How much does an employer of record (EOR) cost?
Hiring internationally is exciting, but it comes with complexities. From compliance to payroll, navigating foreign employment laws can be daunting. Enter the Employer of Record (EOR)—a service designed to simplify global hiring. But how much does an EOR cost, and what factors influence pricing? Let’s break it down.
Key Takeaways
✔️ An EOR simplifies international hiring by managing payroll, compliance, and HR tasks.
✔️ Costs depend on the country, employee count, and required services.
What Is an Employer of Record (EOR)?
An Employer of Record handles employment responsibilities for your international hires, including payroll, benefits, taxes, and compliance. You focus on day-to-day operations while the EOR manages the legal and administrative complexities.
➡️ Learn more: What Is an Employer of Record?.
EOR Services: What Are You Paying For?
EOR fees are not just administrative expenses; they encompass comprehensive services designed to simplify international employment. Here’s what you’re typically paying for:
Payroll Processing: The EOR manages payroll end-to-end, including calculating salaries, deductions, and taxes. They ensure timely payment to employees while complying with local tax laws.
Employment Contracts: Drafting and managing employment agreements in line with local labor laws is another key service. The EOR ensures contracts are legally compliant and protect your business.
Compliance Management: Staying compliant with labor laws and tax regulations is critical. EORs handle local registrations, tax filings, and social security contributions, minimizing compliance risks.
Employee Benefits Administration: EORs manage statutory and voluntary benefits such as healthcare, pensions, bonuses, and allowances, ensuring your employees receive the benefits they are entitled to.
Onboarding and Offboarding: From managing onboarding documentation to handling termination processes, the EOR ensures seamless transitions for employees.
HR Support: Many EORs provide ongoing HR support, including dispute resolution, performance management, and maintaining employee records.
What Does an EOR Cost?
Understanding EOR pricing is essential for planning your expansion. The cost typically consists of several components:
Cost of Employment (Salary, Taxes, and Benefits)
Hiring employees in a foreign country involves more than just their base salary. You must also consider taxes, social contributions, and mandatory benefits, which vary by location.
Example: Brazil
Employers in Brazil must pay contributions like INSS (social security) and FGTS, adding approximately 33% to the gross salary.Example: Mexico
In Mexico, contributions such as IMSS, SAR, and INFONAVIT typically add 25%-30% to the base salary.
These costs can significantly impact your hiring budget, especially in countries with high social contribution rates.
Management Fees
EOR providers charge a fee for handling administrative tasks. Fees are typically structured in two ways:
- Flat Fee: A fixed amount per employee (e.g., $500 per month).
- Percentage Fee: A percentage of the employee’s gross salary (e.g., 10%-15%).
For instance, if you hire an employee in Colombia earning $2,000/month, and the EOR fee is 10%, the cost would be $200/month.
Additional Costs
Beyond base fees and employee costs, certain services or scenarios may incur extra expenses. Let’s delve into these potential costs to help you budget effectively and avoid surprises.
- Setup Fees: Many EOR providers charge a one-time setup fee for onboarding employees. This fee covers administrative tasks like preparing employment contracts, registering the employee with local authorities, and ensuring compliance with labor laws.
- Benefit Administration Fees: EORs often handle benefit administration, including health insurance, retirement plans, and wellness programs. While these services are typically included in management fees, some providers charge extra for enhanced or customized benefits.
- Termination Fees: Terminating an employee involves compliance with local labor laws, severance payments, and tax reporting. Some EORs charge a termination fee to handle these processes.
- Expense Claim Fees: If your employees incur work-related expenses, the EOR may charge a fee to process reimbursement claims. This fee is usually a small percentage of the total amount reimbursed.
Security Deposits
Some EOR providers require upfront deposits to cover potential liabilities, such as severance or unpaid taxes.
Cost of Using an EOR vs. Local Entity vs. Contractors
When expanding internationally, you have three main options. Here’s a comparison to help you decide:
Category | Employer of Record (EOR) | Local Entity | Contractors |
Setup Costs | Low: One-time onboarding fee ($200–$500 per employee). | High: Legal entity registration, licensing, and administrative setup ($10,000–$50,000+). | None or minimal, typically contract drafting fees ($100–$500). |
Compliance Management | Fully handled by EOR, ensuring compliance with local labor laws. | Requires in-house team or external consultants to handle compliance (high cost). | Limited compliance; no employee benefits required. May risk misclassification penalties. |
Administrative Burden | Minimal: Payroll, taxes, and benefits are managed by the EOR. | High: Requires local HR, accounting, and legal teams. | Low: No statutory benefits or payroll management required. |
Cost of Employment | Standard employee costs (salary, benefits, social contributions). | Standard employee costs + entity operational costs (office space, utilities, etc.). | Contractor fees only; no benefits or social contributions. |
Management Fees | Medium: Flat fee or percentage of salary (5%–15% of payroll). | None (in-house management costs are incurred instead). | None. |
Taxes and Contributions | Employer and employee taxes handled by EOR. | Fully borne by the company; requires compliance management. | Not applicable for contractors; risk of penalties for non-compliance if misclassified. |
Termination Costs | Managed by EOR; includes severance and compliance processes. | Direct responsibility; severance and legal fees can be high. | Minimal or none unless contract specifies notice period or penalties. |
Flexibility | High: EOR can scale up or down as needed. | Limited: Entity setup is time-consuming, with long-term operational commitments. | High: Easy to scale but risks inconsistent worker availability. |
Time to Start Operations | Quick: 2–4 weeks for onboarding. | Long: 6 months or more for legal setup and operational readiness. | Very quick: Contractors can start immediately with a signed agreement. |
Hidden Costs | Possible fees for benefits management, termination, and expenses. | Significant hidden costs: local office, insurance, and compliance consultants. | Risks of misclassification penalties, legal disputes, and lack of worker retention. |
Best Use Case | Expanding into new markets quickly with minimal risks and compliance issues. | Long-term presence in a country where a large workforce is required. | Short-term projects or specific tasks requiring specialized skills without ongoing commitment. |
➡️ Learn more: EOR vs. Local Entity vs. Contractors.
EOR Pricing Models: Understanding the Options
When selecting an Employer of Record (EOR), it’s crucial to understand how pricing models work. Each EOR operates differently, offering flexibility tailored to business needs. Below are the common pricing models and their specifics:
Percentage of Employee Salary
This pricing model charges a percentage of the employee’s gross salary, making it a scalable option.
- How It Works: The EOR calculates its fee based on a percentage (5%–15%) of the employee’s salary. For example, if an employee earns $4,000 per month and the EOR fee is 10%, the monthly cost would be $400.
- Advantages:
- Transparent and proportional to employee costs.
- Scales naturally as the employee’s salary increases or decreases.
- Challenges: Higher salaries result in higher fees, which may make it less cost-effective for senior or highly-paid employees.
Example: A tech company hiring a software developer in Mexico with a $5,000 salary would pay an EOR fee of $500 at a 10% rate.
Flat Fee Per Employee
This model charges a fixed amount per employee, regardless of their salary.
- How It Works: The EOR sets a standard fee per employee, such as $300–$600 per month. This fee covers payroll management, compliance, and benefits administration.
- Advantages:
- Predictable monthly costs, making budgeting easier.
- Ideal for managing employees with varying salary levels.
- Challenges: May not account for additional services, such as complex benefits management.
Example: An international business hiring a customer support representative in Brazil pays a flat $400 per month, irrespective of the employee’s $2,000 salary.
Fixed Pricing Model
This model provides a comprehensive cost structure for all EOR services, often covering multiple employees or specific regions.
- How It Works: The EOR offers a bundled price, typically charged monthly or annually. The price includes all core services, such as onboarding, payroll, benefits, and compliance.
- Advantages:
- Simplifies management by covering all services in one payment.
- Cost-effective for companies hiring multiple employees in the same country.
- Challenges: May be more expensive for companies hiring a single employee.
Example: A company expanding into Argentina might pay $15,000 annually for an EOR to manage up to 10 employees under a fixed pricing model.
Custom Pricing
This model tailors the EOR fee to the unique needs of the client, offering personalized solutions.
- How It Works: The EOR evaluates the company’s requirements—such as the number of employees, the complexity of benefits, and compliance needs—and provides a custom quote.
- Advantages:
- Highly flexible, catering to specific business needs.
- Ideal for businesses with unique requirements, such as niche industries or multi-country operations.
- Challenges: Costs can vary significantly based on the level of customization.
Example: A multinational corporation hiring a team in LATAM with varied roles and benefits may negotiate a custom package, blending flat fees and percentage-based costs.
Factors That Impact EOR Pricing
When selecting an Employer of Record (EOR), understanding the factors that impact pricing helps businesses plan effectively. EOR pricing isn’t a one-size-fits-all model, as costs can vary significantly based on various elements. Below are the critical factors that shape EOR costs:
Country-Specific Regulations
Labor laws, tax structures, and compliance requirements differ across countries, directly affecting EOR pricing. Countries with complex labor laws or high tax rates, like Brazil or Argentina, may require additional administrative work, raising costs. Conversely, countries with simpler regulations may result in lower fees.
Employee Count
The number of employees under the EOR significantly impacts pricing. EORs often offer discounts for businesses managing larger teams, making per-employee costs lower. For smaller teams, fees may remain standard or higher.
Employee Salaries
The salary levels of employees play a crucial role in determining EOR fees, especially for percentage-based pricing models.
- How It Impacts Costs: Higher salaries lead to higher EOR fees if the pricing model is percentage-based. Flat-fee models remain unaffected by salary variations.
Services Included
Comprehensive EOR packages that include payroll management, tax compliance, and benefits administration cost more than basic services. Additional offerings, like visa support or recruitment, add to expenses.
Potential Hidden Costs
When budgeting for an Employer of Record (EOR), transparency is key. However, hidden costs can unexpectedly inflate your expenses. Identifying and understanding these potential costs will ensure that you are prepared for all scenarios.
Termination Fees: Some EORs charge additional fees for terminating employee contracts. For example, if a company ends an employee’s contract mid-year, the EOR might apply fees for severance pay calculations or administration. Always ask about these fees during the contract phase.
Benefit Administration Fees: While benefits like health insurance, pension contributions, and allowances are often managed by EORs, some providers charge separate fees for administration. This fee is generally linked to the complexity of the benefits package offered.
Currency Conversion Fees: Global operations involve multiple currencies. Some EORs pass the cost of currency conversions onto their clients. Ensure you understand the implications if you’re paying salaries or fees in a different currency than the employee’s local one.
Annual or Renewal Fees: If you sign a long-term agreement, be aware of annual renewal charges. These fees can vary and should be clarified upfront to avoid surprises.
Compliance Updates: Certain EORs may charge for keeping you updated on new labor laws or compliance requirements. Although this is a crucial service, make sure it’s included in the base fee or reasonably priced.
How to Choose an EOR That Works With Your Budget
Understand Pricing Models
Some EORs charge a flat fee, while others use a percentage-based model. Decide which works best for your business structure. Flat fees provide predictability, while percentage-based fees align costs with employee salaries.
Determine a Realistic Budget
Start by assessing your company’s financial situation. Define a budget that reflects the scope and scale of the EOR services you need. This step prevents overspending and eliminates EOR solutions that may be too costly.
Request quotes from different EOR Services
Gather quotes from multiple EOR providers to compare pricing models, hidden fees, and services offered. Getting a range of quotes upfront helps you make an informed choice.
Compare costs per country
For businesses expanding internationally, EOR costs can vary significantly by country due to local labor laws, tax regulations, and administrative requirements.
Look beyond costs for additional value
While costs are essential, focus on the added value an EOR provides. These can include:
- EOR reputation: Review client testimonials, case studies, and independent reviews to assess an EOR’s reputation. A reputable provider offers reliability, reducing potential risks in managing global teams.
- Level of client support: High-quality client support is critical for smooth operations. Assess whether the EOR offers a dedicated account manager for tailored assistance, prompt responses to inquiries, expertise in handling unique challenges in specific regions.
- Transparent Pricing: Hidden fees can derail your budget. Ensure the EOR provides a detailed breakdown of all costs, including administration, setup, and renewal fees
Justify the importance of peace of mind
An EOR’s ability to manage your international employment responsibilities provides invaluable peace of mind. Knowing your global workforce complies with all local laws saves you from future legal headaches and ensures smooth operations.
- Legal compliance: An EOR assumes responsibility for legal compliance, including tax filings, employee classification, and adherence to local labor laws. This protection shields your business from costly legal challenges.
- Enhanced employee experience: A good EOR ensures a seamless onboarding process and ongoing HR support for employees. This starts their journey positively, fostering loyalty and productivity.
Breakdown of Expected Fees & Costs at Europortage
At Europortage, we pride ourselves on transparent pricing. Here’s what to expect:
- Flat Monthly Fee: Covers payroll, compliance, and HR support.
- Country-Specific Expertise: Specialists in LATAM.
- No Hidden Fees: Clear and upfront costs.
➡️ Learn more: Europortage EOR Services.
Partner With Europortage for EOR Solutions
Europortage specializes in EOR services across Latin America and beyond. With direct entities in Brazil, Mexico, and France, and a vast partner network, we provide tailored solutions to help your business grow. From payroll to compliance, our team ensures your global expansion is smooth and compliant.
Let’s make your international hiring seamless—get in touch today.
