In the face of recent layoffs in the US, companies are not holding back when it comes to international hiring. Some of them are going the extra mile to tap into the talent pools of Latin America and European countries by using alternative hiring methods. Meanwhile, big tech players like Amazon and Microsoft seem to choose the other strategy — they are shifting gears by replacing staff positions with contract positions, as this approach brings some major benefits, like cost advantages and a diverse range of perspectives.
Is this a secret ingredient that fuels innovation and drives growth in these companies? Let’s dig deeper into this trend, shedding light on the strategic move that’s changing the game for companies in the tech industry and beyond.
This spring, recently laid-off employees reported being recruited by the same companies for contract work. Those offers came from third-party recruiters eager to place workers at the companies they had just left and were for contract positions rather than staff ones – they came with an end date, a lower salary, no benefits, and no stock options. Though contacting the same people seemed unintentional, the whole situation faced a strong negative reaction from workers.
The influence of recession and layoffs
Difficult economic conditions and lack of investment made tech companies seek cost optimization solutions. Only this May, the following big companies cut a significant portion of their workforce:
- On May 24, Meta made the unfortunate announcement of laying off approximately 6,000 individuals. This adds to the tally of job losses at Meta since November, with a total of around 21,000 people being affected.
- Shopify is laying off over 2,300 employees, which represents a 20% reduction in its workforce, on May 4.
- JioMart, an online shopping platform, also joined the layoff wave by letting go of over 1,000 employees on May 22. Moreover, they have plans to eliminate up to 9,900 more positions in the coming weeks.
- Another company, TuSimple, disclosed on May 18 that it would be downsizing its workforce by around 30%. Before the layoff, TuSimple had roughly 550 employees in the US, but after the reduction, the company will retain only about 220 employees.
- Lastly, LinkedIn revealed on May 8 that it would be cutting 716 jobs, which accounts for around 3.6% of its total employees. In addition, LinkedIn has plans to phase out its local jobs app in China.
Common reasons behind layoffs include adjusting to the changing landscape and focusing on integrating AI technology, aligning the company with market conditions, optimizing its operations, funding challenges, and the need to maintain competitiveness in the industry.
Just because these companies are downsizing doesn’t mean they don’t need to keep growing and getting things done. AI won’t replace the people they let go. They need a solution to hire workers who are cost-efficient.
One solution is to hire more contractors and optimize taxes and benefits packages while maintaining the flexibility needed in a changing market. Amazon and Microsoft seem to start following this strategy. Others can go beyond that and tap into global hiring by utilizing the benefits of direct hiring like a bunch of companies did this year to cut their costs, for example, Northstar, Delve, and Headspace.
While hiring globally, there are two major options that you can follow: direct contract or employment via an Employer of Record (EOR) company that hires employees in a particular country and provides all the benefits of a local employer.
Let’s take a look at both options.
Option #1: Hire global contractors
The direct contract model allows you to hire contractors directly wherever they are located and pay them in international currency using the negotiated payment method. The contractors operate under individual B2B or B2C contracts, providing monthly invoices. While they don’t receive social benefits like paid time off or severance packages, you can offer alternative perks such as stock options through digital solutions like Carta.
By hiring directly, companies achieve cost reduction and gain access to talent pools beyond their home country. This opens up opportunities to hire highly skilled professionals at varying salary levels, ensuring access to top-quality talent for their workforce.
Jan-Peter Böckstiegel, VP of Global Infrastructure at WorkMotion, elaborated on this trend during our podcast episode. While some companies headquartered in the US or Western Europe still prefer hiring within their countries, the prevailing cost-consciousness drives many to explore talent in other countries. Salary levels in the US and Europe have not witnessed significant drops, further motivating the search for talent in alternative locations. Jan emphasizes the continued pursuit of talent within the constraints of reduced budgets, stating:
“There’s still a drive to go to other places to find talent within the constraints of the newly reduced budgets.”
Luckily, the remote jobs ecosystem evolved in a few years, and now every aspect of direct hiring is simplified and covered by innovative platforms. For delivering equipment to places where your workers live, use Hofy and GroWrk; for payroll and invoicing of remote contractors, there are Oyster and Deel; for sourcing and validating the best-fit talent to accelerate team growth, there’s Globy.
Option #2: Hire global employees
The direct contractor model is often the preferred choice for companies, except when a short-term team expansion of less than 1-2 years is required. However, there are situations where hiring employees remains necessary. These circumstances include project specifics that restrict direct hiring, such as products for the government sector or those involving security reasons.
Moreover, the context of the talent destination country may make traditional employment more appealing for top talent. For example, Mexico’s stable economy has made Employer of Record (EOR) solutions increasingly popular among software developers. Tony, a Mexican full-stack developer with a decade of experience, expresses his preference for direct employment from a Mexican company, citing the ease of dealing with taxes in his home country.
In such cases, you can still benefit from global hiring with EOR partners. These companies have legal entities in locations with prominent talent pools to optimize the costs of hiring employees while keeping the business compliant. Boundless, Lano and Globalization Partners are examples of such partners.
How much does a company save by hiring software engineers directly?
When it comes to hiring software engineers from outside the US, cost savings are huge. Senior developers with extensive experience in top US tech companies like PayPal, Meta, and Amazon can demand salaries ranging from $200,000 to $250,000. However, professionals with similar skills and experience from leading Latin American tech hubs often come at a much lower cost, typically between $75,000 and $90,000.
Keep in mind other expenses you spend on hiring locally via direct contract compared to hiring at a global scale (on the example of LatAm):
|$200,000 – $250,000
|$75,000 – $90,000
|Local taxes & contributions:
|$91,000 – $128,000 (source: ADP California paycheck calculator)
|$240 – $588
|Annual cost per hire (without benefits and office expenses):
|$291,000 – $378,000
|$75,240 – $90,588
|Office rent expenses:
|$12,000 – $20,000 (e.g. California)
|$1,200 – $3,600 (co-working space rent in Brazil)
|Medical insurance package:
|$6,000 – $12,000 (e.g. California)
|$600 – $1,200 (e.g. Brazil)
|Total annual cost per hire:
|$309K – $360K
|$77K – $95K
What does the shift to the contractor model mean for workers?
The shift towards the contractor model revolves around cost reduction and opens up new opportunities for global work. It enables professionals to work in companies they could only dream of, regardless of their geographical location. This paradigm shift in the employment landscape provides flexibility and expands horizons for both employers and employees.
In summary, tech companies seek solutions aligning with their budgets and needs. The option to hire engineers directly while maintaining complete control over their work is an attractive proposition compared to hiring through outsourcing intermediaries, which comes with the drawbacks we described earlier.
As companies increasingly prioritize cost-saving measures, layoffs and the replacement of expensive positions with more affordable alternatives have become commonplace. Consequently, with its pool of skilled engineers, Latin America has emerged as an appealing destination for companies looking to find talent without breaking the bank.