The right Employer of Record (EOR) can be a valuable strategic asset for your global expansion, allowing you to tap into new talent pools and scale your team internationally with ease. However, the wrong EOR choice can undermine those goals, saddling your business with hidden costs, compliance risks, and even reputational damage.
In this blog post, we will delve into these potential pitfalls and operational burdens. We will cover the obvious true costs such as encountering unexpected and hidden fees, but we will also go deeper to show you the potential for wasted time and productivity from your team and additional fees due to compliance breaches. Understanding them allows you to make the best partnership decision to enable streamlined, compliant global hiring and payroll.
Let’s start with the obvious. Many EORs advertise simple, transparent pricing, with a flat monthly fee per employee. However, some providers may have more complex fee structures or payment terms that are important to understand upfront. Here are some of those.
While headline monthly fees might seem clear initially, the fine print of EOR contracts often contains numerous additional charges that can quickly add up. Beyond the core monthly fee per employee, some EORs layer on extra fees for essential services like onboarding new hires, reopening closed payroll accounts, or accessing certain payroll tools or platforms.
You may also get charged by the hour for basic support inquiries and conversations that should be covered in their service agreement. These hidden costs can significantly increase your budget over time and cut into the perceived savings of the flat monthly rate.
Signing up with an EOR may involve agreeing to a long-term service contract to access their platforms and support. Some impose rigid terms that offer little flexibility or options to exit agreements early without penalty. This could include paying expensive early termination fees, being forced to continue payments for unused services until the contract period ends, or large offboarding/transition charges.
The inflexibility of these locked-in payment terms can be problematic if you encounter issues with an EOR's services or compliance support and want to switch providers. It also hinders your ability to adapt to changing business needs over time. Ensuring you understand and agree to an EOR's payment terms before signing an agreement is crucial.
When an EOR handles payroll for international team members, currency conversions are required. While EORs will need to charge some FX fee for conversions (be very weary if they don’t; something is not quite right), what are the currency rates for that can be very different. They can be more inflated than current market figures or what their bank charges.
For companies paying employees in multiple countries, these inflated rates can significantly impact costs over time. Since several currency conversions happen each pay period, slight rate differences quickly compound.
Imagine your HR team urgently needs guidance on a complex overseas employment issue, but your EOR is impossible to reach. Emails go unreturned. Calls loop through robotic menus. Support tickets disappear into the void or, at best, are handled by an unhelpful bot.
Soon, your team sinks hours into chasing responses, escalating repeatedly, and even tackling the issues directly just to move things along. Valuable hours go down the drain. Important work gets delayed.
This can put unnecessary pressure on your HR team as they have to search for resolutions, taking them away from core HR activities such as supporting employees.
When an EOR cannot deliver genuine expertise across each country they serve, they place compliance burdens squarely on your shoulders. To verify and supplement the EOR’s capabilities, you may even need to hire your own expensive local legal counsel, multiplying costs.
This lack of localised EOR fluency inflates expenses and forces your team to become compliance watchdogs. You inevitably end up double- and triple-checking the EOR’s recommendations since their advice does not instil confidence. This dynamic cements an air of uncertainty and mistrust in the EOR. Rather than serving as a strategic partner, the EOR becomes a vendor you must monitor closely instead of relying upon.
Some EORs struggle with providing punctual, error-free payroll processing, leading to a domino effect of time-wasting consequences. Your finance team receives an invoice with incorrect amounts, missing information, or unclear charges. This can trigger a chain reaction of emails, phone calls, and investigations to reconcile the discrepancies. Each payroll error can consume many hours of your finance team's time, disrupting financial planning.
At the same time, payroll inaccuracies can damage employee morale and trust. Late payments, incorrect deductions, or missing benefits can lead to frustration and, in some cases, legal disputes, forcing your HR team to spend even more time addressing employee concerns and resolving payroll-related issues.
A poor onboarding experience or ongoing issues with your EOR can create a ripple effect of negative consequences, ultimately impacting your ability to attract and retain top talent. If your new hires encounter confusing contracts, payroll errors, or unresponsive support from the get-go, their enthusiasm for joining your company may quickly dwindle. In some cases, this could lead to valuable employees leaving, costing you thousands and losing their potential contributions.
Looking beyond direct costs, a substandard EOR can negatively impact employee satisfaction and loyalty. Unhappy workers mean lower engagement, weaker retention, and strained relationships - all tied back to your employer brand.
The truth is that if the EOR makes mistakes, your people will view you as being responsible. The EOR is an extension of your company through their eyes. Shortcomings in service reflect poorly on your reputation and core values, and pointing fingers at vendors is unlikely to offer much consolation when you hand-picked them as critical partners.
This is particularly true when it comes to local norms and expectations. You might be using an EOR precisely because you don't know the intricacies of employment law in a foreign country. However, your employees who live and work in that country know what's expected.
We've seen examples of EORs sending employees contracts that reference another country's law or include clauses not permitted by local legislation. This creates confusion and mistrust and makes employees doubt your competence and commitment to their well-being.
Unhappy and disengaged employees posting negative reviews or venting on social media damage your employer brand. In the age of sites like Glassdoor, just one negative EOR interaction can impede future talent recruitment. The fallout extends past general brand damage, impacting:
Some EORs might take shortcuts or turn to non-compliant workarounds to cut costs or operate in countries with restrictive labour laws. Sometimes they may simply make very expensive mistakes due to not understanding the law. Whatever the reason, this can create a precarious situation for your company, leaving you vulnerable to legal challenges, financial penalties, and reputational damage.
For example, an EOR might fail to adhere to local payroll regulations or operate without the required licences. These compliance failures can disrupt your global expansion plans and create a significant financial burden.
However, the true cost of non-compliance can go far beyond just fines and penalties. It can lead to a domino effect of expensive consequences.
Customers often ask EORs whether the provider can facilitate visa sponsorship for the employee. There are countries where this is entirely feasible, however, there are ones where it is not possible, such as the UK. Some EORs are willing to bypass this and still offer visa sponsorship in countries where this is not compliant. This can have severe repercussions for both the company and the employee. In some cases, it could even result in the deportation of the employee.
Local tax enrollment and management are a big part of the duties an EOR fulfils for its customers. Local tax schemes have to be very thoroughly and meticulously understood. However, not every EOR will be as careful or caring.
We know this and many of the above problems (there are more) because we work with many customers who have engaged other EORs and have experienced them first-hand. Sometimes, however, we only realise the wrongdoing once we start working with those companies. That is precisely what happened when we realised that a previous EOR provider had non-compliantly enrolled a customer’s employee in an expat tax scheme, which increased their gross pay by just under €2,000 per month. One of our eagle-eyed payroll team members spotted this erroneous employment tax filing immediately.
Unenrolling them meant that the employee would receive €2000 less a month, which understandably wasn’t something they would agree to. So, to retain the employee and rectify the situation, the company was forced to increase their salary by €24,000 per year, plus employer taxes. This single compliance mistake cost them €30,000 per year—far exceeding their initial budget for the role.
While the employer of record model is fairly straightforward to implement in countries where it’s legal, many countries restrict it. That is probably as true as it gets in Italy, presenting a particularly stringent example of the risks associated with non-compliant EORs. Operating without the proper licences in Italy can lead to severe penalties, including:
These examples highlight the hidden costs of non-compliance and the importance of choosing an EOR with a strong commitment to ethical and legal practices. Don't let a desire for cost-savings or quick expansion lead you to compromise on compliance. The consequences can be far more costly in the long run.
While choosing an EOR that boasts about its expansive country coverage might be tempting, it's essential to look beyond the marketing claims and examine the reality behind its global reach. Some EORs create the illusion of owning infrastructure in numerous countries through a complex network of partnerships and subcontracted services. This can lead to a range of issues that impact both your company and your employees.
When an EOR relies heavily on third-party providers in various countries, it creates a disconnect between you and on-the-ground support. Instead of dealing directly with the EOR, you're essentially interacting with a middleman, which can lead to:
To avoid this, prioritise EORs that have owned infrastructure and direct control over their operations in the countries you plan to hire. This ensures that you have direct communication with the EOR, clear accountability, and consistent service quality across all locations. It also provides a more transparent and trustworthy experience for your employees..
As we've explored in this post, the true cost of choosing the wrong EOR can significantly impact your time, budget, employee experience, and even your company's reputation. That is why it is worth spending time carefully choosing your EOR. Start by reading our extensive guide.
At Boundless, we're passionate about empowering businesses to hire the best talent globally, while ensuring a seamless and compliant experience for both you and your employees. We offer:
We're committed to being your trusted partner in international expansion, providing the guidance and support you need to navigate the complexities of global employment.
Ready to expand your team globally? Get in touch with our team today to get started.
