High Costs and Hidden Fees in Employer-of-Record Services: A Call for Transparency in the Philippines

The Employer-of-Record (EOR) model has gained popularity among businesses expanding into the Philippines, offering a streamlined solution for managing local employment without the complexities of setting up a legal entity. While EOR services provide a convenient way to navigate local regulations, many businesses encounter unexpectedly high costs and hidden fees. This article delves into the cost structures of EOR services in the Philippine context, highlighting the importance of transparency and comprehensive contracts to mitigate unforeseen expenses.

Detailed Analysis

EOR providers typically charge for their services through a combination of setup fees, ongoing service fees, and other variable costs. Understanding these components is crucial for businesses to anticipate the true cost of using an EOR in the Philippines.

1. Setup Fees: These are one-time charges for establishing the necessary infrastructure, including the legal and administrative processes required to hire employees. In the Philippines, setup fees can range from PHP 50,000 to PHP 200,000, depending on the complexity of the arrangement and the number of employees involved.
2. Ongoing Service Fees: These fees are typically charged monthly and can be structured in several ways:
   • Percentage of Employee Payroll: A common model where the EOR charges a percentage of the employee’s gross salary. For instance, if an employee’s salary is PHP 50,000 and the EOR charges 10%, the fee would be PHP 5,000 per month. This model can lead to higher costs as salaries increase, making it less attractive for businesses planning salary adjustments or bonuses.
   • Fixed Fee Per Employee: This model offers predictability, charging a set amount per employee. For example, if the fixed fee is PHP 15,000 per employee and a company employs ten workers, the total monthly cost would be PHP 150,000. This model provides greater cost stability and is particularly beneficial for budgeting purposes.
3. Additional Costs: Beyond the standard fees, businesses should be aware of potential additional charges, which may include:
   • Currency Exchange Fees (FX Fees): Given the Philippines’ reliance on foreign investment, many transactions involve currency conversion. An EOR might charge an FX fee of 1-3% of the transaction value, which can accumulate significantly over time.
   • Benefits Management Fees: If the EOR manages supplementary benefits like health insurance or retirement plans, they may charge additional fees. For instance, managing health insurance for an employee might incur an extra PHP 3,000 per month.
   • Compliance and Legal Fees: Ensuring compliance with local labor laws and tax regulations can involve additional costs. For example, handling severance pay or navigating changes in employment law might require legal consultations, costing up to PHP 20,000 per incident​​.

Sample Computations

To illustrate the potential costs, consider a hypothetical company employing 20 employees in the Philippines, each earning a gross salary of PHP 40,000.

• Percentage of Payroll Model:
  • Gross Payroll: PHP 800,000
  • EOR Fee (10%): PHP 80,000
  • Total Monthly Cost: PHP 880,000
• Fixed Fee Per Employee Model:
  • Fixed Fee: PHP 12,000 per employee
  • Total EOR Fee: PHP 240,000
  • Total Monthly Cost: PHP 1,040,000

In this example, while the percentage model appears cheaper, the fixed fee model offers more predictable budgeting, which can be advantageous for financial planning.

Contextual Considerations in the Philippines

The Philippine labor market has unique characteristics that affect EOR services. For instance, the country has multiple minimum wage rates depending on the region, ranging from PHP 316 to PHP 537 per day. Compliance with these varying rates requires meticulous management, which is often handled by EORs. Additionally, the country’s robust legal framework around employee benefits, including mandatory contributions to the Social Security System (SSS) and PhilHealth, adds another layer of complexity​ ​.

Solutions and Recommendations

The Company Cebu offers a unique approach to EOR services by prioritizing transparency and fairness in pricing. Unlike some providers who obscure additional costs, The Company Cebu provides detailed, upfront pricing that includes all potential fees. We believe in clear contracts that specify all terms and conditions, ensuring our clients are fully informed.

Moreover, we emphasize the importance of continuous communication. Our dedicated account managers are always available to discuss any concerns and provide updates on regulatory changes that may affect costs. This proactive approach helps businesses avoid surprises and plan their budgets accurately.

Conclusion

Choosing the right EOR provider in the Philippines involves more than just comparing costs. Businesses must consider the transparency of the provider, the comprehensiveness of the services offered, and the potential for hidden fees. The Company Cebu stands out by offering transparent, competitive pricing and exceptional client support, ensuring businesses can expand into the Philippine market with confidence. By choosing a provider that values honesty and clarity, companies can avoid unexpected expenses and focus on their core business operations, secure in the knowledge that their EOR partner has their best interests at heart.