Working with an Employer of Record (EOR) can help you grow your business quickly and compliantly. It allows you to hire the very best people globally while saving time and money.
However, there are employer of record costs associated with using a service like this.
Every EOR service provider has different pricing structures and price points. Some are more budget-friendly, while others offer a more premium service with increased costs—along with greater value. So, it’s difficult to say exactly how much you’ll pay for an EOR. However, there are some common EOR costs and fees you can expect to pay. Let us break them down for you.
Breakdown of Expected Fees & Costs
The cost of an EOR solution must be compared against the benefits it provides. An ideal EOR partner should also be transparent about their pricing, protecting you from hidden expenses.
To that effect, here’s a breakdown of our EOR pricing model here at Omnipresent:
Built into these expenses, at Omnipresent and elsewhere, are factors such as sign-up fees, deposits, local direct and indirect compensation costs, and more—see below for details.
Benefits of Partnering with an Employer of Record
The price you pay to work with an EOR creates tremendous value in terms of the services they cover and facilitate, helping any company operate efficiently while expanding globally.
The biggest advantages of working with an EOR include but are not limited to:
- Better recruitment processes, leading to swifter hires of the best talent available
- Overall peace of mind through compliant implementation of consensus best practices
- Reduced resource costs through efficiency and minimal (if any) legal fees and fines
- Greater employee engagement through seamless payment and HR management
There are also potential downfalls to an EOR partnership, especially when it is not established effectively and expectations aren’t communicated. Risks related to overall flexibility, operational capacity, data protection, and employee management all need to be accounted for as you shop.
Ensuring Legal Compliance and Mitigating Risks
Working with an EOR can help offset some of the costs of legal compliance. This includes expenses involved with implementing and maintaining protections required by applicable laws, as well as preventing and mitigating risks of non-compliance and the fees or penalties that come with it.
For example, consider some of the key EU labour laws you may need to comply with:
- Working hours restrictions dictate shifts, weekly commitments, breaks, etc.
- Minimum wage requirements set standards for direct worker compensation.
- Benefits and rights requirements also set standards for indirect compensation.
- Social security and other contributions mandate additional monitoring (and costs).
- Health and safety standards stipulate necessary workplace and other protections.
- Contract and logistical standards set terms, notification deadlines, and more.
- Rules about onboarding and offboarding set limits on hiring and termination.
- Equal opportunity and discrimination policies impact demographic considerations.
These are just some of the most impactful regulations across just a few of the markets your company might target. Similar (or different) and overlapping laws may apply simultaneously in other locations teeming with promising talent in Asia, the Americas, Africa, and Australia.
This is why seamless global compliance is arguably the biggest benefit a quality EOR provides.
Factors Impacting EOR Costs
As noted above, EOR pricing and the value that they provide both vary. Beyond individual companies’ prerogatives impacting their pricing models, there are industry-wide factors that impact pricing across all providers. These include but are not limited to setup fees, required deposits, local employment costs, supplementary benefits, service fees, and foreign transaction (FX) fees. Let’s take a closer look at each of these factors.
EOR Setup Fee
Many EOR providers charge a one-off setup fee for new employees. This covers the cost of setting up the contract, onboarding the employees, and enrolling them onto global payroll. Setup or registration fees vary widely between EORs, with most falling between $500 and $2000.
In addition, some setup fees recur annually, while others are a true one-time expense. However, some providers do not charge a setup fee, and others may waive these in certain circumstances.
Make sure to nail down fee specifics with your chosen provider before starting an engagement.
Deposits
To protect their business, EOR providers usually hold a deposit for each employee. This could be a lump sum or a percentage of the employee’s salary. The deposit is withheld for the duration of an employee’s employment and is kept aside in case your company becomes unable to pay the employee’s salary for whatever reason (i.e., in the case of insolvency). If it’s not needed, you’ll receive the deposit back upon termination of the employment contract.
Employee Salary & Local Employer Costs
While the EOR is responsible for processing payroll, your business is still liable to pay the EOR to cover the costs of the employee’s salary and any necessary employer costs (otherwise known as “contributions”). Every jurisdiction has its own requirements when it comes to employer contributions, so what you pay in one country will differ from the next. These costs typically go towards local social programs and mandatory employee benefits, like retirement funds.
You can use our OmniCalculator tool to discover what employer costs you can expect to pay based on the employee’s country and salary.
Supplementary Employee Benefits
Each country has minimum requirements for employee benefits. But if you want to stay competitive and meet or excede expectations, you should consider offering supplementary benefits, such as health insurance or a higher pension contribution. If these are managed by your EOR, they will invoice you for the costs and any additional benefits management fees.
Ongoing EOR Service Fee
The service fee is one of the most common costs associated with using an EOR. This is charged in addition to setup fees and typically recurs on a monthly, per-employee basis. Each EOR provider approaches the service fee differently; some have a fixed fee for all global employees, no matter their salary or where they’re based, while other providers have varying fees.
EOR service fees can range from a couple of hundred dollars per month to over a thousand, depending on your chosen provider.
Foreign Transaction (FX) Fee
For compliance reasons, employees typically need to be paid in the currency of their jurisdiction. However, many EOR providers allow you to pay invoices in the currency of your choosing. As a result, you may need to pay to cover the currency exchange fees.
It’s worth noting that how you pay these costs differs from one EOR to the next. Some providers consolidate fees into a single monthly invoice, while others don’t. Depending on the EOR and fee type, you may be charged in advance or in arrears.
Consider the Total EOR Cost
While every EOR has a different price point, it’s important to think about the total cost to your business. And that’s not always as simple as a number on the invoice. Total cost doesn’t just include the actual fees; it also includes things like time savings, flexibility, and accuracy.
Consider the following questions when evaluating your potential EOR providers:
- How much time and care does the EOR spend on ensuring you and your team members receive the best possible experience?
- Are there any hidden fees or unexpected costs?
- Does the EOR rely on technology so much that it lacks that crucial human element to handle complex and sensitive situations?
These are all harder to put a price tag on, but they’re equally as important as the sticker price of the EOR service. A top-quality user and employee experience will lead to greater productivity, engagement, and retention. These all impact your bottom line in the long run.
Ultimately, cost is just one deciding factor you can use to choose the right EOR provider for your business. Here are some other important qualities you should consider, too.
EOR vs. Local Entity: A Comparative Analysis
Another option available to companies expanding globally, beyond working with an EOR, is to establish a local entity. Local entities, also known as foreign subsidiaries, are businesses that exist independently in their local markets but are owned and operated by your company. To understand which option is better, let’s take a comparative look at the pros and cons of each.
As noted above, some of the advantages and potential drawbacks of an EOR include:
Now, compare these against the pros and cons of establishing a local entity:
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