Four hidden expenses quietly draining your margins
Staffing agency leaders often treat employer of record (EOR) or agent of record (AOR) fees as a simple line item. Profit gets reduced to a basic equation: client bill rate minus worker pay minus the EOR or AOR fee. The thing is, that view is often dangerously incomplete. That’s because the price you see on the invoice is only one part of what these partnerships actually cost your business.
Behind that single fee sit things like additional service charges, administrative workarounds, compliance exposure, and cash flow friction. And in a sector where net margins often sit in the 3–5% range, small, hidden costs don’t stay small for long. If your agency runs a contingent payroll of $10 million a year, for instance, even a modest amount of waste in how EOR or AOR relationships are structured can translate into hundreds of thousands of dollars in lost profit.
In the sections that follow, we’ll break down four types of hidden EOR/AOR costs that may be quietly draining your margins. We’ll also outline practical steps you can take to bring them back under control.
1. Service Fees That Leak Away Profits
Not every cost shows up where you expect it. Many EOR or AOR providers layer on extra service fees that most agencies assume are already covered in the core rate. Those charges often sit quietly in contracts or invoices and gradually eat into your margin.
Common examples include:
- Setup or Onboarding Fees: A charge for each new worker brought on, sometimes anywhere from a few hundred to a few thousand dollars per person. For high volume or lower margin placements, this becomes a significant hit before a worker even starts.
- Termination or Offboarding Fees: Penalties when a contract ends or a worker leaves, even when the departure is voluntary. Offboarding is a standard administrative step, yet some providers turn it into a billable event.
- Compliance and Administration Add-ons: Extra line items for routine compliance tasks such as statutory filings, contract updates, or required local documentation. When every compliance action triggers a separate fee, the real cost of the relationship can climb far beyond the “flat” rate you budgeted.
- Benefits Administration Fees: Charges for managing benefits on top of the underlying premium or statutory cost. You pay for the benefits themselves and then pay again for the privilege of having them administered.
Individually, these amounts may look manageable on a single invoice. Across a large contingent workforce, they compound quickly. What starts as a published fee of 1.5% can effectively creep toward 2.5% once onboarding, offboarding, compliance, and benefits administration charges are factored in. Every one of those additional EOR service fees comes straight out of your profit on the placement.
2. Operational Inefficiencies That Cost You Time (and Money)
Beyond the obvious EOR/AOR fees, the relationships can carry a second layer of cost in the form of operational friction. While you won’t see this on an invoice, you will feel it in how your team spends their day. A recent SHRM State of the Workplace report suggests that 40–57% of their time can be consumed by administrative work and error corrections when systems aren’t integrated, which is the kind of hidden workload that clunky EOR or AOR processes tend to amplify.
When your staff has to work around a provider’s clunky processes, those lost hours translate into real financial impact:
- Manual Processes: If your EOR or AOR relies on spreadsheets, email attachments, or manual data uploads, your payroll and HR teams end up acting as data entry clerks. Every onboarding packet keyed in by hand and every pay cycle assembled manually is time that could have gone into recruiting, client service, or strategic work.
- Invoicing Discrepancies and Disputes: Confusing or inconsistent invoices force your finance team into detective mode. They have to reconcile line items, chase down explanations, and push for corrections. The more time they spend untangling billing issues, the less time they have to manage cash flow, support growth, or improve internal processes.
- Lack of Systems Integration: When a provider cannot integrate cleanly with your ATS, CRM, timekeeping, or payroll tools, you end up maintaining parallel systems. Data has to be entered twice, reports never quite match, and errors creep in. Those errors often lead to more admin work and sometimes additional EOR fees for “corrections.”
Simply put: every hour your recruiters, finance, and operations teams spend compensating for an EOR or AOR’s inefficiencies is an hour that they’re not generating revenue. Over the course of a year, that lost productivity can add up to the equivalent of several full time employees.
3. Compliance Risks Carry Heavy Costs
Compliance is the biggest wildcard cost in any EOR or AOR relationship. It may not appear on this month’s invoice, but when something goes wrong the impact can dwarf every service fee you have ever paid. If your partner mishandles compliance, the financial hit can arrive suddenly and at scale.
Two areas are especially dangerous:
- Worker Misclassification: When a worker is treated as an independent contractor but should be an employee, the fallout can be severe. Misclassification can trigger government fines, back taxes, unpaid benefits, retroactive overtime, and class action claims, along with the legal fees to defend them. And unfortunately, this isn’t a fringe problem—the US Department of Labor has estimated that roughly 10% to 30% of employers misclassify workers.
- Evolving Labor Laws: Employment rules shift constantly by state, country, and even municipality. Tax rules change, new worker protections are introduced, benefit requirements expand. If your EOR or AOR is not actively tracking and implementing these changes everywhere you operate, your agency can drift out of compliance without realizing it. Regulators do not accept “we did not know” as a defense.
When compliance breaks down, the damage goes beyond fines. Clients hire you to help them operate safely in complex markets. A visible compliance failure can shake their confidence, harm your brand, and slow or stall your expansion into new regions.
The stakes are illustrated by large, high profile cases. FedEx, for example, was found to have misclassified thousands of drivers and faced a settlement of 228 million dollars in one case alone. If a Fortune 500 company can get classification wrong at that scale, any staffing firm relying on an EOR or AOR is exposed as well.
4. Cash Flow Constraints and Growth Delays
The last major hidden cost often shows up as missed opportunity rather than a direct fee. Cash flow friction and slow rollout timelines can quietly limit how much you grow, and how quickly.
Slow, complex implementations are a common culprit. Typical HR and payroll system implementations alone often run three to six months from kickoff to go live, so multicountry employment programs that layer in compliance and benefits rarely move any faster. Ultimately, this means delayed placements, invoices, and revenue.
In staffing, client demand can also shift quickly. When a new market launch or a large client ramp takes months to fully enable on the EOR side, competitors with faster setups can step in and capture the work first.
Billing and payment timelines create another layer of strain. When an EOR sends invoices late or insists on long payment terms, your agency may end up funding payroll before you are reimbursed. That gap has to be covered somehow, and many firms turn to credit lines, overdrafts, or factoring to bridge the difference. The interest and fees on that short-term financing come straight out of your margin, even though the underlying work is already done.
These cash flow and timing issues tend to bite hardest when you’re trying to scale. Entering a new year or quarter with ambitious growth targets is challenging enough. But if your EOR rollout is still incomplete, or a significant portion of your working capital is tied up while you wait for invoices to go out and payments to arrive, you’re starting a few steps behind.
Agencies that can activate new markets quickly and keep their cash cycle tight move faster. They can say yes to new clients and talent immediately, while others are still waiting for setups to finish or funds to clear.
The Solution: Launch Into Q1 Fee Free with People2.0
Once you add in hidden fees, inefficiencies, compliance exposure, and cash flow strain, the real cost of a typical EOR or AOR setup is far above the headline rate. People2.0’s Zero Cost Launch is designed to flip that script and give your agency an immediate financial boost going into Q1 2026.
Our Zero Cost Launch gives new clients four months with no EOR or AOR service fees. For that entire period, People2.0 waives setup, onboarding, offboarding, admin, and compliance fees. If you are used to a 1.5% to 2.5% effective fee on payroll, you keep that margin for the first four months while also gaining an integrated platform, fast implementation, and proactive compliance support across every market you enter.
The result is simple. You start 2026 with higher margins, smoother operations, stronger compliance, and more working capital to invest in growth. To secure your Zero Cost Launch for Q1 2026, book a strategy session with the People2.0 team and lock in the offer while it is available.
