EOR costs and pricing models explained

The three parts of an EOR invoice

Every month, an EOR invoices you for three things:

1. Gross salary. What you have agreed to pay the employee before tax.
2. Statutory employer costs. Contributions and taxes the law requires the employer to pay, such as superannuation or social security.
3. The EOR fee. The provider's charge for employing the person on your behalf.

Some providers also add pass-through costs such as benefits, equipment and expenses. When comparing providers, line up all three parts separately. A low headline fee can hide higher on-costs or extras.

Common pricing models

Flat monthly fee per employee

The most common model. You pay a fixed amount per employee per month regardless of salary. It is easy to budget and tends to be better value for higher-paid roles.

Percentage of salary

The fee is a percentage of the employee's gross salary or total employment cost. It can look cheaper for lower-paid roles but rises with every pay increase. Check whether the percentage applies to salary only or to salary plus on-costs.

Tiered or volume pricing

Some providers reduce the per-employee fee as headcount grows or offer lower rates for longer commitments. Check the minimum term and what happens if your headcount falls.

Bundled pricing

Some fees include benefits administration, equipment, background checks or immigration support. Others charge separately. Bundles make comparisons harder, so ask for an itemised breakdown.

What an Australian employee really costs

Whether you use an EOR or your own entity, the statutory and practical costs of an Australian employee are similar. Budget for:

One-off and hidden costs to ask about

• Set-up or onboarding fees per employee.
• Security deposit, often one to three months of employment costs.
• Foreign exchange margins if you pay in a currency other than the employee's salary currency.
• Off-cycle payments for bonuses, commissions or expense reimbursements.
• Termination support and any fee for handling a dismissal or redundancy.
• Transfer or conversion fees if you later move the employee to your own entity.
• Late payment penalties if your payment reaches the EOR after payroll is due.
• Price increases, and how much notice the provider must give.

How to compare quotes fairly

1. Use the same scenario. Give every provider the same salary, start date, location and benefits.
2. Ask for an itemised monthly cost. Salary, each statutory cost, benefits and the fee on separate lines.
3. Ask for a 12-month total including one-off costs and the deposit.
4. Check the currency. Know which currency you will be invoiced in and who bears exchange rate risk.
5. Read the service agreement. Liability caps, indemnities, IP terms and termination clauses can matter more than a small difference in fees.
6. Ask about service. Who will answer employee payroll questions, and how fast?

Budgeting for the full year

Australian costs change on fixed dates, so build these into your budget:

• 1 July: the annual wage review takes effect for award rates and the National Minimum Wage, along with changes to thresholds such as the high income threshold.
• Each pay run: super contributions now leave with every payroll under Payday Super, rather than quarterly.
• State budgets: payroll tax rates and thresholds can change, usually from 1 July.

Overseas, the dates differ. New Zealand and the United Kingdom change minimum wages on 1 April, Germany and Ireland on 1 January. Our country guides show the key dates.

Building a budget step by step

A simple way to estimate the annual cost of an Australian employee through an EOR:

1. Start with base salary. Confirm it meets the award minimum for the role's classification, or the National Minimum Wage if the role is award-free.
2. Add 12% superannuation on qualifying earnings, unless the salary has been agreed as a package that includes super.
3. Add workers' compensation. Ask the EOR for the rate it passes through for the employee's industry and state.
4. Add payroll tax if the EOR passes it through. Ask whether it is charged at the full state rate or only when your own wages would exceed the threshold.
5. Add expected overtime, allowances and leave loading if the role is covered by an award that requires them.
6. Add benefits and equipment you plan to provide, such as a laptop, phone or private health insurance.
7. Add the EOR fee for 12 months, plus any one-off set-up fee.
8. Note the deposit separately. It is usually refundable, but it ties up cash.

Repeat the exercise for your own entity using quotes from an accountant and payroll provider, and you will have a fair comparison.

Currency, payment terms and cash flow

EORs pay Australian employees in Australian dollars, but many invoice overseas clients in USD, GBP, EUR or another currency. Check:

• Which exchange rate is used and when it is set.
• Whether a margin is added on top of the market rate.
• When payment is due. Under Payday Super, super must be paid each payday, so some EORs ask for funds before each pay run rather than monthly in arrears.
• What happens if you pay late. Late payment can delay salaries and super, and some service agreements pass penalties on to the client.

Service quality is part of the price

A cheaper provider is not a saving if payroll errors, slow responses or weak local knowledge create problems. Before signing, ask:

• Who is the actual employing entity in Australia, and how long has it operated?
• Will a named contact handle your account and your employee's questions?
• How does the provider identify the right award and keep up with annual changes?
• How are payroll errors fixed, and how quickly?
• What reporting will you receive on costs, leave balances and super payments?

When EOR costs stop making sense

EOR fees are a variable cost that grows with headcount. Entity costs are mostly fixed. At some point, typically as a permanent team grows, the total EOR fees exceed the cost of running your own entity and payroll. Model the crossover point using your hiring plan, and see EOR vs setting up an Australian entity for the non-financial factors.

The bottom line

The EOR fee is only part of the cost. Compare quotes on a fully itemised basis, check the extras and remember that Australian statutory costs such as super, payroll tax and workers' compensation apply whichever route you choose.