Global expansion is a challenging exercise, presenting significant operational, financial, and regulatory risks.
Employer of Record (EOR) services minimize these risks by representing an organization as a legal entity internationally and taking care of cumbersome legal and operational hassles on its behalf.
An important consideration in choosing the right EOR service is its pricing structure. In this article, we’ll review the various pricing models EORs offer and how they can impact your business.
How Much Does an Employer of Record Cost?
EORs are in high demand right now. The EOR market was worth $1.9 billion in 2023 and is expected to exceed $3.7 billion by 2030. This indicates that the EOR model works well for many companies, and the right one for your business would likely be worth its price.
But the question remains - how much should you pay for an EOR?
If you were looking for a simple answer, you’re out of luck. There’s no one-size-fits-all solution to EOR pricing. What you pay largely depends on the needs of your business and the type of EOR you partner with.
Several factors can influence the pricing structure of an EOR service. These include employment contract types, salaries, and benefits. EORs may charge companies a percentage of global payroll or a flat fee plus any additional costs for benefits and other business functions.
Let’s take a closer look at some EOR pricing models.
Per-Employee/Per-Contractor Pricing
In this pricing model, EORs charge clients for every employee or independent contractor they manage. The charge per employee can be a percentage of the employee’s salary or a fixed fee per employee.
EOR Fee as a Percentage of Employee Salary
Many EOR services charge their clients a percentage of every employee’s salary. This pricing structure is easy to budget for due to its direct relationship with the number of employees. It is also well-suited to industries with stable and predictable workforce requirements, such as:
- Government
- Education
- Healthcare
- Utilities
- Manufacturing
- Transportation
A downside of paying EORs a percentage of employee salary is that it can deter employee headcount and wage growth. With each new hire or salary bump, employers must budget for additional EOR costs. Typically, in this pricing model, you can expect to pay a fee of anywhere between 5% to 10% of a full-time employee’s salary.
Calculation
Let’s say a company hires an EOR provider to manage its three international employees. For its fee, the EOR charges 8% of each employee’s salary.
The employee salary information is as follows:
Employee A: $5000
Employee B: $4000
Employee C: $7000
Using an 8% fee per employee, we can calculate the total EOR fee:
EOR fee as a percentage of salary = (Employee A salary x percentage rate) + (Employee B salary x percentage rate) + …
EOR fee = (5000 x 8%) + (4000 x 8%) + (7000 x 8%) = $1280
Fixed Rate Per Employee
In the fixed rate per employee model, EORs charge their clients a flat fee for every employee regardless of their compensation. This pricing structure offers better cost transparency, predictability, and control to companies with a small or fluctuating workforce size.
Estimates for typical fixed fee charges vary widely. For example, prominent players like Papaya Global, Deel, and Remote charge between $599 to $1000 per employee per month, based on employee role, location, and specific needs. However, other EORs may charge more or less than that.
Calculation
Let’s say an EOR manages 10 team members at a fixed rate of $600 per employee. In this case, the calculation would be:
Total EOR fee = Number of managed employees x fixed fee
Total EOR fee = 10 x 600 = $6000
Fixed Pricing Model
The fixed pricing model is distinct from the fixed/flat fee per employee/contractor model. It allows EORs to charge their clients a predetermined lump sum for a set number of employees and services.
This pricing model suits companies with a predictable and stable workforce size. It gives businesses more control over HR software costs and can be adjusted to meet their specific requirements.
Under the fixed lump sum pricing model, businesses can expect to pay from a few thousand to hundreds of thousands of dollars depending on factors like workforce size, scope of service, geographic location, complexity of the HR function, and compliance requirements.
Custom Pricing
In the custom pricing model, EORs offer highly customized solutions to clients based on their specific needs and circumstances. This customizability allows businesses to only pay for the assistance they require without the need to budget for additional services.
The personalization that comes with custom pricing plans can benefit organizations in several ways. It enables businesses to optimize their investment in HR outsourcing by focusing on the services that enhance their productivity and align with company goals.
Custom pricing also allows businesses to form strategic partnerships with their EORs. The two entities can collaborate to co-create solutions and develop innovative service offerings.
While custom pricing has the advantage of being tailor-made for a client, it also has certain drawbacks. For instance, developing and negotiating a custom pricing plan requires additional resources and time to find the optimal overlap between a client’s needs and an EOR’s capabilities.
Furthermore, custom pricing plans can lead to vendor lock-in, which means a client can become so dependent on a particular EOR service provider that switching vendors in the future becomes costly and time-consuming.
Moreover, in the absence of defined standards for custom pricing, there’s a risk of the client overpaying for an EOR’s services. Clients may also find it difficult to predict or budget accurately for ongoing costs without established pricing benchmarks.
Additional Fees
On top of the basic costs a client may incur for an EOR’s services, there are usually additional fees involved. These fees can vary based on the scope of the arrangement and the specific services an EOR is providing. Let’s review some additional costs you might have to budget for.
Setup Fees
EORs may charge a one-time setup fee for every new employee you hire. This includes the cost of drawing up employment contracts, employee onboarding, and payroll services. The setup fee may vary depending on the service provider, the location, and number of employees you hire.
Compliance Fees
One of the most essential functions of an EOR provider is to ensure its clients navigate local employment laws and regulations compliantly. EORs charge compliance fees for this very reason. This typically covers the cost of compliance with local, state, and federal labor laws, as well as activities like tax compliance and regulatory filings.
Currency Exchange Fees
Since EORs operate in foreign countries on their client’s behalf, they often have to work with different foreign currencies. While EORs make it easier to pay employees in their local currency, they can also invoice their clients in their preferred currency. The currency exchange fees cover the cost of such an arrangement.
Transaction Fees
EORs may charge their clients transaction fees to facilitate certain financial transactions. These can include payroll management, tax filings, employee reimbursements, and more. The fee usually depends on the transaction amount and can be charged as a percentage or flat fee per transaction.
Employer of Record Cost Comparison
Here is a list of prices for EOR software provided by several top vendors:
Please note that we sourced these prices from information published online for informational purposes. Each vendor reserves the right to change their prices at any time.
Factors Affecting Employer of Record Pricing
EOR pricing goes beyond a specific pricing structure. As a client, it’s essential to budget for additional costs resulting from the broader environment and circumstances in which a business operates. Let’s briefly review some of these potential cost factors.
Country/Jurisdiction
The location or jurisdiction of an EOR is a key determinant of additional costs. Each location has its own labor laws that affect employee wages, overtime, paid time off, benefits, retirement, and more.
Furthermore, tax laws vary by location, affecting income and payroll taxes. An EOR may charge its clients depending on the complexity of the local tax regime.
A country’s economy and service infrastructure may also dictate operating costs, and its security situation can impact health insurance and risk premiums.
Scope of Service
EORs offer a broad range of services, including employee benefits administration, legal compliance management, payroll processing, and HR management. The scope of service has a significant impact on the overall pricing structure. Simply put, the greater the service requirement of a client, the higher the EOR cost.
In addition, some clients require customized services tailored to their specific needs. Such requirements can also influence the pricing due to the extra resources necessary to develop custom EOR solutions.
EORs also offer several value-added services besides their core offerings, such as employee training, global talent acquisition, and HR consulting. Clients may opt for one or more of these services depending on their requirements, raising the overall EOR pricing.
Contractor/Employee Headcount
Employee/contractor headcount is usually a critical factor in pricing for Employer of Record services. An increase in the number of employees leads to more administrative overhead, compliance complexities, and operational challenges associated with larger workforce sizes.
Compliance
Local laws and compliance regulations can also result in additional costs for clients. Legal requirements, such as regulatory filings, employee documentation, and labor reporting in certain countries, may demand more of an EOR’s time and resources, driving up the cost of the partnership.
Final Thoughts on EOR Pricing
While it’s essential to understand the monetary pricing models for EOR services, it’s worth noting that this is only one piece of the puzzle.
The total cost of an EOR includes non-monetary components, such as service quality, flexibility, time-saving, and customer and employee experience. Granted, it may be more complex to measure these metrics. Nevertheless, their impact on the bottom line is real.
Ultimately, pricing is among many factors a business should consider before hiring an EOR service. Long-term objectives, organizational structure and compatibility, and the ability to deliver value concerning client requirements are all important points to consider.
