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The Cost of Compliance: A Deep Dive into EOR Fees
EOR (Employer of Record) 101Understanding the Complexities of the EOR Industry: A Focus on Fees
The EOR (Employer of Record) industry can be incredibly complicated. With thousands of local labor laws to navigate, along with cultural nuances and varying payroll practices, it can feel overwhelming for businesses looking to expand their workforce globally.
One aspect that isn't often discussed, however, is fees.
The Landscape of EOR Fees
Fees in the EOR industry can vary widely. While many EORs list their pricing on their websites, others keep their rates under wraps. Here’s a breakdown of some of the top EORs that do publicly share their pricing:
Remofirst: $199 USD/month per employee
Multiplier: $400 USD/month per employee
Deel: $499 USD/month per employee
Remote: $599 USD/month per employee
Papaya Global: $599 USD/month per employee
Oyster: $599 USD/month per employee
Conversely, some EORs do not disclose their pricing publicly, such as:
Globalization Partners
Velocity Global
Safeguard Global
Atlas
As the EOR market becomes more commoditized, one might assume that pricing is increasingly important. However, it's crucial to dig deeper to truly understand what elements make up the invoices you receive from your EOR.
Breaking Down Your EOR Invoice
Every month, your EOR provider will send you an invoice detailing various costs. Here’s a basic breakdown of what you may expect:
Employee Salary
Other Compensation
Employer Burden
Supplemental Benefits
Employee Expenses
Foreign Exchange Fees
EOR Service Fee
Let’s break down each category a bit further:
Employee Salary
This is the gross base salary that the employee earns monthly which should align with the salary stipulated in the employment contract. This may fluctuate if an employee gets a raise and starts earning at a higher rate. Additionally, in some countries, when an employee takes vacation, the salary may go down by a certain amount to reflect the time off. Typically, however, (assuming this is paid time off) there would be a corresponding vacation pay line item that nets out to the same gross monthly salary.
Other Compensation
This category includes additional earnings such as monthly allowances, sales commissions, or bonuses. If your employee is earning commission or bonuses monthly, the invoices can fluctuate in total so be sure to check this additional compensation aligns with what you communicated to your EOR.
Employer Burden
These are the employer taxes your EOR pays to local authorities, which can vary significantly by region. Unfortunately, there isn’t much control any employer has over these costs. Typically, your EOR will collect this amount from you and remit it directly to the appropriate local authorities in the country. Some EORs are more transparent with the breakdown of each element of the burden while others will give it to you as a single line item rolled up on the invoice.
In some countries, like Canada, employer burdens are capped. This means that once you’ve contributed the maximum to that specific program, you don’t need to contribute any more. Some EORs do not pass along savings after hitting the caps so be sure to ask them about burden caps when you are going through the buying process.
Supplemental Benefits
Many EORs offer a variety of supplemental benefits plans that clients can choose from, allowing for customization based on employee needs. Some of the most common supplemental benefits plans can include health, dental, vision, life, and short and long term disability. Be sure to ask about what plans your EOR offers.
Employee Expenses
During the normal course of employment, employees may incur expenses for work-related purchases. Typically, these expenses are passed through to clients at no additional cost. If your EOR is charging an admin fee to manage this part of the process, you can use this as a negotiating point if you are trying to save on cost.
Foreign Exchange Fees
This fee can be one of the least transparent and hardest to understand. Often, it's integrated into the exchange rate reflected on the invoice, making it less visible. You can identify the FX you are paying by checking your EOR commercial agreement or by checking the FX fee listed on the invoice and comparing it to a reputable FX conversion site such as xe.com.
It’s important to note that some EORs use the bank FX rate while others use the market FX rate. The bank FX rate will naturally be higher than the market so be sure to ask when you are talking to your EOR.
EOR Service Fee
This fee may be billed either annually or monthly, depending on the provider. Often times you can get a discount if you pay fees up front for the year.
Additional Fees to Consider
Given the multitude of EORs currently operating, you might encounter various other fees on your invoices. Some EORs may charge for setup, termination, or even fees associated with creating contracts in non-local currencies (Deel)
While none of these fees are inherently bad, it's essential to consider them all when selecting an EOR. A low advertised rate on an EOR’s website doesn't necessarily mean you'll be paying less for their services on a monthly basis when accounting for all of the various fees and ways to hide some of them such as the FX fee.
Conclusion: Choosing the Right EOR
When selecting an EOR, it’s wise to look beyond just the advertised pricing. Consider the full range of potential fees and what services are included. If you plan to hire a large number of employees through an EOR, inquire about bulk pricing options, which could provide additional savings.
By understanding the complexities of EOR fees, you can make a more informed decision that best suits your needs.
In the NewsSolution SpotlightThanks for reading.
Speak soon,
Moshe