In today’s fast-paced world of global business expansion, working with an EOR (Employer of Record) has become a popular option. Many businesses are choosing EOR as their legal local employer in the UAE as a cost-effective option.
If you are a business owner or manager still not convinced by the cost-effectiveness of EOR services, this guide is for you. Here, we will look into the cost-benefit analysis of an EOR service provider and how they ensure substantial cost and time savings for your company.
EOR Pricing Models
The two most common EOR pricing structures are:
Pay the Fix Price
Employers pay a flat monthly fee, regardless of the headcount and employee salaries. With this, businesses can scale recruits without incurring EOR costs.
Payroll Percentage
A predetermined percentage of the employee’s CTC goes to the EOR. This model is profitable for employers with conservative expansion and salary budgets or those who want to test the market. However, compared to a monthly fee, this model can be taxing as the headcount and compensation increase.
While fixed pricing and payroll percentage are the two most common EOR pricing models, the custom or hybrid model is less common, it combines flat monthly pricing and a percentage of monthly.
Breaking Down Employer of Record Costs
Besides the EOR pricing model you choose, the overall cost also varies by industry. These include but are not limited to the following:
EOR setup fees: EORs may charge a one-time setup fee for every recruit. This includes the cost of drafting compliant employment contracts, onboarding, and payroll services.
Service fees and administrative costs: It covers the expenses incurred in managing your global employees in the UAE. It typically covers the costs of employee record-keeping, visa compliance, work permit, etc.
Payroll processing fees: These refer to the expenses incurred in salary disbursement, social security contributions, and WPS (Wage Protection System) compliance, ensuring that employees are paid fairly and on time.
Employee salary and local employer costs: Your business has to pay the EOR to cover the costs of the employee’s salary and other necessary employer costs or contributions. These costs typically include mandatory employee benefits like health insurance and end-of-service gratuity.
Compliance and legal support costs: Legal compliance is one of the primary functions of an EOR partner. They ensure their clients navigate UAE labour laws and employment regulations smoothly. Compliance and legal support costs typically cover the expenses incurred in compliance-related activities.
Clarify any hidden fees or unexpected costs upfront. Inquire about the use of technology because while technology helps improve global workforce management, it often adds to the overall costs of EOR.
Comparing EOR Costs vs. Establishing a Local Entity
When businesses plan to expand globally, they have to make a strategic choice between partnering with an EOR or setting up a local entity:
Own a local entity
Establishing a legal entity in the UAE involves numerous steps and costs, which vary depending on your industry, scale of operations, compliance requirements, etc. The lack of knowledge and connections within the local market and compliance complications make processes even more challenging. In addition, errors and noncompliance bring hefty fines and other severe consequences. These, combined with the hidden costs of managing the business independently, result in huge costs involved in opening and running a company in the UAE.
Working with an EOR
With an EOR, you do not have to pay setup costs, faster market entry, and reduced administrative burden. Most importantly, because EORs eliminate potential errors and noncompliance risks, your business will avoid hefty fines and run smoothly.
Although the choice between a local entity and EOR depends on your company’s long-term business goals, budget, and level of control you want, EOR is a cost-effective and efficient option for many businesses (particularly startups) looking for global expansion.
The Financial Benefits of Using an EOR Service
When you are entering a new market, you have to be very careful with your budget and time. Your budget is limited, and your time is precious. Trying to set up a local business entity in the UAE without expert knowledge and support means you could lose both your time and money on unnecessary things. Also, you could easily miss out on growth and profit opportunities.
Bypass upfront setup fees
The most substantial cost-saving benefit of using an EOR as a legal employer in the UAE is eliminating the costs involved in setting up and maintaining your own legal entity. These costs typically include entity setup costs, such as registration fees, legal fees, signature and notarization costs, acquiring a business license, and many more.
No initial recruitment and infrastructure costs
The EOR’s existing infrastructure and access to a massive pool of local talent save you another big chunk of upfront costs. No need to set up your local HR team, buy office equipment, or lease office space. The EOR already has all this set up for you, which reduces the burden of heavy initial investments.
Avoid non-compliance fines and penalties
As the legal employer for your employees in the UAE, EORs offer guaranteed compliance with local labour laws and employment regulations. This protects client companies against legal compliance risks and associated fines and penalties, which can range from hundreds to millions of dollars.
That is not all! EORs keep up with changing regulations, ensuring your business remains compliant. This proactive approach is a big money-saver in the long term.
Reduced administrative costs
Each administrative task has its price tag. Post-setup, your company has to manage the global workforce, HR functions, and payroll. Juggling these activities is not just time-consuming; it also requires costs incurred due to corporation taxes, hiring a payroll manager, employee onboarding and offboarding, etc.
Your global EOR can reduce administrative costs by providing HR support and managing payroll, employee benefits, and legal compliance. The reduced administrative burden allows your business to focus on core revenue-driving activities. As the client company, you pay a predictable EOR service fee, bypassing unexpected costs and simplifying your budget planning.
Reduce tech stack costs
Efficiently managing your global team in the UAE requires using software and tools for communication, paying employees salaries, ensuring compliance, and managing other HR activities. Using a separate platform for each becomes expensive and may stretch your budget thin. On the other hand, an EOR manages all this from a single, all-in-one platform without requiring multiple subscriptions. This lowers your tech stack costs to a great extent.
Cost-effective scalability
You can reduce or increase the size of your workforce per market demands and business needs. So, your company saves on high recruitment or severance costs. So, you can scale your business without worrying about massive expenses. You can also hire specialised talent for project-based needs without long-term financial commitments.
Now, if you factor in the time and money you save, EORs certainly deliver a high return on investment and give peace of mind. So, working with an EOR is not just about savings – it is a smart business strategy.
Choose Connect Resources as Your EOR Partner
By now, it must be clear how EOR makes the most versatile and cost-effective solution when expanding your business to the UAE. With Connect Resources as your EOR partner, you can enter the market faster, hire top local talent, and manage your business compliantly. They take care of everything from drafting and distributing contract generations, fair payroll management, employee benefits, and much more for your employees.
So, when you plan to expand in the UAE market and are looking to hire an EOR partner, look no further Connect Resources.
