Here are 17 arguments for offshore direct hire.
Arguments for Offshore Direct Hire
What speaks for an offshore direct hire? Why should you avoid an agency and just hire your people directly? Let’s go through 17 arguments for offshore direct hire.
In the last episode, we went through 17 arguments for renting your staff through a labour-hire agency. If you haven’t yet, please first cover that episode.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Arguments for Offshore Direct Hire
What are a direct hire’s strong points? What speaks for not going through an agency but hiring your staff directly?
# 1 – Wider Talent Pool
When you direct hire, you can source talent from a much wider area, basically anywhere in the world with an internet connection you choose. With a labour-hire, you are limited to regional hubs where agencies have an office, so you are limited to those hubs with a radius of one-to-two hours of travel time in a jeepney.
Take the Philippines as an example. The Philippines have 7641 islands and 2,000 of these are permanently inhabited. Most agencies are on the island of Luzon where you have the capital Manila and then Clark in the north and there are also agency offices on the island of Cebu in the South. So that is 2 islands out of 2,000. And there might be two or three more islands with agency offices, but you get the gist.
So with a direct hire, you can source talent from a much wider area than a labour-hire agency can.
# 2 – No Sign-Up Fee – No Deposit
With a direct hire, there is no sign-up fee and no deposit.
In an agency, you pay about $7,000 before your new staff member even shows up for work. You pay about $2,000 as a sign-up fee plus 2 months of wages as a deposit – so that’s another $4,000 – and then another two weeks in wages for their orientation – so that’s another $1,000. So that is $7,000. And yes, in theory, you get the $4,000 deposit back at the end but of course, there are terms and conditions. The main one is that you need to give two months’ notice and that is a long time to be working with a staff member who knows they are leaving. So there is a high chance that you will never see your deposit again.
But with a direct-hire, it is zero dollars to get started.
# 3 – No Management Fee
Then you have the ongoing management fee. With the agency, you pay $700 + GST a month in management fees. That is a full salary. If you remember, the speaker in ep 360 started on 27,000 Philippines Pesos a month, which is about 660 AUD a month. So the management fee for your new novice staff member is more than what you actually pay in wages.
With a direct-hire, there is no management fee. You just pay the wage, nothing else.
# 4 – Lower Wages
With a direct hire, you can step out of the combat zone in Manila, Clark, and Cebu and go into areas that are less hotly contested, hence less competition and lower wages.
It’s the same in Australia. In Australia, the hourly rate for casual bookkeepers tends to be lower in regional areas of Australia than in capital cities. And the same applies to offshore staff. The wages tend to be higher in major hubs than in rural areas.
# 5 – Less Headhunting
There is a lot of staff snatching and headhunting in the regional hubs where you have a lot of agencies and companies all competing for staff with a similar skill set.
You don’t have that in rural areas as long as you pay a competitive wage, so there is less headhunting for your staff when you hire directly away from regional hubs.
# 6 – No Interference
With a direct hire, it is just you and your staff. Your staff and you agree on how you want to do things. No interference. But with an agency, you have somebody else who tells you how to manage your staff. The agency writes the rule book.
# 7 – More Flexible
You might just need somebody for 20 hours a week or just for five months a year, but with an agency, it is all or nothing – full-time or nothing. With a direct hire, you and your staff decide how you want to work together. You can hire people part-time, casual, seasonal, or whatever you agree on, so there is a lot more flexibility.
There are public holidays in Australia and there are public holidays in the Philippines. With a labour-hire you have to follow the agency. If the agency says today is a public holiday in the Philippines or in Australia and we are not working, then your staff is not working. Whereas in a direct hire, you set the pace. You decide together with your staff which public holidays are important and which aren’t.
# 8 – Your staff
When you hire somebody directly, they are your staff. But when you hire staff through a labour-hire agency, they are not your staff. You train them, you develop them, but in the end, they are not your staff.
Most importantly you can’t take them out of the agency. So for example if you decide to change over to your own office – so you rent your own office space – you can’t move your staff, at least not officially, you would have to cheat and lie or negotiate with them and that probably doesn’t come cheap if the agency even agrees to that, they might just give you an outright No.
# 9 – You, Not the Agency
In a direct hire, you have a closer relationship with your staff because it is just you and them. You don’t have an agency that competes for your staff’s loyalty. When you hire your staff directly and somebody asks them who they work for, they will say that they work for you.
But when you speak with staff working for TOA, they will say, “I work for TOA.” Or whoever the agency is. TOA pays their wages. In her ending words, the speaker in ep 360 – all her gratitude went to the agency, not her clients.
So going through a labour-hire agency, you are the client, you will never be the employer. The agency is. But with a direct hire, you are the employer. They work for you. You pay their wages. It is a much closer relationship.
# 10 – Twosome, No threesome
When you do a direct hire, there are two to tango, you start with just you and the staff member. A twosome. But when you go through a labour-hire agency, you start with a threesome. You have two relationships that need to work. The one between you and the staff member and the one between you and the agency.
So if things go sour between you and the agency and you want to end the relationship, that will also be the end of your working with your agency staff members. So once your setup is established, the agency holds a lot of power over you. All fine while the sun is shining, but if the going gets tough, you have a lot at stake and very little say.
# 11 – Relationship between Agency and Staff
When you hire directly, there is no external relationship that affects you. But when you go through an agency, your staff’s well-being and happiness is no longer just in your hands. You also depend on the agency to provide a conflict-free work environment. And when the agency doesn’t do that, there is little you can do apart from sneakily getting them out.
With a direct hire, it is just you managing the relationship.
# 12 – You Train Your Staff
When a new staff member starts, you spend a lot of time training. They will have done an accounting course, so they know the basics of accounting and tax, but everything else you will have to teach them. With a direct hire, you train your own people. But with a labour-hire, you spend a lot of time and resources on training people who in the end are not your staff.
# 13 – No Fancy Training Courses
Now, this point very much depends on how you feel about personal development courses and how happy you are to pay for those. When your staff work from home, training is in your hands. If you want your staff to do personal development courses, they can.
But within an agency, there is a lot more pressure to pay for certain courses. TOA for example has a separate company that just runs training courses for TOA staff. And those training courses, of course, need to get filled. So you can be sure that TOA will do a lot of advertising for those courses among your staff.
When the agency offers all these courses, encourages staff to do them by telling them that this will help their advancement and everybody around your staff does these courses, it is very hard for you to say no. But these courses cost money – course fees and wages for the staff member attending them – they cost money and time and it is you who pays for all this.
With a direct hire, there is no pressure. Training is a lot more targeted around your priorities.
# 14 – Less Comparison
When your staff is in a central office, they are surrounded by hundreds who basically do the same job – who also work for Australian accounting practice – and of course, they talk. How did the speaker in ep 360 know that she could demand a doubling of her salary within two years from 27,000 to 60,000 pesos a month? She would have had input from others.
Some Australian accounting practices send gifts and large bonuses. Others fly their people to Australia once a year and wine and dine them, sightseeing, cruise on Sydney harbour and the lot. Some TOA clients have flown their accounting staff to various XeroCons in Australian capital cities.
In an agency, you are under more peer pressure. Other practices are flying out their staff, so your staff is more likely to think, “What about me? Where is my trip to Australia?” And you might not even realise that you are under this peer pressure. You just see others doing it and think it is what one does.
So, yes there is always competition, but having them all so close right next to each other creates a hothouse of comparing and tallying up. With a direct hire, you don’t have any of that. There is less comparison.
# 15 – No Travel Time
Agency staff often travel up to two hours in a jeepney one way to get to an agency office. Two hours of course is the exception. Around one hour is the norm, but that is still two hours a day – two hours a day travelling on crowded public transport. Indirectly you pay for that travel time through higher wages or other quirks. And it also affects your staff retention. Somebody with a baby at home is less likely to spend 2 hours a day travelling to the office.
But when your staff work from home, there is no travel time and hence a higher chance to make it work when family circumstances change.
# 16 – No Mandatory Disclosure
When you hire staff through an agency, you have to disclose this to your clients as per the guidelines of the Tax Practitioner Board. If you want to know more, please listen to episode 342 with Debra Anderson of the Tax Practitioner Board.
When you hire staff directly, you don’t have to, because they are your staff just like any other staff you might have. You might still do – maybe you feel you should – but you don’t have to since they are your employees, not somebody else’s. So it is your decision with a direct hire. With an agency, it isn’t. With an agency, you have to disclose it.
# 17 – Easy Parting
If it doesn’t work out, in a direct hire the two of you agree on how to call it quits. In an agency, the agency decides how to call it quits. You have to give two months’ notice, you have deposits to worry about and you have to justify your decision to the agency if you want to keep working with them, for example, because you still have other staff with them.
So parting ways is a lot easier in a direct hire than with an agency.
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So now you have heard a lot of arguments for and against labour and direct hires.
But remember that with all this, nothing is perfect. No setup is perfect. Neither labour hire nor direct hire is perfect. So it is about finding the better option for you, not the perfect one.
Some practice owners would never consider a direct hire. And some practice owners would never consider a labour hire going through an agency.
Both solutions work – not always of course, there are pitfalls and mistakes to be made with either solution – but you can make both set-ups work for you. So it is a matter for you to work out what would fit better into your practice.
If you are not sure what’s better for you, then look at what you are doing in Australia. That is a good indication of what would work for you overseas. If you have a central office in Australia for your Australian staff, then you are probably better off with a labour hire agency overseas. But if you have everybody working from home in Australia, then a direct hire overseas should work out well for you. So if you are not sure which option is better for you, start with the one that mirrors your set up in Australia.
So that is the end of our mini series about offshore teams for now. In ep 358 we spoke with three accountants who use labour hire staff through an agency. In Ep 359 we spoke with an accountant about direct hires. And then in 360 you got insider information about what it is like to work for a labour hire agency. Then in episode 363 Part I and II we went through how to actually find and hire your own staff without an agency. And then in ep 367 you heard 17 arguments for a labour hire and here 17 arguments for a direct hire.
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Arguments for Offshore Labour-Hire
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