As businesses expand globally, the concept of an Employer of Record (EOR) is becoming increasingly popular. EORs offer a way for businesses to legally employ workers in overseas locations without needing to incorporate there. Business owners looking to expand in South Africa can benefit from understanding employer of record pricing. This guide will cover the costs and models of EOR services, drawing from the experience of myself, Gloroots, and other industry sources.
Employer of record pricing can differ greatly depending on various factors. Key elements determining EOR pricing include:
Setup Fees: These are one-time fees levied by EOR providers for each new employee. This fee includes contract drafting, employee onboarding, and setting up payroll, typically ranging from $200 to $500 per employee.
Security Deposits: To ensure contract compliance, an EOR provider may require a security deposit, which could be up to an employee’s notice pay. This deposit is refunded at the end of the employment contract without outstanding dues.
Employee’s Wage & Contributions: Employers are responsible for settling the salary and related employer costs such as social security, unemployment insurance, and retirement fund contributions. These costs vary by country and are necessary for legal operation.
Service Fees: EORs charge a service fee for administering payroll, benefits, and compliance. This fee can be a set monthly figure or a percentage of the gross salary. It’s essential to discuss the exact billing format with your EOR provider.
Additional Benefits: Some EORs provide benefits beyond statutory requirements, such as meal vouchers and software subscriptions. These additional benefits contribute to the total EOR costs.
Currency Exchange Fees: EORs handle currency exchange issues to ensure workers are paid as planned, which may include additional expenses.
Businesses constrained by time, funding, or other resources have two options when entering South Africa: establishing a local entity or using an EOR. Considerations include:
Time & Capital: Establishing a local entity can take 2–6 months and requires significant capital for registration, legal compliance, and consulting services. Conversely, an EOR can hire employees in days with minimal upfront costs.
Legal and Tax Compliance: A local entity ensures compliance with local laws and tax regulations. An EOR handles all compliance obligations, relieving the employer of legal responsibilities.
Scalability and Flexibility: EORs offer flexibility for organizations exploring new markets or undertaking short-term projects. They support varying workforce sizes as needed.
EOR providers typically offer two pricing models:
Percentage-Based Pricing: This model charges a fixed percentage on the total cost to the company (CTC) of the employee. It’s ideal for businesses with low budgets or testing new markets. Costs increase with the number of full-time employees and total annual gross compensation.
Scaled Pricing: This model allows businesses to pay a set amount per employee (typically biweekly) or for groups of employees. It’s suitable for businesses with ambitious hiring goals and rapid growth.
Myth: EORs cost more than local entities.
Reality: While EOR services include monthly charges, the added expense of handling compliance can be more cost-effective than setting up and maintaining a local entity.
Myth: EOR services are only for large corporations.
Reality: EOR services are designed with scalability and cost-efficiency, making them accessible to businesses of all sizes, including SMEs.
Businesses in South Africa can leverage an EOR, such as DNA EOR, to facilitate the hiring process, ensure compliance, and reduce administrative burdens. Understanding employer of record pricing helps companies align their decisions with growth objectives. Whether you are a small business evaluating new markets or a large corporation ready to expand quickly, using an EOR can be a cost-effective solution for your workforce.
Let DNA EOR guide you into the future of global hiring and tap into the power of a compliant and productive global hybrid workforce.
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