Have you been exploring Employer of Record (EOR) providers? Are you curious or even confused about how EORs charge for services? This is a common question many recruiting and HR professionals have when first engaging EOR services. There is no standard way that EORs charge for services. In fact, there are many variations across geographies, industries and, and job types. So, in order to make the best decision you need to learn how EORs make money, and how to compare their prices. Below we will explore the differences between models and vendors.
What do EORs have to pay for?
Before we can talk about how EORs make money, we have to understand their overhead. EOR providers operate a very low margin business because they have many costs to cover. Those costs are typically called “statutory” costs. Those costs include things like taxes, insurance, local compliance fees, and other geographic or industry based costs. Additionally they may also have to cover the cost of background checks, drug screens, and other onboarding costs. For the below pricing models, “statutory costs” will be used to describe the overhead of each EOR.
Most common pricing models
There are two main pricing models that most EORs use. Some EORs market a flat monthly fee model, which has some hidden and variable costs. Other EORs offer a “percentage of payroll” model, which is more standardized and less variable. Many are confused by that, but the below will explain.
Percentage of Payroll (POP)
This is where an EOR will apply a markup percentage to the payroll amount the client would like to push through the EOR. The example below outlines how a percentage would be calculated and added to the “payroll” or “pay rate” of an employee. Most POP models are all inclusive. That means that all of the statutory costs are included in the markup. However, some EORs do leverage hybrid models where they charge one percentage to cover the statutory costs and another percentage to cover their fee. The example below is NOT a hybrid model, but rather an all inclusive model. We left out a hybrid example because those can vary so significantly, and can be industry specific.
| Annual Salary | Mark Up (29%) | Total Cost |
| $75,000.00 | $21,750.00 | $96,750.00 |
Flat monthly fee
This is where an EOR will calculate the statutory costs separately and then add a monthly fee on top of the payroll and statutory costs to collect their management fee. This is typically seen as more variable because employers cannot control the statutory costs in each locality that they hire, so the management fee on top of those statutory costs create disparities between the cost of each employee. Additionally, in this model there is typically a deposit required up front for the new employee. This is most common when hiring international employees. Those deposits can range from 1 month worth of salary and fees, up to 3 months of salary and fees. That range can differ between geographies.
| Annual Salary | Statutory Costs (18%) | Management Fee ($699/mo.) | Total Cost |
| $75,000.00 | $13,500.00 | $8,388.00 | $96,888.00 |
Differences in EOR Cost
As you can see the total costs are very close to the same. However, those things can change across providers based on their pricing terms. Additionally the costs can be higher or lower based on the amount that each employee is being paid. Lastly many providers offer volume discounts which can create scalability and economies of scale for clients looking to hire many employees through EOR platforms.
Before making decisions it is important to determine which model your EOR is using, and if that benefits your goals. There are many use cases for EORs and some vendors bring more value than others. Those value differences can be due to industry expertise, software capabilities, support, and more. So be sure you align those value propositions to your exact needs.
Need an EOR?
Are you looking to hire employees through an EOR? FoxHire has been helping organizations hire employees through their EOR platform for over 30 years. Schedule some time with our team by booking a demo or explore more about FoxHire’s services.
