How Much Does an Employer of Record Cost?

Navigating the world of Employer of Record (EOR) services involves understanding various facets of cost implications and pricing models. EORs serve as pivotal partners for businesses seeking to engage workers for specific projects or tasks. 

By becoming a formal employer, EORs shoulder the obligations of payroll, benefits, compliance and more. As companies explore the EOR route, they encounter two primary pricing models: percentage of the employee’s Cost to Company (CTC) and fixed pricing. These models have distinct advantages based on a company’s goals, expansion strategies and budgetary considerations. 

This article delves into the intricacies of EOR costs, encompassing setup fees, employee down payments, salaries, ongoing service expenses and the dynamic between fixed and percentage-based pricing. 

What is an Employer of Record?

An Employer of Record (EOR) is a service or entity that takes on the legal responsibilities and obligations of being the official employer for a group of workers or individuals. This arrangement is often used in situations where a company or organisation wants to engage workers for specific projects or tasks without hiring them directly as full-time employees.

The organisation that utilises an EOR retains control over the day-to-day activities and work assignments of the employees, while the EOR takes on the administrative burdens and legal obligations associated with being an employer. This arrangement can be particularly useful for companies engaging in remote work, international projects or short-term contracts where establishing a full employment relationship might not be practical.

This kind of agreement is commonly used by businesses looking to streamline their operations, reduce administrative overhead and navigate complex labour regulations, especially when dealing with a diverse workforce spread across different locations and legal jurisdictions.

What exactly does the EOR do?

When an organisation partners with an Employer of Record, the EOR becomes the formal employer for the workers. This means that the EOR handles various employment-related tasks and legal requirements, including but not limited to:

Payroll Processing

Calculating and disbursing employee wages, taxes and deductions.

Benefits Administration

Managing employee benefits such as health insurance, retirement plans and other perks.

Compliance

Ensuring that employment contracts, labour laws and regulations are followed correctly.

Taxation

Handling employee tax withholdings and reporting to the appropriate tax authorities.

HR Administration

Managing aspects of human resources such as onboarding, offboarding and maintaining employee records.

Legal and regulatory compliance

Ensuring that employment contracts and other legal requirements are met.

How much will an Employer of Record cost?

There are many factors to take into consideration when it comes to EOR. These are:

Setup Fee

The EOR might need to set up systems to manage HR-related processes, such as employee data maintenance, time tracking and benefits administration. Depending on the jurisdiction, the EOR might need to establish a local legal entity to operate as the official employer. This could involve legal fees, registration costs and other expenses related to company formation.

The setup fee for an Employer of Record (EOR) service can vary widely depending on factors such as the EOR provider, the complexity of the arrangement, the number of employees, the countries involved and the specific services being offered. 

Employee Downpayment

Some EOR providers will require the client company (employer) to place a deposit for each employee they engage through the EOR service. This deposit could be a fixed lump sum or a percentage of the employee’s salary.

The purpose of this deposit is to provide a financial safety net in case the client company faces financial challenges and is unable to fulfil its obligations to pay employee salaries, benefits and other compensation.

Salaries For Employees

When a company partners with an EOR, the EOR becomes the formal employer of the workers. This means the EOR is responsible for paying the salaries of these workers, which includes calculating and processing the wages, handling tax withholdings and ensuring timely and accurate payments to the employees. The salaries paid to employees are a direct expense that the client company incurs as part of the EOR arrangement.

Ongoing Services

These are to maintain the day-to-day operations of the business. In the context of an EOR arrangement, the client company might incur various operating costs related to engaging the EOR service. These costs can include:

EOR Service Fees

The EOR charges service fees for handling the administrative and legal responsibilities associated with being the employer of record. These fees can cover services such as payroll processing, benefits administration, compliance management and more.

Benefits and Perks

If the EOR arrangement includes benefits and perks for employees (such as health insurance, retirement contributions or other benefits), the client company would incur costs related to providing these benefits.

Taxes and Compliance

The EOR manages tax withholding and reporting for employees. The costs associated with ensuring tax compliance are part of the operating costs.

HR Administration

EOR services often include HR-related tasks such as onboarding, offboarding, employee records maintenance and more. These administrative tasks contribute to the operating costs.

Technology and Systems

The EOR may use technology platforms to manage payroll, benefits and HR processes. The client company might share the costs associated with these systems.

Legal and Consulting

If the client company requires legal assistance or consulting services related to employment laws, contracts or other matters, these costs might be part of the operating expenses.

Fixed Pricing vs Percentage

Selecting the appropriate pricing model depends on the company’s specific circumstances, budget, hiring goals and expansion strategies. Both models have their merits, but they suit different scenarios. It’s essential to assess your company’s priorities, growth plans and financial constraints to make an informed decision. 

When considering an EOR service, be sure to thoroughly discuss both pricing models with the EOR provider to determine which one aligns best with your business goals and financial considerations.

Fixed Pricing

Under the fixed pricing model, the client company pays a consistent flat fee to the EOR each month, regardless of the number of employees or their individual salaries.

Businesses with clear and aggressive hiring goals can scale their workforce without affecting their EOR costs. This predictability supports expansion. The flat fee offers budget stability since it remains constant regardless of changes in employee compensation or headcount.

Percentage

In this pricing model, the EOR charges the client company a predetermined percentage of the employee’s total compensation, often referred to as the “Cost to Company” (CTC). The CTC includes not only the employee’s base salary but also other components like bonuses, commissions, benefits and any other additional costs associated with employing the worker.

This model is advantageous for employers who have limited expansion or salary budgets. They can set a fixed percentage that aligns with their budget constraints. If a company is exploring a new market and wants to assess its feasibility without committing to significant costs, this model allows for scalability while keeping costs proportional to employee compensation.

Final Thoughts

The exact amount of how much the Employer of Record arrangement can cost varies widely depending on different needs and factors, not to mention the different providers out there. There are different ideas and models to take into consideration before an exact can be calculated. Given the complex nature of such an arrangement, it would be best to speak with the experts.

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What makes this partnership special is WhiteFin’s deep understanding of international payroll and hiring processes. This knowledge lets businesses confidently hand over the complexities of local labour laws, taxes and various rules to WhiteFin, making growth in a changing market smoother. Planning to enter a new market? Contact us today!