Thinking of Outsourcing to China? Beware of This Pitfall

So you’ve decided that India is getting too expensive as an outsourcing destination and are tempted by all the big-name stories to set up in China. But did you know that there are some significant financial disadvantages involved?

The most important disadvantage is the high federal tax that has to be paid for each employee, similar in nature to the US’s social security tax, that comes to 50% of the employee’s salary. In addition, if the employee knows English, you will have to cough up an additional 10 –15%! (Source: Frances Karamouzis at Gartner).

In India, the only add-on would be the employer’s Provident Fund contribution, currently 12% of basic pay (i.e., salary minus most allowances). Medical coverage is optional.

If you want to consider outsourcing to India instead of China, TMG can help with our outsourcing consulting practice.