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The Cost of Convenience: Navigating the True Price of EOR

We have all sat in that finance meeting. The one where you are looking at the P&L, and the line item for "Global Expansion" does not match the budget you approved three months ago. Your EOR contract says £400 per head, but the effective rate is landing closer to £520.

It is frustrating, but it isn’t necessarily an error. It is the "convenience tax" inherent in the model. These are fees that live in the fine print or get categorized as "additional services."

When you are scaling fast, you pay for speed. But there comes a moment in every mid-market company's journey when the cost of speed starts eating into the budget for talent. This guide isn't about vilifying EORs. It is about giving you the context to read the bill correctly, knowing when it is time to graduate from renting to owning, and how to manage that transition without losing sleep over payroll.

Key Takeaways

• The sticker price isn't the final price. While base fees hover around £400 to £600, the operational friction of currency spreads, setup fees, and exit clauses can add 20% to 40% to your total spend.
• The tipping point is real. For most companies, hitting 50 employees in a single country is the moment the math shifts. Owning the entity becomes not just cheaper, but safer.
• Graduation is a process, not a switch. Moving from EOR to your own entity saves money, but it requires a steady hand to manage capital, payroll systems, and compliance continuity.
• Sector matters. If you are in financial services or defence, the "standard" EOR model rarely fits. Your compliance burden, such as Works Councils and collective agreements, requires a more bespoke approach.

The Anatomy of the Invoice: Where the Budget Goes

EORs handle the heavy lifting of legal employment, including contracts, payroll, and tax. That is a valuable service. But the advertised monthly fee is rarely the whole story. Most providers use one of three pricing structures, and understanding them is key to avoiding surprises.

1. The Fixed Monthly Fee

This is the most common model, a flat rate (e.g., £400 to £900) per employee. It offers predictable budgeting, which the board loves. However, it does not scale well. When you have 100 employees across France and Germany, you are paying hefty management fees for administrative tasks that don't actually get 100 times harder to do.

2. The Percentage of Payroll

Some providers charge a percentage (3% to 15%) of gross salary. This feels fair until you hire senior talent. A lead engineer earning €80,000 costs the same to process as a junior support agent, but under this model, you pay a "success tax" on your highest performers. Plus, you are exposed to currency fluctuation twice: once on the salary, and once on the fee.

3. The "Enterprise" Hybrid

For larger teams over 500 people, you might see tiered pricing or volume discounts. These deals often come with "handcuffs," such as minimum commitments that lock you in even if your hiring plan changes. In a volatile market, flexibility is often worth more than a marginal discount.

The "Friction Fees" No One Mentions

The gap between your budget and your bill usually comes down to operational friction. These are the costs of doing business that don't make it onto the sales deck.

The Setup and The Buffer

Onboarding isn't free. Between contract drafting and registration, you are often looking at £500 to £2,000 per head just to get started. Then there is the security deposit. Providers need to cover their liability, so they will hold 1 or 2 months of payroll costs.

It is not a fee, strictly speaking, as you get it back. But tying up £100,000 of working capital during a rapid expansion phase is a cash flow headache you don't need.

The Silent Budget Killer: FX Spreads

This is the most opaque part of the model. You convert GBP to EUR to fund payroll, and the EOR converts it again for local distribution. If the spread is 2% to 4% (which is common), you are bleeding thousands of pounds monthly just on moving money around. For a £1m payroll, that is a senior salary lost to exchange rates every year.

The Complexity Charges

If you are in financial services, you know that bonuses and equity aren't just "perks." They are 30% to 50% of compensation. Processing these variable payments creates administrative drag, often incurring processing fees of 5% to 10%.

Furthermore, in markets like Germany or France, you aren't just managing people; you are managing institutions. Works Councils and collective agreements aren't optional extras. They are the license to operate. EORs charge premiums (£5k to £15k annually) to manage these relationships because the liability of getting it wrong is massive.

The "Goodbye" Tax

Off-boarding costs catch almost everyone off guard. In Europe, you cannot just let people go. Termination involves settlement calculations, regulatory filings, and strict protections. A contentious exit in France can easily spiral from a £1,000 admin fee to a £10,000 legal project.

The Landscape: A Quick Tour of Complexity

Every market has its own personality. Knowing the character of the country helps you budget for the quirks.

• Germany: The rigorous rule-follower. It is expensive and strict. Works Councils are mandatory for teams over five, and BaFin adds layers of scrutiny for financial firms. Expect to pay a premium for compliance here.
• France: The complex bureaucracy. High social charges (40% to 45%) and detailed employee classifications mean you need deep expertise. It is manageable, but you cannot cut corners.
• Spain: The regional puzzle. Labour laws change depending on whether you are in Catalonia or Madrid. Severance is high (20 days per year), so risk is priced in.
• Poland: The rising star. Currently cost-effective with lower social contributions, though labour laws are tightening. It is a great place to start, but keep an eye on evolving regulations.
• United Kingdom: The post-Brexit island. For international parents, the FX risk is the main volatility factor.

The Tipping Point: When to Own Your Entity

There is a specific morning in every COO’s life when they realize the EOR bill could fund an entire internal HR department.

Mathematically, that break-even point is usually between 20 and 35 employees in a single country.

• The Renting Logic: EOR costs scale linearly. 50 people costs 50 times the fee.
• The Owning Logic: Entity costs are largely fixed. Once you pay for the payroll system and the legal setup, adding the 51st employee is marginal.

Setting up a German GmbH or French SAS costs time (6 to 12 weeks) and capital (€25k+). You take on the audit requirements and the liability. But in exchange, you gain control, better unit economics, and a sense of permanence in the market.

The Graduation: A Roadmap for Migration

Moving from EOR to your own entity is a sign of success. It means you have won in that market. But the migration itself is delicate. You are touching people’s paychecks, so clarity is your best asset.

1. Plan Parallel Payrolls. Don't try a hard cut-over. Run your new system alongside the EOR for a cycle. Catch the glitches before they hit bank accounts.
2. Navigate TUPE Carefully. This is the acronym that keeps HR leaders awake. In Europe, transferring employees often triggers protections that preserve their seniority and benefits. If you get this wrong, you face tribunal claims. If you get it right, the employee barely notices the change.
3. Secure the Benefits. People care about their pensions and health insurance more than almost anything else. Ensure there is zero gap in coverage. In places like France, a day without coverage is a dealbreaker.
4. Close the Loop. Recovering your deposit from the EOR can take months. Audit that final invoice. Make sure you aren't paying "termination fees" for a graduation event.

Why We Built Teamed

We built Teamed because we saw companies drowning in vendor chaos. You start with one EOR, add another for contractors, and a third for your new entity. Suddenly, your finance team is spending half the month just reconciling different data streams.

We wanted to bring some sanity to the process.

We unified contractors, EOR, and entity management on one platform. That means when you are ready to graduate from EOR to your own entity, you don't have to rip and replace your entire HR stack. Your employees stay on the same platform. We just change the legal plumbing in the background.

We don't hide the ball on pricing. No hidden FX markups, no surprise compliance fees. And because we understand high-stakes industries like FinTech and Defence, we bake compliance into the workflow, using AI to handle the routine so our experts can focus on the complex human questions.

Global expansion is hard enough. Your employment platform should be the one thing that gives you peace of mind.

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