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Choosing an EOR can help make hiring talent in a new market easier and quicker, but if you’re considering this route, one of the burning questions on your mind is likely, “What’s does an employer of record cost?”

What is an employer of record (EOR)?

Before diving into costs, let’s get on the same page about what an   is. In a nutshell, an EOR is a third-party service that takes on the responsibility of being the official employer for your workforce in a specific location. This includes handling payroll, compliance, and all the legalities that come with having members of your team in new locations.

There are many benefits to using an EOR, as well as some risks you need to consider when looking at this option. Understanding how an EOR works is vital before deciding whether it’s the best choice for your business.

Understanding employer of record costs

Unfortunately, the cost of an EOR service isn’t one-size-fits-all; it depends on various factors, including the country or countries where you have employees, the number of employees, and the specific services you need. Think of it like a customized package–you pay for what you need. So, what factors do you need to consider when looking at an EOR cost?

  1. Geographical factors: Different countries have different labor laws, tax regulations, and compliance requirements. Therefore, the cost of an EOR service can vary based on the complexity of managing employment in a particular location.
  2. Number of employees: Unsurprisingly, the more employees you have, the more intricate the payroll and compliance processes become. EOR costs often scale with the size of your workforce.
  3. Services included: EOR services can really vary depending on what your business needs. From basic payroll services to comprehensive HR support, you choose what suits you. This does mean that the more services you opt for, the higher the cost.

Whilst the costs are dependent on what services and number of employees you’ll probably also find some fee’s will be included in your employer of record costs such as:

  1. Setup fees: Many EOR providers charge a one-time setup fee. This covers the initial administrative work and legal procedures required to onboard your company.
  2. Monthly service fees: The core of your ongoing expenses will likely be the monthly service fees. This is where you pay for the day-to-day management of your global workforce.
  3. Additional service costs: If you choose additional services like HR support, benefits administration, or tax advisory, these may come with their own price tags.

How does an EOR cost compare to other payroll options?

Global payroll costs are known for being quite expensive, especially when your business grows past a couple of employees in each location. This is why it can be vital to take a look at what the costs of other global payroll options are, and how in the long run they might just work out to be better for your business growth.

In-house payroll

Running your own payroll operation might seem budget-friendly initially, especially if you already have a payroll team. However, you will come across some hidden costs. You need to have a payroll system which works in all the locations you’re expanding to, you’ll likely need to consult global HR professionals in each location and you’ll also need to consider any government processes in each country which may have fee’s. Overall this option is usually cheaper, but you’ll need to consider the time costs to your business too.

Professional employer organizations (PEOs)

PEOs operate similarly to EORs, splitting employer responsibilities. While they often present a cost-effective alternative to in-house payroll, their fee structures can vary. Some businesses prefer the straightforward pricing of EORs, steering clear of potential hidden expenses linked with PEOs.

Local payroll providers:

Relying on local payroll providers in each country might offer a personalized touch. However, this approach often leads to a disjointed payroll system, diverse processes, and administrative headaches. Costs can quickly multiply with providers for each international location, and you’ll also need to consider how much it costs your business to have someone coordinating this.

Global payroll providers:

A global payroll provider is usually considered to be the highest cost on this list, however, what you get with them is the ability to grow your business without the costs shooting up drastically the way they can with a PEO or an EOR. A global payroll provider’s upfront costs are often high, but monthly payroll costs are usually cheaper. They also usually service multiple countries you might expand to, saving your organization money on coordination.

So, what is the bottom line?

While it might be tempting to look at employer of record costs as just another business expense, it’s crucial to view how it will impact your business in the long run. Take a look at your 5-year plan—does it include growing more in your new territory? Then maybe an EOR isn’t the one for you.

Get in touch with us today to discuss what options are available for your business, and what might be the right fit!