, they’ll be taking time away from their usual job functions. Getting your company set up to hire a team in a new country will require overcoming a lot of legal and administrative hurdles. These tasks can easily overtake your employees’ working hours.
Committing to the wrong market
What if you start spending money setting yourself up in a new market, only to hit problems you can’t overcome? What if, for example, you learn the talent pool was favorable only for the first skill sets you needed but will cap your growth in the next stage? Or what if local competition is particularly fierce for the specific type of engineer you need to hire, or a certain non-standard benefit is required? If you’ve already sunk money into a new market, you won’t be able to recoup those costs.
Time to team
It can take a long time to set up everything you need to start hiring in a new country. Each and every internal decision can take a long time, depending on how many stakeholders are involved and what issues you come across along the way. Budget in 4 to 6 months for this phase, understanding that you’re still not going to have any engineers working on your remote team yet.
Estimated total setup cost: $195,000 - $300,000
Recruiting
The beauty of having a global presence is the ability to tap into talent pools you otherwise wouldn’t have access to. But hiring in a new market takes much more than just a “build it and they will come” mentality. We’ve found that your hiring strategy is strongest when when recruiters are deeply familiar with the engineering landscape in each market, available skillsets, and the particular demands of remote work. This kind of familiarity can come at a premium.
Hard Costs
Recruiters
Whether you opt to retain an in-market recruiting agency or hire a full-time staff member, you will need to allocate funds to acquire the recruiting power necessary to staff your new team. In North America, in urban tech hubs, you can expect to spend upwards of $125,000 for one full-time recruiter, and you’ll likely need to hire more than one if you’re scaling your international team. If you plan to go the agency route, you can expect to pay between 15 and 25 percent of every new hire’s salary. That means hiring 15 engineers with a $90,000 salary could come with an additional $300,000 fee.
Staff salary
No one wants to spend time interviewing a candidate who’s clearly a bad fit. It’s frustrating, and it’s also expensive: each hour your team spends in an interview is an hour they’re not working on impactful projects. Your business is still paying your team for these hours, which can equate to thousands of dollars, depending on salaries. You can expect your team to spend 3 hours minimum per first-round interview. Experienced recruiters will screen away candidates who aren’t a good fit, saving your staff time and your business money. This makes selecting the right recruiter particularly important.
In-person interviews (when applicable)
The pandemic has made Zoom calls the norm for pretty much every type of work transaction, interviews included. But once stay-at-home guidelines are lifted, many teams may still prefer face-to-face meetings for final-round interviews, especially for critical roles. These interviews entail airfare, lodging, and transportation, which can add up fast.
Brand recognition in the new market
It’s entirely possible that no one will know about your company in the new market, so how will you attract talent? Why will engineers want to work with you instead of a local company? How will you stand out amongst the competition? It will take some valuable time and money to show engineers why you’re worthy of their commitment. You might consider employing a local PR team, placing advertisements, and when allowed again, sponsoring local events, hosting influencer dinners, and throwing introductory happy hours.
Hidden Costs
Low acceptance rates
Building an effective recruiting strategy comes down to building an efficient candidate funnel. When you hire recruiters who know the market, you not only get higher-quality leads, but you also get interviews that are more seamless and higher acceptance rates when you extend an offer. The opposite is also true: recruiters unfamiliar with local interviewing culture may get great leads, but a faulty interview process can turn off otherwise excellent candidates. Each time a candidate rejects an offer, that’s time, energy, and money that your company won’t get back.
Cost of vacancies
Every new job opening is created for the same reason: to help your business achieve something it couldn’t otherwise with your current team. The quicker you fill a role, the faster you’re achieving your expanded company objectives. When you let roles sit vacant, you’re accomplishing less, and chances are you’re also distributing additional responsibilities to your current team members, which left unchecked, can lead to morale issues and turnover.
Cost of bad hires
According to the U.S. Department of Labor, the average cost of each bad hire is about 30 percent of that individual's annual earnings. Some experts argue it’s much higher. However you cut it, hiring the wrong person is a costly risk of recruiting. Not only do you spend time and money onboarding the wrong person, you also have to go back to the drawing board if you eventually have to part ways. Keep in mind that legal liabilities around terminations can be very strict in some regions; severance or off-boarding benefits can be a huge hidden cost.
Time to team
It takes an average of 35 days to hire a new software engineer. This means for a team of five, you can expect to spend around 4 to 6 months to build your remote team. Keep in mind that when you work with recruiters who are unfamiliar with the market, or who set up a poor candidate pipeline, this timeframe can go up dramatically. That’s why it’s important to build a strong candidate funnel to optimize every step of the process.
Estimated total recruiting cost: $417,500, increasing as you scale
leaders report not having a strategy for finding talent in a remote work environment.
leaders report not having a strategy for finding talent in a remote work environment.
of engineers say the interview process is fundamentally broken.
Source: Terminal’s Engineer 2020 Report
Employee support and retention
Once you’ve chosen your market and set up operations there, that’s when the real work -- and expenditures -- begin. Keeping a remote team running smoothly is a huge lift, considering the number of moving parts: onboarding, coaching and guidance, and immigration support to name a few. Going DIY on these tasks isn’t just tedious; it also can hit your ledgers hard.
Hard Costs
Benefits
The benefits packages you offer in new markets may look similar to your stateside packages, but you will likely be working with different providers for a new market. Expect to find in-market specialists to square away your employee insurance plans, pensions, taxable health benefit adjustments, and employee travel coordination and support.
Onboarding
It’s hard to overstate the importance of a strong onboarding program. According to recent studies, companies that focus on onboarding retain new employees 50% longer than companies that don’t. And employees agree: 69% of workers who have a positive onboarding experience say they plan on staying with their new employers for 3 years or longer. A great HR partner will bring remote-specific onboarding programs that can drastically improve retention.
Learning and development
58% of engineers cite learning and development as one of their top criteria when considering a new role. No matter how brilliant your engineers are, mentorship and guidance can make all the difference. Your engineers are much more likely to feel supported in their careers when you offer meaningful coaching to keep them feeling creative. But remember, building out a coaching program requires a lot of forethought to feel authentic. It’s important to get it right; otherwise you may come across as patronizing to your experienced engineers.
Payroll
If you want to keep your employees around, you’ll have to pay them of course! The nitty gritty of getting salaries in your employees’ pockets is often an after-thought, but issuing checks, maintaining tax compliance, and calculating payroll deductions and garnishments is a lot of work. Keep in mind that international regulations around payroll almost always differ from what you do stateside, so having an in-market expert is a must.
eNPS surveys
HR, done right, is like getting a temperature check on the health of your workforce. The gold standard is conducting a regular employee net promoter score survey, or eNPS survey, to understand how happy your employees are. Surveys are notoriously difficult to get right (there are whole PhD programs devoted to survey design!), and the survey itself may be the easy part. Getting employees to fill out the survey can take up huge amounts of time in its own right. You’ll want to do this semi-annually, which can turn into a huge lift if done in-house.
Culture-building programs
Now that you have new remote engineers, you’ll want to keep them. This means investing in new programs to keep your employees happy, like company culture initiatives and team-building events. After all, strong company culture requires a strong bond between teams. It’s an investment that’s well worth your time: According to a study at Stanford University, teams that collaborate work 48% longer and are more likely to solve problems correctly.
Staff salary
Implementation is quite possibly the most tedious phase of setting up a global remote team. Setting up human resources services and a region-specific onboarding flow is easier with local experts, but they still take up a significant amount of time for someone on your team to implement and maintain. Don’t underestimate how much time it will take for your team to keep your infrastructure up and running.
Hidden Costs
Immigration support
The bureaucracy around immigration knows no bounds. Navigating work permits yourself can turn into a full-time job; asking your employees to trudge through red tape, you might as well be sending them directly to job boards to find a new job. Depending on where you set up shop, expect to invest hundreds of tedious hours filling out paperwork with various government agencies.
Offboarding
Of course, employees don’t stay forever. Whether they’re resigning or leaving involuntarily, you’ll need to have a consistent offboarding plan. There are always more loose ends than you expect, from transferring job responsibilities to deactivating access rights and turning in equipment. And it’s best not to forget exit interviews: they can offer invaluable insights into how to increase retention. Conducting this from afar can lead to things falling through the cracks.
Disengaged employees
While you might be tempted to find a local devshop to shortcut the recruiting process, keep in mind that these are often structured on a project-to-project basis, and accordingly, developers may not be particularly engaged with your company or its mission. People who are bought into your business’s vision will be more excited to solve the problems your company faces, and they’ll also help inspire those around them, a virtuous cycle that’s hard to quantify.
Opportunity costs
Maintaining your global remote infrastructure will have to become part of the ongoing goals for some of your team members, and it will have to come at the expense of other things. Be careful that whoever ends up with it on their plate doesn’t feel like they’re getting stuck with an unsavory responsibility. Otherwise, it might breed resentment and cause your staff to look for greener pastures.
Time to team
Your team might be hired and eager to work, but it still might take some time before they can meaningfully contribute to your team. Consider that they will need to be onboarded, introduced to your team, and set up with equipment -- all things that will take more time if your team has to set up every new process first.
Plus, if you don’t have good employee retention, you’ll constantly be setting up new employees and diminishing the amount of time where you have fully functional team members.
Expect to spend 6 to 8 months getting your processes set up and about 30 to 60 days onboarding each new employee.
Estimated costs (re-occuring annually): $227,200
Ongoing administrative costs
Building an airplane from scratch is one thing; keeping it flying is another task completely. Once you’ve established your remote team, expect to spend a lot of time and energy on routine maintenance. Here are a few of the biggest line items you’ll have to consider.
Bookkeeping and accountant fees
Finding a trustworthy, savvy accountant is a tall order under the best of circumstances. But when you throw complex local tax laws into the mix, expect hefty price tags for in-market specialists. And that’s the best case scenario. If you choose a substandard accountant, it may cost your company even more, as poorly managed books can lead to thousands in unnecessary taxes and/or penalties. And remember, as adept as your team is back at HQ, attempting to manage all receipts and local spending from your main office will almost always be more expensive and less efficient.
Entity compliance
Every region has its own set of laws for conducting business there, so you’ll need your local legal and finance teams to dedicate time to get it right. Recurring requirements vary by country, but most regions require the following at a minimum: insurance policies (general commercial liabilities, director & officer liabilities), year-end tax filings and remittances (including income tax, sales tax, and payroll tax), and labor law compliance. Getting any one of these wrong can lead to big penalties or even the loss of your business license in extreme cases, so the stakes are high.
Operations
Behind every great office is a great office coordinator. They take care of the day-to-day logistics around the office, and hiring the right one will save you time and money in the long run. Keep in mind your search will likely require more than just hunting for current office coordinators on Linkedin. The best office coordinators tend to come from unexpected places – we’ve seen excellent office managers hired from the restaurant industry, the military, and even from an opera house (really!) – so expect to spend time with a local agency to recruit, screen, and sign the perfect fit.
IT support
When you have employees working remotely or from a second office, your team’s productivity hinges on your communication infrastructure. A lot can go wrong to interrupt that -- faulty routers, issues with Zoom, password lockouts -- so expect to set aside funds for IT support. And keep in mind that your remote teams will likely have remote-specific IT issues that your experts at HQ may not be as familiar with.
Rent
And let’s not forget rent! You will most likely work with your real estate broker to find a space that you and your team can grow into, and that means you are on the hook for paying a high monthly rate for the size of your team. If you expect your team to continue to grow, you’ll have to periodically find new office space as well. Along with that will come additional brokerage fees.
Total administrative costs: $295,000 annually
Total cost and time for building a remote global team on your own:
Save time and cut costs with the Terminal Advantage
A global team of top talent can help fuel your product growth and bottom line, but many companies vastly underestimate the costs associated with building this team themselves.
Establishing a global remote team is a daunting task. The stakes are high, and so is the price tag. Between finding the right market, setting up operations, and then maintaining the team once established, you can expect to spend hundreds of thousands of dollars.
But, luckily, there’s another option. Terminal supports companies through every step of hiring and retaining a team, and by minimizing the risks of setting up in a new market and reducing the costs associated with remote hiring, we’ll help you win the talent wars.
We help businesses build a global presence using real-world tested strategies that get remote teams up and running in a fraction of the time and cost of alternatives.
High-quality recruiting, fast
Our in-market expertise and existing database of tech talent translates to drastically reduced hiring timelines. Businesses that work with Terminal have teams fully hired and ramped up in less than six months; businesses that choose DIY solutions are typically just beginning the interview process in that same timeframe.
Optimized market selection
We’ve built powerful, data-backed algorithms to help you find the perfect market for your remote team. We assess thousands of data points in categories like average salary, cost of living, and size of talent pool to help you navigate the tradeoffs and identify the right geographic markets — saving you time, effort, and money in the process.
Seamless payroll + benefits
Not only do Terminal's member benefits packages help you close great candidates, but they also keep employees happier, so they stay with you for the long run. Our experts also provide support with immigration, payroll, and other clerical tasks so you can focus on impactful projects and avoid wasting time on red tape.
Employee-tested engagement + retention programs
Our peer-curated learning resources, career planning, and mentoring programs are employee-tested and have a track-record of increasing retention for the long haul. That can save you thousands in turnover costs each year.
There’s no one-size-fits-all when it comes to building your remote team. Connect with us to share your goals and we can build a roadmap for global hiring that takes your needs into account. Our remote team experts are standing by to help you grow.
About Terminal
Terminal is a remote teams engine for fast-growing companies. This means we hire, develop, and retain engineering teams — so that you can focus on building brilliant products. Today, we build remote teams across North America, Mexico and Latin America, supported by our unique model that blends recruiting, HR, ops, and community to drive growth.