Avoiding Pitfalls: How EORs Ensure Compliance in the Philippines

In Cebu City and across the Philippines, Employer-of-Record (EOR) services have become increasingly popular among companies looking to streamline their operations and navigate the complexities of local labor laws. EORs take on the legal responsibilities of employment, including payroll, benefits, and compliance, allowing businesses to focus on their core activities. However, a significant challenge arises from the lack of transparency in billing and service offerings, which can lead to unexpected costs and client dissatisfaction.

Unclear Billing and Its Impact

One of the primary issues with many EOR services in the Philippines is the lack of clarity in their billing practices. For example, a Cebu-based tech startup hired an EOR service provider that initially quoted a fixed monthly fee per employee. However, after several months, the startup discovered additional charges labeled as “administrative fees” and “service charges” that were not mentioned in the initial contract. These hidden costs added up to an extra 10% of the total payroll expenses, significantly impacting the company’s budget and financial planning​​.

Another case involved a multinational company operating in Cebu, which used an EOR to manage local employees. The EOR’s billing included a percentage of payroll as their fee. However, the company later found that this percentage varied each month due to “adjustments” that were not clearly explained. This inconsistency created confusion and made it challenging for the company to forecast its monthly expenses accurately​.

Opaque Service Offerings

The lack of transparency also extends to the scope of services provided by EORs. In many cases, businesses are not fully informed about the extent of the EOR’s responsibilities. For instance, while an EOR is responsible for payroll processing, it may not cover aspects like detailed tax advisory or compliance monitoring, unless explicitly stated. A manufacturing company in Cebu discovered this the hard way when they faced penalties for late tax filings. The EOR had processed payroll but had not been handling the actual tax submissions, assuming it was the company’s responsibility. This miscommunication resulted in fines and strained the relationship between the two parties​​.

Real-Life Computation Example

To illustrate the financial impact of these issues, let’s consider a hypothetical scenario. A company in Cebu employs 50 staff members through an EOR, with an average monthly salary of PHP 30,000 per employee. The EOR charges a 5% fee based on the payroll, plus an administrative fee of PHP 1,500 per employee. The initial agreement does not clearly specify that administrative fees will increase annually by 2%.

Initial Costs:

• Total Payroll: PHP 1,500,000
• EOR Fee (5%): PHP 75,000
• Administrative Fee: PHP 1,500 x 50 = PHP 75,000

Total Monthly Cost: PHP 1,650,000

Hidden Costs in the Second Year:

• Payroll Increase (due to adjustments, new hires, etc.): PHP 1,600,000
• EOR Fee (5%): PHP 80,000
• Administrative Fee with 2% Increase: PHP 1,530 x 50 = PHP 76,500

New Total Monthly Cost: PHP 1,756,500

This seemingly minor increase in administrative fees and payroll adjustments can lead to an annual additional cost of PHP 1,266,000, a significant amount that was not anticipated by the company.

Solutions

The Company Cebu’s Approach to Transparency

At The Company Cebu, we have made transparency a cornerstone of our EOR services. We ensure that all costs are detailed in our contracts, with no hidden fees. Our pricing structure is clear: we charge a fixed fee per employee, with all additional services and potential cost increases explicitly outlined and agreed upon beforehand.

For instance, if there are any changes to administrative fees or adjustments based on payroll, these are communicated to the client well in advance. We also provide a comprehensive breakdown of the services included in our packages, such as tax compliance, payroll processing, and employee benefits management. This transparency allows our clients to budget effectively and avoid unexpected costs.

Furthermore, The Company Cebu provides regular updates and detailed reports, ensuring that clients are fully aware of how their funds are being utilized. We also offer consultation services to help businesses understand the local labor laws and compliance requirements, minimizing the risk of legal issues.

Conclusion

Transparency in billing and services is not just a best practice but a necessity for building trust with clients. As the EOR market in the Philippines continues to grow, particularly in business hubs like Cebu City, businesses must demand clarity and honesty from their service providers. The Company Cebu is committed to setting the standard for transparency, ensuring that our clients can focus on their core business operations without worrying about unexpected costs or unclear service agreements. This approach not only builds trust but also fosters long-term partnerships based on mutual understanding and respect.