As companies expand their global footprint, navigating the complexities of employer burdens, social contributions, and value-added tax (VAT) requirements becomes increasingly crucial. Partnering with an employer of record (EOR) provider can simplify this process, but it’s essential to ensure your EOR offers complete expertise and transparency on labor requirements in each market.
Inaccurate quotes from your EOR can create severe legal and financial risks for your company. This comprehensive guide will cover everything you need to know about trusting your EOR’s labor burden and VAT quotes, including:
- Understanding social contributions and VAT
- Discovering three ways inaccurate burden quotes create challenges for your business
- Ensuring your EOR provides trustworthy quotes you can rely on
By the end of this article, you’ll have a clear understanding of the importance of accurate labor burden and VAT quotes and how to partner with an EOR that can provide the expertise and transparency you need to succeed in the global marketplace.
Understanding Employer Burdens, Social Contributions, and VAT
Employee salaries are just one part of the equation when calculating payroll costs. Companies must also account for required employee costs, or social contributions, such as health insurance, social security, pension or retirement plans, paid time off, worker’s compensation, holiday bonuses, and other benefits.
These social contributions, or employer burdens, refer to a company’s actual total cost for each employee hired. Employer burdens differ between markets, as each state or country has unique requirements for contributions to employee benefits and other payroll-related expenses.
In addition to employer burdens, your EOR is also responsible for providing accurate quotes on VAT requirements. Similar to a sales tax, VAT refers to the incremental tax added to goods or services at each stage of their production life cycle. Each country sets its own VAT rate, which can range from as high as 27% (Hungary) to as low as 17% (Luxembourg) in Europe.
Because VAT and social contributions costs change from one country to the next, it’s essential that your EOR gives you accurate quotes. Inaccurate quotes can give you a false idea of the cost of hiring an employee or doing business in a given market, making it difficult to accurately budget for that market and creating complications for HR, finance, and other internal teams.
Three Reasons for Inaccurate Employer Burden Quotes
- Lack of market expertise: Not every global EOR takes the time to understand individual market nuances, which can lead to inaccurate quotes. Some EORs may rely on generalized data or outdated information, rather than staying up-to-date with the latest changes in each market.
- Insufficient communication: Some EORs don’t fully communicate to clients about cost and compliance requirements, leaving companies in the dark about the true costs of hiring employees in a given market. This lack of transparency can lead to unexpected expenses and compliance issues down the line.
- Failure to account for changes: As market conditions change, EORs must continuously update their employer burden calculators to ensure quotes remain accurate. Failure to do so can result in inaccurate quotes that no longer reflect the current costs of doing business in a particular market.
Ensuring Accurate Employer Burden and VAT Quotes
Vetting an EOR is a time-consuming process, and many companies don’t have the resources to spend comparing or auditing multiple partners. By partnering with a pre-vetted third-party auditor, companies can save time and maximize peace of mind.
Velocity Global, for example, recently enlisted a leading Big Four accounting firm to audit their employer burden calculators. The firm’s review of Velocity Global’s top 25 countries revealed an accuracy rate of 99.63%, confirming that Velocity Global’s employer burden quote accuracy is unsurpassed throughout the industry.
This high accuracy score reflects the rigor and thoroughness with which Velocity Global approaches burden and VAT calculations. Their in-house and external experts take the following steps to maintain accuracy even as country conditions change:
- Continuously updating employer burden calculators to ensure quotes remain accurate
- Factoring in the calendar and tax years, depending on a country’s typical legislation cadence
- Leveraging regional resources, including local experts, to confirm current employer burden percentages
- Accounting for factors like collective bargaining agreement requirements, occupational risks, and types of employment contracts
- Monitoring for legislation changes made outside the update cycle and adjusting burden calculators accordingly
In addition to these steps, Velocity Global continues to work with their third-party auditor to maintain accuracy and expertise in each market. Their primary goal is to ensure clients are being charged the right amount and staying compliant wherever they engage talent.
The Importance of Accurate Employer Burden and VAT Quotes
Inaccurate employer burden and VAT quotes can have serious consequences for companies looking to expand globally. Some of the key challenges include:
- Budget inaccuracies: When your EOR provides inaccurate quotes, it becomes difficult to accurately budget for the cost of hiring employees in a given market. This can lead to unexpected expenses and budget overruns, which can strain resources and impact the success of your global expansion efforts.
- Compliance issues: Each country has its own set of labor laws and regulations, and failing to comply with these requirements can result in hefty fines and penalties. Inaccurate quotes from your EOR can make it challenging to stay on top of these requirements, putting your company at risk of non-compliance.
- Reputational damage: If your company is found to be non-compliant with labor laws or fails to pay the correct amount of taxes, it can damage your reputation and make it difficult to attract top talent or secure future business opportunities.
By partnering with an EOR that provides accurate employer burden and VAT quotes, companies can avoid these challenges and focus on growing their business with confidence. Accurate quotes allow for better budgeting, improved compliance, and a stronger reputation in the global marketplace.
Conclusion
Navigating the complexities of employer burdens, social contributions, and VAT requirements is a critical part of global expansion. By partnering with an EOR that provides accurate and transparent quotes, companies can avoid the legal and financial risks associated with inaccurate quotes and focus on growing their business with confidence.
When vetting potential EOR partners, look for providers that have a proven track record of accuracy, a commitment to continuous improvement, and a willingness to work with third-party auditors to ensure the highest level of transparency and compliance.
By following these best practices and partnering with the right EOR, companies can successfully navigate the challenges of global expansion and unlock the full potential of the global marketplace.
