Shadow Payroll vs EOR Cost: The Break-Even Point at 3, 6, 12, 24 and 36 Months

When does shadow payroll become more expensive than an Employer of Record (EOR)?

The answer depends on which costs are being compared.

An employer maintaining a home-country employee on assignment abroad may pay for shadow payroll administration, tax filings, reconciliation, and cross-border compliance.

An EOR, by contrast, generally employs the worker through a local legal entity and charges an ongoing service fee on top of employee compensation, employer contributions, and applicable employment costs.

Comparing the shadow payroll administration fee against the EOR management fee can produce one break-even point.

Comparing their complete employer costs can produce an entirely different result.

Ivvora modeled a $120,000 employee across 3, 6, 12, 24, and 36 months using two alternative shadow payroll pricing structures and a $599-per-month EOR service-fee benchmark.

The first model examines an assignment whose administrative requirements become more expensive after the first year.

The second examines a more conventional arrangement with substantial upfront shadow payroll costs and lower recurring fees.

The study then adds an illustrative US-to-UK employer social-contribution comparison, deposit requirements, and country-specific cost sensitivity.

The findings challenge the assumption that one employment model is always cheaper for short assignments while the other is always cheaper for long assignments.

Executive Findings: The Break-Even Point Is Not Always the Same

In Ivvora’s primary service-cost scenario, shadow payroll begins with relatively low setup expenses but moves to a higher administrative service package after 12 months.

The EOR alternative maintains a constant $599 monthly service-fee assumption.

Table 1. Shadow payroll versus EOR: five assignment durations

Assignment duration	Shadow payroll service costs	EOR service costs	Cheaper option	Difference
3 months	$1,625	$2,297	Shadow payroll	$672
6 months	$2,450	$4,094	Shadow payroll	$1,644
12 months	$5,900	$7,688	Shadow payroll	$1,788
24 months	$18,800	$14,876	EOR	$3,924
36 months	$31,700	$22,064	EOR	$9,636

Source: Ivvora original synthetic employer-service cost model, October 2026.

The table compares modeled service and compliance spending, not full statutory employer cost.

The $599 monthly EOR service fee is a public pricing benchmark. Other setup, shadow payroll, and advisory fees are transparent research assumptions.

Under these assumptions:

Service-cost break-even: between months 17 and 18.

Shadow payroll remains cheaper through the end of month 17.

EOR becomes cheaper on a cumulative service-cost basis in month 18.

At 36 months, the modeled EOR service-cost advantage reaches $9,636 per employee.

But that is not the study’s final employer-cost result.

When the calculation also includes illustrative US-versus-UK employer social contributions, shadow payroll remains cheaper through the full 36-month horizon under the chosen assignment structure.

The findings are therefore:

• Break-even based only on service costs: Month 18.
• Break-even after adding the modeled employer contribution difference: No crossover through month 36.
• Break-even in a separate high-setup, low-recurring shadow payroll model: Month 15, but in the opposite direction. EOR is cheaper initially, and shadow payroll becomes cheaper later.
• Universal break-even point: None. The result depends on legal eligibility, compensation, employer obligations, provider pricing, and duration.

The distinction matters because employer contribution differences can exceed the savings created by switching payroll providers.

1. What Exactly Is Being Compared?

Before calculating cost, a company must establish whether shadow payroll and EOR are legally and operationally viable alternatives.

They are not automatically interchangeable services.

Shadow payroll generally refers to a payroll reporting or withholding process used where an employee remains compensated through a home-country payroll but has relevant host-country employment-tax or reporting obligations.

An EOR generally becomes the employee’s legal employer in the destination country.

For an existing employee sent abroad temporarily, switching to EOR may therefore require a different employment arrangement rather than simply changing the payroll software provider.

That can affect:

• Employment contracts and continuity.
• Visa or work authorization requirements.
• The applicable social-security system.
• Statutory benefits and leave.
• Employer tax and reporting obligations.
• Pension arrangements.
• Termination rights and liabilities.
• Tax equalization agreements.
• The employee’s net compensation.

The EOR may also be unavailable or unsuitable for a particular activity, employment arrangement, or jurisdiction.

The financial comparison is meaningful only after both structures have been confirmed as legally viable for the intended work.

The primary model deliberately isolates service costs first.

That makes it possible to see whether a provider-fee advantage exists before employer-specific legal and statutory costs are introduced.

2. Real EOR Pricing: What Can Be Verified?

A useful cost study should distinguish published prices from invented budgeting assumptions.

Two EOR providers publish service-fee benchmarks.

Table 2. Published EOR service-fee reference points

Provider	Published EOR service fee	Annualized fee
Deel	$599 per employee/month	$7,188
Remote	$699 per employee/month	$8,388

Sources:

• Deel, official pricing
• Remote, official pricing
• Remote, EOR management-fee explanation

These figures are advertised service-fee reference points, not complete employer-cost quotations for a particular worker or country.

A country-specific quote may differ because of commercial terms, promotions, billing arrangements, or additional employment costs.

The advertised fee does not replace the employee’s salary or applicable statutory employer contributions.

Ivvora uses $599 per month in its primary experiment.

The study separately assumes a $500 EOR onboarding budget. That $500 is an illustrative modeling input, not a stated Deel onboarding charge.

What about shadow payroll pricing?

Unlike standardized EOR service-fee listings, a shadow payroll engagement may involve several separately priced services.

For example:

• Initial country and treaty analysis.
• Payroll registration or activation.
• Monthly income allocation.
• Payroll processing and reporting.
• Tax equalization calculations.
• Annual employee tax-return preparation.
• Home-host payroll reconciliation.
• Payroll corrections.
• Assignment-end settlement.

Rather than describe an unsupported average market price, Ivvora tests two transparent hypothetical provider-cost structures.

This allows the calculation to be reproduced and replaced with actual quotes.

3. The Employee and Assignment Used in the Study

The model follows one employee earning $120,000 per year.

The employee is initially employed in the United States and may either remain on an eligible cross-border assignment or transition to a legally viable UK employment arrangement through an EOR.

The UK is used as the numerical reference market because published US and UK employer contribution rules allow a separate statutory-cost comparison.

The service-fee break-even equations themselves can be reused for India, Brazil, the Philippines, Colombia, Poland, or other destinations after replacing the relevant inputs.

Table 3. Research assumptions

Variable	Model input
Annual employee gross salary	$120,000
Monthly gross salary	$10,000
Assignment durations	3, 6, 12, 24, 36 months
Primary EOR service fee	$599/month
Illustrative EOR onboarding	$500
Primary shadow setup	$800
Shadow administration, months 1–12	$275/month
Shadow administration, month 13 onward	$925/month
Shadow annual tax/reconciliation budget	$1,800 per completed 12 months
Currency	USD
Fee inflation	0% in the base model
Wage increases	0%
Employer tax equalization	Excluded from primary service-cost model
Statutory employer contributions	Calculated separately
EOR deposit	Excluded from expenses and analyzed separately

The shadow payroll model assumes the employer’s service requirements expand after 12 months.

This might occur because a temporary assignment develops into a longer engagement requiring additional tax preparation, recurring dual-country administration, advisory support, and more complex reconciliation.

There is no universal law requiring shadow payroll fees to increase in month 13.

The increase is an explicit hypothetical contract assumption.

That distinction is critical. The study is measuring what happens under a defined price schedule, not claiming that every international assignment experiences the same compliance cliff.

4. Three-Month Assignment: Shadow Payroll Costs $672 Less

The first experiment is a three-month international engagement.

Under the primary shadow payroll pricing model:

Initial setup: $800

Monthly administration: $275

Three months of administration:

3 × $275 = $825

Total shadow payroll service cost:

$800 + $825 = $1,625

Under the EOR pricing assumption:

Illustrative onboarding: $500

Monthly service fee: $599

Three months:

3 × $599 = $1,797

Total EOR service cost:

$500 + $1,797 = $2,297

Three-month comparison

Model	Total service cost
Shadow payroll	$1,625
EOR	$2,297
Shadow payroll advantage	$672

At three months, shadow payroll is approximately 29.3% cheaper than EOR on this narrow service-cost basis.

But this result requires the assignment structure to be eligible for the modeled shadow payroll arrangement.

If the employee needs a locally established employment relationship that the home employer cannot lawfully provide, shadow payroll cannot be treated as an interchangeable cheaper alternative.

The lower service fee is only relevant where the underlying arrangement is compliant.

5. Six-Month Assignment: The Shadow Payroll Advantage Increases

Extend the same employee’s engagement to six months.

Shadow payroll:

$800 + (6 × $275) = $2,450

EOR:

$500 + (6 × $599) = $4,094

Six-month comparison

Model	Total service cost
Shadow payroll	$2,450
EOR	$4,094
Shadow payroll advantage	$1,644

The shadow payroll advantage has grown from $672 at three months to $1,644 at six months.

The explanation is straightforward.

The one-time shadow setup fee has already been paid.

Each additional month costs $275 in shadow administration but $599 in EOR fees.

The marginal monthly advantage is:

$599 − $275 = $324

Over six months, the lower shadow administration rate offsets an increasing share of its initial setup charge.

However, six months is also long enough for treaty residence, local employment, permanent establishment, and payroll obligations to require careful review.

A six-month assignment does not automatically qualify for favorable income-tax treatment.

In particular, the 183-day concept should not be treated as a universal safe harbor.

HMRC’s short-term business visitor guidance makes clear that treaty eligibility and PAYE arrangements depend on more than duration.

Source: HMRC, Short-Term Business Visitors: Income Tax.

6. Twelve-Month Assignment: Shadow Payroll Still Wins

At twelve months, the study adds its first annual tax and reconciliation budget to shadow payroll.

Shadow payroll setup:

$800

Monthly administration:

12 × $275 = $3,300

Annual tax and reconciliation:

$1,800

Total:

$800 + $3,300 + $1,800 = $5,900

The EOR calculation is:

$500 + (12 × $599) = $7,688

Twelve-month comparison

Model	Total service cost
Shadow payroll	$5,900
EOR	$7,688
Shadow payroll advantage	$1,788

Even after the annual reconciliation allowance, shadow payroll remains cheaper.

That conclusion is limited to the modeled service packages.

Twelve months in a host country can change the employee’s residence, employment-tax exposure, social-security position, and employment-law responsibilities.

In real life, the employer may also need tax equalization, supplementary payroll processes, employee benefits, or legal support that exceeds the modeled budget.

The next experiment makes one of those commercial assumptions explicit.

7. Month 13: The Shadow Payroll Cost Structure Changes

The primary scenario assumes a different compliance package beginning in month 13.

Shadow payroll monthly administration increases from $275 to $925.

The revised package represents a hypothetical broader service arrangement including continuing host payroll administration, home-host reconciliation support, and additional mobility-tax advisory services.

EOR remains at $599 per month.

Table 4. Marginal monthly service cost after month 12

Component	Shadow payroll	EOR
Monthly service and administration	$925	$599
Monthly difference		Shadow costs $326 more

Before month 13, shadow payroll had the lower recurring service fee.

After month 12, EOR has the lower recurring service fee.

The direction of the cost advantage reverses.

But a lower monthly price does not immediately mean a lower cumulative cost.

Shadow payroll entered month 13 with a $1,788 accumulated advantage.

The EOR must recover that advantage before becoming cheaper over the entire engagement.

That creates the actual break-even problem.

8. The Exact Break-Even Point: Between Months 17 and 18

At month 12:

Shadow payroll = $5,900

EOR = $7,688

Shadow payroll is $1,788 cheaper.

Beginning in month 13, every additional month adds:

Shadow payroll: $925

EOR: $599

The EOR closes the cost gap by:

$925 − $599 = $326 per month

The number of months needed to eliminate the existing advantage is:

$1,788 ÷ $326 = 5.48 months

Adding that to month 12:

12 + 5.48 = 17.48 months

This is the mathematical crossover under a smooth interpolation of monthly charges.

For whole-month invoices, the first completed month in which EOR is cheaper is month 18.

Table 5. The precise crossover

Month	Cumulative shadow cost	Cumulative EOR cost	Cheaper option
12	$5,900	$7,688	Shadow
13	$6,825	$8,287	Shadow
14	$7,750	$8,886	Shadow
15	$8,675	$9,485	Shadow
16	$9,600	$10,084	Shadow
17	$10,525	$10,683	Shadow
18	$11,450	$11,282	EOR
19	$12,375	$11,881	EOR
20	$13,300	$12,480	EOR

Source: Ivvora original break-even calculation.

At month 17, shadow payroll remains $158 cheaper.

At month 18, EOR is $168 cheaper.

The first complete billing month at which the cumulative service-cost ranking changes is month 18.

The $168 saving is small enough that an additional provider fee, employment obligation, or contract-specific charge could easily change the decision.

That is why the crossover should be interpreted as a planning threshold, not as evidence that an employer must switch payroll structures during month 18.

Changing a legal employment arrangement can create separate transition expenses that must be assessed.

9. Twenty-Four-Month Assignment: EOR Saves $3,924 in Modeled Service Costs

At 24 months, shadow payroll includes:

Initial setup: $800

First 12 months of administration:

12 × $275 = $3,300

Months 13–24:

12 × $925 = $11,100

Two annual tax and reconciliation budgets:

2 × $1,800 = $3,600

Total:

$800 + $3,300 + $11,100 + $3,600 = $18,800

EOR:

$500 + (24 × $599) = $14,876

Twenty-four-month comparison

Model	Total service cost
Shadow payroll	$18,800
EOR	$14,876
EOR advantage	$3,924

At 24 months, EOR is approximately 20.9% cheaper than the modeled shadow payroll service arrangement.

That is a meaningful administrative saving.

But it is not yet proof that EOR is cheaper on total employer spending.

Employee compensation, social-security contributions, mandatory benefits, and other employment costs have not been added.

10. Thirty-Six-Month Assignment: EOR Saves $9,636 in Service Costs

Extend the comparison to 36 months.

Shadow payroll:

Initial setup = $800

Months 1–12:

12 × $275 = $3,300

Months 13–36:

24 × $925 = $22,200

Three annual tax and reconciliation budgets:

3 × $1,800 = $5,400

Total:

$800 + $3,300 + $22,200 + $5,400 = $31,700

EOR:

$500 + (36 × $599) = $22,064

Thirty-six-month comparison

Model	Total service cost
Shadow payroll	$31,700
EOR	$22,064
EOR advantage	$9,636

On service costs alone, EOR is approximately 30.4% cheaper than the modeled shadow arrangement.

The cumulative advantage becomes more substantial as the engagement continues.

However, EOR’s recurring service-fee advantage does not establish an equivalent saving in statutory employment costs.

That requires a second calculation.

11. The Bigger Experiment: Add Actual Employer Contribution Frameworks

So far, the model has compared service and administrative expenditure.

That is useful for negotiating providers.

It is incomplete for determining employer cost.

An employee retained under an eligible US-to-UK temporary assignment may remain within the US social-security system under the bilateral agreement.

An employee genuinely employed locally through a UK EOR may instead be covered by UK National Insurance.

These are not merely different payroll software configurations. They can be different legal employment and social-security arrangements.

The US–UK social-security agreement provides detached-worker treatment for qualifying assignments generally expected to last no more than five years, subject to its conditions.

Source: US Social Security Administration, US–UK Agreement.

All three modeled assignment horizons, up to 36 months, fall within that ordinary five-year duration limit.

That does not mean every employee qualifies.

The employer, employment relationship, nature of the assignment, and applicable documentation still matter.

For the next experiment, Ivvora assumes:

Shadow payroll: The employee remains appropriately covered by US Social Security and Medicare, with the relevant home-country coverage established.

EOR: The worker is genuinely employed in the UK, with ordinary UK employer National Insurance applying.

Both options retain a modeled gross annual salary of $120,000.

The analysis intentionally excludes tax equalization and additional benefits from this first statutory comparison, so employer contributions can be isolated.

12. How Much Does the US Employer Contribute?

For 2026, the US employer Social Security tax rate is generally 6.2% on wages up to the $184,500 wage base.

The employer Medicare rate is 1.45%.

At an annual salary of $120,000, assuming all wages are subject to ordinary employer FICA and no special exclusions apply:

Employer Social Security:

$120,000 × 6.2% = $7,440

Employer Medicare:

$120,000 × 1.45% = $1,740

Total annual employer FICA:

$9,180

Monthly equivalent:

$9,180 ÷ 12 = $765

Source: IRS, 2026 Instructions for Form 941.

The model holds the applicable wage, rate, and coverage assumptions constant over its 36-month comparison.

Actual future Social Security wage bases and employee compensation may change.

13. How Much Does the UK EOR Contribute?

UK employer National Insurance uses a different calculation.

For 2026–27, the ordinary Class 1 secondary employer rate is 15% on applicable earnings above the secondary threshold.

The published standard monthly secondary threshold is £417.

Source: HMRC, Employer Rates and Thresholds 2026–27.

Assume a fixed modeling exchange rate:

$1 = £0.75

The employee’s $10,000 monthly salary becomes:

£7,500

For an ordinary monthly-pay employee in the relevant NI category:

Monthly earnings subject to employer NI:

£7,500 − £417 = £7,083

Employer NI:

£7,083 × 15% = £1,062.45

Converted to USD at the assumed exchange rate:

£1,062.45 ÷ 0.75 = $1,416.60

The US employer’s comparable monthly FICA is $765.

Difference:

$1,416.60 − $765 = $651.60 per month

This calculation excludes employer pension contributions, special NI categories, Employment Allowance eligibility, taxable benefits, and other statutory or contractual costs.

It is a frozen-rate scenario using published 2026 rules, not a forecast of future UK contribution rates.

The critical financial implication

Under these assumptions, the UK employment arrangement has an additional employer contribution burden of $651.60 per month relative to the continuing US-covered assignment.

The primary service-fee model showed EOR becoming $326 cheaper per month after the shadow payroll package expanded.

But $651.60 is greater than $326.

The higher employer contribution burden can more than offset EOR’s ongoing service-fee advantage.

The legal employment structure changes the break-even calculation.

14. Fully Loaded Employer Cost: The Result Reverses

Now add base salary and modeled employer contributions to both service-cost scenarios.

The comparison is:

Shadow payroll total = Base salary + US employer FICA + Shadow administration

EOR total = Base salary + UK employer NI + EOR administration

Both assume equivalent gross salary in USD.

This is a controlled employer-budget comparison, not a claim of equal after-tax employee compensation or identical statutory employment benefits.

Table 6. Total modeled employer cost, including employer contributions

Duration	Shadow payroll total	EOR total	Cheaper model	Difference
3 months	$33,920	$36,547	Shadow	$2,627
6 months	$67,040	$72,594	Shadow	$5,554
12 months	$135,080	$144,687	Shadow	$9,607
24 months	$277,160	$288,874	Shadow	$11,714
36 months	$419,240	$433,062	Shadow	$13,822

Source: Ivvora original calculations using modeled salary and administration assumptions, 2026 US employer FICA, and 2026–27 ordinary UK employer NI.

Figures are rounded to the nearest dollar.

The comparison assumes the US temporary-assignment structure and UK local-employment structure are both legally viable, that the employee receives the same gross compensation, and that only the stated employer contribution costs differ.

Several potentially material costs are excluded, including employer pension contributions, employment-related benefits, severance, tax equalization, relocation, corporate tax, and immigration.

The surprising result

In the service-fee calculation, EOR became cheaper at month 18.

But when the modeled employer contribution difference is added, shadow payroll remains cheaper at every tested duration.

At 36 months:

Shadow payroll total = $419,240

EOR total = $433,062

The model shows a $13,822 shadow payroll advantage.

The provider-fee comparison alone would have indicated a $9,636 EOR advantage.

That is a reversal of the apparent recommendation.

The discrepancy comes from excluding employment costs that differ between the two arrangements.

A service-fee break-even point is not necessarily an employer-cost break-even point.

This is one of the most important findings in the study.

It also explains why a provider-comparison article that focuses only on $599 versus $275 or $925 per month cannot reliably establish which arrangement is financially preferable.

15. The $267.67 Test: How Much Extra Employer Cost Can EOR Absorb?

The all-in comparison suggests a more useful way for finance teams to evaluate vendor quotes.

Instead of asking only whether EOR has a lower monthly service fee, ask:

How much additional statutory employer cost can EOR absorb before its service-fee advantage disappears?

At 36 months, the primary model gives EOR a service-fee advantage of $9,636.

Divide by the assignment duration:

$9,636 ÷ 36 = $267.67 per month

That is the maximum average additional EOR employer-cost premium that can be absorbed over 36 months before the modeled EOR advantage disappears.

If EOR has $100 more monthly statutory employer cost than the shadow arrangement, it can remain cheaper overall under the other assumptions.

If EOR has $300 more monthly statutory employer cost, the service-fee saving is insufficient to make EOR cheaper over the full 36 months.

Table 7. Maximum EOR statutory-cost premium before its service advantage disappears

Duration	EOR service-fee advantage	Maximum extra EOR employer cost per month
12 months	None: shadow is cheaper	Not applicable
18 months	$168	$9.33
24 months	$3,924	$163.50
36 months	$9,636	$267.67

At 12 months, EOR is already more expensive on service fees, so a positive EOR statutory premium cannot improve its position.

At 24 months, an EOR statutory cost premium of more than $163.50 per month eliminates its modeled service advantage.

At 36 months, the corresponding threshold is $267.67.

For an employee earning $10,000 monthly, a $267.67 premium is equivalent to approximately 2.68 percentage points of monthly salary.

This creates a portable calculation for other countries.

An employer does not need to assume US or UK contributions apply everywhere.

It needs to calculate the actual difference in employer obligations under the two viable structures and compare that difference with the available service-fee savings.

16. A Different Shadow Payroll Contract Reverses the Break-Even Direction

The primary scenario assumed low initial costs followed by higher long-term shadow payroll administration.

But not every provider prices assignments that way.

Some engagements involve substantial upfront registration, setup, tax assessment, and system work followed by comparatively inexpensive recurring administration.

That structure can produce the opposite result.

For a second independent commercial scenario, assume:

Cost component	Shadow payroll	EOR
Initial setup	$3,800	$500
Monthly service	$250	$599
Annual reconciliation	$1,000	Included in modeled service package
Assignment closeout administration	$800	$0 additional administrative fee assumed

The $800 shadow closeout fee is charged at the endpoint of each tested assignment.

Statutory termination expenses are excluded for both structures.

The pricing remains hypothetical, except for the $599 public EOR fee reference.

Table 8. High-setup, low-recurring shadow payroll scenario

Duration	Shadow payroll	EOR	Cheaper service-cost option
3 months	$5,350	$2,297	EOR
6 months	$6,100	$4,094	EOR
12 months	$8,600	$7,688	EOR
24 months	$12,600	$14,876	Shadow
36 months	$16,600	$22,064	Shadow

The first completed month in which shadow payroll becomes cheaper is month 15.

This is the opposite of the primary model.

EOR wins shorter engagements because its lower setup assumption avoids the large initial shadow payroll investment.

But shadow payroll costs only $250 per additional month, compared with $599 for EOR.

Over time, its lower recurring price offsets the initial disadvantage.

What the two models establish

The primary model produces an EOR advantage beginning in month 18.

The high-setup model produces a shadow payroll advantage beginning in month 15.

Both calculations are arithmetically correct under their respective contracts.

There is no contradiction.

The difference comes from the structure of fees.

Duration alone cannot identify the cheaper model without knowing the setup charges, recurring fees, annual compliance costs, and exit terms.

That is why a universal statement such as “EOR is best for short assignments” or “shadow payroll is always cheaper beyond one year” is not supported by these calculations.

17. What Changes if the EOR Charges $699 Instead of $599?

The primary experiment uses a $599 EOR monthly fee.

Remote’s published standard monthly EOR fee provides a second market reference at $699.

To isolate the effect of that $100 difference, keep all other assumptions unchanged.

Table 9. EOR fee sensitivity

Duration	Shadow payroll service cost	EOR at $599/month	EOR at $699/month
3 months	$1,625	$2,297	$2,597
6 months	$2,450	$4,094	$4,694
12 months	$5,900	$7,688	$8,888
24 months	$18,800	$14,876	$17,276
36 months	$31,700	$22,064	$25,664

At $599 per month, EOR first becomes cheaper in month 18.

At $699 per month, EOR first becomes cheaper in month 24.

A $100 monthly service-fee increase delays the modeled cumulative break-even by six billing months.

That difference matters in procurement negotiations.

A company expecting an 18-month assignment may reach very different conclusions using a $599 quote rather than a $699 quote.

At 36 months, the additional $100 per month creates:

36 × $100 = $3,600

in additional EOR service fees.

The supplier’s monthly price therefore changes both the crossover timing and the total financial advantage.

However, provider selection also depends on legal employing arrangements, country coverage, included services, benefits, contract commitments, and termination terms.

The published prices are not evidence that two providers offer identical country-specific service scope.

18. EOR Deposits: The Cost That Should Not Be Added to Operating Expense

EOR commercial arrangements may require a refundable deposit.

That deposit is important for cash-flow planning.

It is not necessarily an expense.

Deel’s published deposit guidance describes a standard deposit range of one to one-and-a-half times monthly charges, including salary, employer costs, allowances, and management fees, with variations for certain arrangements.

Source: Deel, EOR Deposit Calculations.

For this experiment, assume a deposit equal to 1.25 times the modeled monthly EOR payroll and fee amount.

Monthly salary:

$10,000

Monthly modeled UK employer NI:

$1,416.60

EOR service fee:

$599

Total monthly charges:

$12,015.60

Deposit:

$12,015.60 × 1.25 = $15,019.50

This is an illustrative deposit calculation, not an actual vendor quotation.

The employer might need to provide approximately $15,020 of working capital at the beginning of the relationship.

If fully refundable, the deposit should not be treated as a permanent $15,020 employment expense.

It is a balance-sheet and cash-flow item until applied or refunded, subject to the contractual terms and accounting treatment.

What does the deposit actually cost?

An employer may experience an economic financing cost while funds are unavailable.

Assume an annual opportunity cost of capital of 10%, with the full modeled deposit held throughout the assignment and returned at completion.

The simplified carrying-cost formula is:

Deposit carrying cost = Deposit × Annual capital cost × Months held ÷ 12

Table 10. Illustrative deposit carrying cost

Assignment	Capital tied up	Economic carrying cost at 10% annualized
3 months	$15,020	$375
6 months	$15,020	$751
12 months	$15,020	$1,502
24 months	$15,020	$3,004
36 months	$15,020	$4,506

These costs are hypothetical financing estimates, not deposit fees charged by Deel.

The actual deposit amount, required currency, refund conditions, and release date depend on the provider contract.

Deel’s refund documentation explains that release depends on completion of termination and settlement processes and outstanding invoice reconciliation.

Source: Deel, EOR Deposit Refunds.

Why this matters for break-even calculations

At 36 months, the primary service-cost model shows EOR saving $9,636.

The illustrative deposit carrying cost is approximately $4,506.

Deducting that financing cost reduces the EOR economic advantage to approximately $5,130, before considering any other statutory employment-cost differences.

That does not make the deposit itself an expense.

It means the opportunity cost of tying up cash can materially reduce a service-fee saving.

The effect becomes more important when an employer uses EOR for multiple employees and funds several deposits simultaneously.

19. One Employee Versus Ten: What Happens When the Model Scales?

The initial study covers one employee.

A company considering several international workers may want to know whether the economics change with headcount.

Assume ten employees with the same service-fee structure, duration, and compensation.

Assume all setup and administration amounts scale per employee, with no negotiated volume discounts or shared fixed costs.

Table 11. Ten-employee service-cost comparison

Duration	Shadow payroll, 10 employees	EOR, 10 employees	Cheaper option	Savings
3 months	$16,250	$22,970	Shadow	$6,720
6 months	$24,500	$40,940	Shadow	$16,440
12 months	$59,000	$76,880	Shadow	$17,880
24 months	$188,000	$148,760	EOR	$39,240
36 months	$317,000	$220,640	EOR	$96,360

This produces an important mathematical result.

Simply multiplying the number of identical employees does not change the break-even month when every cost scales proportionally.

The per-employee crossover remains month 18.

But real arrangements may contain fixed or shared costs.

For example, a single payroll setup process may support multiple employees.

A provider may offer volume discounts.

A legal assessment may be reused for employees who share the same employment structure.

A tax advisor may charge less per employee when a larger group uses the same processes.

Consequently, the actual break-even month can change with headcount when cost behavior is not perfectly proportional.

Shared setup-cost sensitivity

Suppose the primary shadow payroll setup budget is $800 per employee in the original model.

For ten employees, that is $8,000.

If an employer instead negotiates a shared $2,000 setup charge, the group saves $6,000 in initial costs.

That reduces the shadow payroll cumulative total by $600 per employee in an otherwise proportional comparison.

The lower setup charge can delay the EOR crossover.

The key budgeting question is therefore not just the number of employees.

It is which costs are truly fixed, which are per employee, and which can be shared across a group.

20. Tax Equalization Can Change the Result Again

So far, the primary model excludes employee tax equalization.

That is a deliberate separation.

Tax equalization can be a major assignment expense, but it is not automatically caused by the use of shadow payroll.

Likewise, switching an employee to an EOR does not automatically eliminate the economic effects of protecting the employee’s agreed take-home compensation.

The tax responsibility depends on the employment agreement, employee residence, host tax treatment, and employer policy.

Consider a sensitivity case in which the shadow assignment requires an additional $300 per month of employer-funded tax administration or net-pay protection that is not included in the primary pricing model.

If the EOR arrangement does not incur an equivalent expense, the shadow cost increases by:

$300 × 12 = $3,600 in one year.

At twelve months:

Original shadow service cost: $5,900

Additional expense: $3,600

Revised shadow expense: $9,500

Modeled EOR service cost: $7,688

EOR now appears $1,812 cheaper.

But there is a significant limitation.

The employer cannot call that an apples-to-apples result unless the two arrangements provide equivalent employee compensation and correctly account for the employee’s taxes.

An employee whose UK tax is employer-funded is not economically identical to an employee who must pay the same tax from an unchanged gross salary.

A valid comparison must first determine the intended employee net-pay outcome.

Then it should calculate the employer cost of achieving that outcome under each arrangement.

The distinction that matters

A tax equalization policy can make an international assignment substantially more expensive.

It does not follow that EOR removes all those expenses.

EOR changes the legal employment structure and may change the tax calculation, but the employer must still account for all contractual compensation obligations.

That is why tax equalization belongs in the complete employer-cost model rather than being added only to whichever option the employer wants to make appear expensive.

21. How to Recalculate the Break-Even for India, Brazil, the Philippines, Colombia and Poland

The service-fee model can be applied across Ivvora’s relevant markets.

However, it should not use one global statutory contribution assumption.

Each destination requires a different employer-cost build.

Table 12. The country-specific inputs that can change the crossover

Country	Costs and structures requiring separate modeling	Why it matters
India	EPF, ESI where applicable, gratuity, employee coverage, benefits and local employer obligations	Statutory costs and coverage can depend on wages, employee history, eligibility and establishment characteristics
Brazil	Employer social contributions, FGTS, 13th salary, vacation-related obligations and termination provisions	Recurring payroll burden and accumulated employment liabilities can materially affect the all-in comparison
Philippines	SSS, PhilHealth, Pag-IBIG, 13th-month pay and applicable termination obligations	Statutory payroll costs and additional compensation can differ from a temporary home-payroll assignment
Colombia	Employer social contributions, occupational-risk coverage, PILA obligations, prima, cesantías and termination liabilities	Payroll contributions and accrued employment benefits can change the cost of local employment
Poland	ZUS contributions, PPK where applicable, paid leave, payroll administration and termination obligations	Contribution allocation, benefit requirements and employment structure can shift the break-even

This is a modeling checklist, not a declaration that every listed payment applies identically to every employee or arrangement.

The actual rules must be verified for the worker, employing entity, compensation, and period.

Why the same EOR fee cannot produce the same cost result in every country

Suppose a provider quotes the same $599 monthly EOR management fee in two countries.

That does not mean the total employer cost is identical.

A difference in statutory employer contributions, mandatory benefits, tax-funded compensation, or termination accruals can change the result by more than the service-fee difference.

For this study’s 36-month pricing schedule, an average EOR employer-cost premium above $267.67 per month eliminates the service-fee advantage.

For an employee earning $10,000 monthly, this represents only approximately 2.68% of salary.

That threshold shows how relatively modest statutory differences can reverse a seemingly large provider-fee advantage.

For Ivvora, the meaningful country-level comparison is therefore:

Gross compensation + applicable employer contributions + mandatory benefits + payroll administration + employer-funded taxes + transition and exit costs.

The model should not simply substitute a destination country name while preserving US or UK employer contribution assumptions.

22. What Happens if the Company Already Has a Local Entity?

An additional issue arises when a company compares EOR with shadow payroll but already owns a legal entity in the destination country.

The actual alternatives may be more complicated.

The company may be able to employ the worker directly through the local entity, continue a properly structured temporary assignment, or use a payroll provider for an existing employment arrangement.

EOR may still be commercially available, but it should not automatically be treated as the only alternative to shadow payroll.

A local entity may already maintain:

• Payroll registration.
• Employment contracts.
• HR administration.
• Statutory benefits systems.
• Payroll compliance resources.
• An accountant or local payroll provider.

If those capabilities already exist, the marginal cost of administering another local employee may be low.

That can make a direct-employment comparison more relevant than the headline EOR-versus-shadow payroll question.

Conversely, where the company has no viable local employment structure and the proposed assignment does not qualify for the intended cross-border treatment, shadow payroll alone does not solve the problem of legal employment.

The correct approach is to identify the compliant structures first and compare their complete costs second.

23. When There Is No Break-Even Point

A mathematically valid crossover requires the two modeled cost lines to meet.

That does not always happen.

Consider four conditions.

Case A. Shadow payroll has higher setup but lower recurring costs

EOR may be cheaper for short engagements.

Shadow payroll may become cheaper after its setup expense is recovered.

This is the pattern in Ivvora’s second commercial model.

Case B. Shadow payroll has lower setup but higher recurring costs later

Shadow payroll may be cheaper initially.

EOR may become cheaper if the higher shadow administration costs continue long enough.

This is the pattern in the primary model.

Case C. One option has a permanently higher total cost

If EOR carries sufficiently higher statutory employment costs, its monthly service-fee saving may never offset those expenses during the relevant planning horizon.

That is what occurs in Ivvora’s illustrative US-to-UK employer contribution model through 36 months.

Case D. One employment structure is not legally viable

There is no meaningful financial break-even between two options if one cannot lawfully support the employee’s intended employment.

That option should be marked unavailable rather than assigned an artificially high or low cost.

The correct output of a break-even model may be “no crossover” or “not a valid comparison.”

Those are useful answers.

Forcing every employer decision into a single month-X conclusion can create false precision.

24. The Reproducible Ivvora Break-Even Formula

The service-cost model can be reproduced with a small set of variables.

Let:

• M = Total assignment months.
• S = Initial shadow payroll setup cost.
• P1 = Shadow monthly fee for the first twelve months.
• P2 = Shadow monthly fee after month twelve.
• R = Annual shadow payroll tax and reconciliation cost.
• E0 = EOR onboarding cost.
• E = EOR monthly service fee.

Formula 1. Shadow payroll cost

For the primary model:

Shadow(M) = S + P1 × min(M, 12) + P2 × max(M − 12, 0) + R × floor(M ÷ 12)

Substitute:

S = $800

P1 = $275

P2 = $925

R = $1,800

For a 24-month assignment:

Shadow(24) = $800 + ($275 × 12) + ($925 × 12) + ($1,800 × 2)

Shadow(24) = $18,800

The floor function counts each completed twelve-month period.

Actual annual tax service billing may occur on different dates. For a cash-flow model, the payment schedule should replace this simplified recognition rule.

Formula 2. EOR service cost

EOR(M) = E0 + E × M

With a $500 assumed onboarding cost and $599 monthly service fee:

EOR(24) = $500 + ($599 × 24)

EOR(24) = $14,876

Formula 3. Service-cost difference

Difference(M) = Shadow(M) − EOR(M)

At 24 months:

$18,800 − $14,876 = $3,924

A positive result means EOR is cheaper under the modeled service-cost assumptions.

A negative result means shadow payroll is cheaper.

Formula 4. Break-even after month twelve

At month 12, shadow payroll has a cumulative cost advantage of $1,788.

The later monthly shadow fee is $925.

The EOR fee is $599.

Months to crossover = $1,788 ÷ ($925 − $599)

Months to crossover = 5.48

Total duration:

12 + 5.48 = 17.48 months

For full monthly billing periods, EOR first becomes cheaper in month 18.

This formula applies only between annual reconciliation charges or other step changes.

For more complex contracts, the cost must be calculated separately for each billing period.

Formula 5. Full employer cost

Total shadow employer cost = Salary + Home employer contributions + Shadow administration + Assignment costs + Employer-funded tax + Other applicable costs

Total EOR employer cost = Salary + Host employer contributions + EOR fees + Mandatory benefits + Funding costs + Transition and exit expenses + Other applicable costs

The result must use consistent compensation targets and account for the actual legal employment structure.

Formula 6. Maximum additional EOR statutory-cost burden

Where EOR is already cheaper on service fees:

Maximum average EOR statutory premium = Service-fee advantage ÷ Assignment months

At 36 months:

$9,636 ÷ 36 = $267.67 per month

That is the employer-cost difference threshold before the modeled 36-month EOR service-cost advantage disappears.

25. Questions Finance Teams Should Ask Before Choosing EOR or Shadow Payroll

A provider quotation should give finance enough information to populate the break-even model without relying on unexplained averages.

The employer should request the following inputs:

1. One-time onboarding, payroll activation, or registration costs.
2. Monthly recurring service fees.
3. Country-specific employer contributions.
4. Statutory benefit and employment-cost provisions.
5. Tax equalization and employee tax assistance costs.
6. Annual tax filing and reconciliation fees.
7. Currency conversion and payment charges.
8. Deposit amount, funding date, and refund conditions.
9. Required contract duration, notice period, and minimum fees.
10. Employment transfer, termination, and assignment-end costs.
11. Whether payroll services can continue under the actual legal employment structure.
12. A fully loaded 3-, 6-, 12-, 24-, and 36-month cost projection.

Quotes should separately identify refundable deposits, statutory employer liabilities, and service fees.

Otherwise, a company may compare a shadow payroll administrative quote against a fully loaded EOR payroll invoice and conclude that one service is significantly more expensive.

Those are not equivalent measurements.

26. Frequently Asked Questions

Is shadow payroll cheaper than EOR?

It can be, depending on the employment structure and which expenses are included.

In Ivvora’s primary service-cost model, shadow payroll is cheaper at 3, 6, and 12 months.

EOR becomes cheaper in month 18 and remains cheaper at 24 and 36 months on service fees alone.

However, the modeled US-to-UK employer contribution difference reverses the all-in ranking through 36 months.

There is no universal cheaper option.

What is the break-even point between shadow payroll and EOR?

Under the primary Ivvora assumptions, the service-cost crossover occurs between months 17 and 18.

The first completed monthly period in which EOR is cheaper is month 18.

The result depends on the modeled setup charges, recurring fees, and annual reconciliation costs.

Is EOR cheaper for a three-month assignment?

Not necessarily.

The primary model gives shadow payroll a $672 service-cost advantage at three months.

The alternative high-setup shadow payroll model gives EOR a $3,053 advantage at the same duration.

Both outcomes follow from different fee structures.

Is EOR cheaper after twelve months?

Not automatically.

In the primary service-cost model, shadow payroll remains cheaper at 12 months.

In the alternative high-setup model, EOR is cheaper at 12 months.

Employer contributions and other costs can change the ranking further.

What does a $599-per-month EOR fee actually cover?

The advertised fee is a service-fee benchmark, not the employee’s complete employment cost.

Actual EOR invoices can include employee compensation, applicable employer contributions, benefits, and other employment-related amounts.

The services included in the management fee and additional commercial terms must be confirmed with the provider.

Does shadow payroll require a local legal entity?

The answer depends on the country and employment arrangement.

Shadow payroll is a reporting and withholding mechanism, not a substitute for determining which entity is legally entitled to employ the worker and what local obligations apply.

Some properly structured temporary assignments can continue under a foreign employer, subject to applicable law.

Other arrangements may require a local employing entity or another legally compliant structure.

Does an EOR eliminate employer tax obligations?

No.

EOR changes the employment structure and allocates payroll and employment administration responsibilities under its contract.

Applicable statutory employer contributions, employee compensation, benefits, and other employment costs still need to be funded.

Contractual responsibility and legal liability are not necessarily identical in every jurisdiction.

Are EOR deposits part of the employer’s total cost?

A refundable deposit is not automatically an expense.

It can represent working capital tied up under the provider agreement.

The employer should account separately for potential financing costs, currency effects, deductions, and refund timing.

Why can the cheaper service provider become the more expensive employer option?

Because monthly management fees represent only one component of employment cost.

Higher statutory contributions, mandatory benefits, tax equalization, or termination liabilities can outweigh the savings from a lower provider fee.

In the Ivvora study, an EOR service-fee advantage at 36 months disappears after the assumed US-to-UK employer contribution difference is added.

Can companies use the same break-even assumptions for India, Brazil, the Philippines, Colombia and Poland?

No.

The break-even formula is reusable, but statutory employment costs are jurisdiction-specific.

Employers should calculate the relevant contributions, benefits, payroll obligations, and employment costs for each actual arrangement.

A universal employer contribution percentage would make the comparison unreliable.

Conclusion: The Break-Even Point Is a Financial Result, Not a Rule About Assignment Length

The Ivvora study compared shadow payroll and EOR costs over five assignment durations.

In the primary service-fee model, shadow payroll costs:

• $1,625 at three months.
• $2,450 at six months.
• $5,900 at twelve months.
• $18,800 at twenty-four months.
• $31,700 at thirty-six months.

The corresponding EOR service-cost figures are:

• $2,297 at three months.
• $4,094 at six months.
• $7,688 at twelve months.
• $14,876 at twenty-four months.
• $22,064 at thirty-six months.

The service-cost crossover occurs in month 18.

At 36 months, EOR is $9,636 cheaper on the specified service costs.

But once the study adds the modeled employer contribution difference between a US-covered temporary assignment and UK local employment, the conclusion changes.

At 36 months, shadow payroll produces a modeled total employer cost of $419,240 versus $433,062 for EOR.

Under those assumptions, shadow payroll is $13,822 cheaper.

A second commercial scenario, with higher initial shadow payroll setup costs and lower recurring fees, produces yet another outcome: EOR is cheaper initially, while shadow payroll overtakes it in month 15.

The lesson is not that one arrangement is universally better.

The relevant break-even point is where the total cost of two legally viable employment arrangements becomes equal, not merely where their monthly service fees intersect.

For companies planning international assignments or foreign employment, that distinction can materially change the budget.

The most useful comparison is built from actual wages, employer obligations, statutory benefits, tax policy, service fees, deposits, and the expected duration of employment.

That is how a payroll pricing discussion becomes a defensible employer-cost decision.

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Research Methodology, Sources and Limitations

Research organization: Ivvora
Publication: October 2026
Study classification: Original synthetic financial modeling
Employee compensation: $120,000 annual gross salary
Study horizons: 3, 6, 12, 24 and 36 months
Primary focus: Shadow payroll versus EOR service-cost break-even
Secondary focus: US-to-UK employer statutory contribution sensitivity

Primary sources

Deel, Official Pricing
Source for the published $599 per employee/month EOR service-fee benchmark.
https://www.deel.com/pricing/

Remote, Official Pricing
Source for the published $699 per employee/month EOR service-fee comparison.
https://remote.com/pricing

Remote, EOR Management Fees
Confirms Remote’s standard EOR monthly management fee and available commercial arrangements.
https://support.remote.com/hc/en-us/articles/37480463833229-How-much-is-the-management-fee-for-employees

Deel, EOR Deposit Calculations
Source for provider-declared deposit practices and standard deposit range.
https://help.letsdeel.com/hc/en-gb/articles/15574494993297-About-EOR-Deposit-Calculations

Deel, EOR Deposit Refunds
Source for deposit refund and final settlement procedures.
https://help.letsdeel.com/hc/en-gb/articles/4419482456721-About-EOR-Deposit-Refunds

US Internal Revenue Service, Instructions for Form 941, 2026
Source for 2026 employer Social Security and Medicare contribution rates.
https://www.irs.gov/instructions/i941

HMRC, Rates and Thresholds for Employers 2026–27
Source for UK employer Class 1 National Insurance rates and thresholds.
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027

US Social Security Administration, US–UK Social Security Agreement
Source for the detached-worker coverage provisions relevant to qualifying temporary assignments.
https://www.ssa.gov/international/Agreement_Texts/uk.html

HMRC, Short-Term Business Visitors
Source for UK employment-income treaty and PAYE considerations in qualifying temporary assignments.
https://www.gov.uk/government/publications/help-with-short-term-business-visitors-gfc19/income-tax-part-2

UK Government, Workplace Pension Contributions
Source for workplace pension requirements, which must be separately assessed and are excluded from the model’s employer-cost totals.
https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay

Original research contribution

The article’s original contribution is its reproducible break-even model, not the individual published provider fees or statutory contribution rates.

Ivvora constructed two hypothetical shadow payroll pricing schedules, tested five assignment durations, calculated whole-month crossover points, and examined how the outcomes change when employer statutory contributions are introduced.

The analysis also derives the maximum statutory employer-cost premium that can be absorbed before an EOR service-fee advantage disappears.

The resulting tables and crossover calculations are original modeled outputs.

They are not observed market-average shadow payroll costs, contractual quotes, or statistical estimates of typical employer savings.

Methodological limitations

The model assumes an unchanged $120,000 gross annual salary, consistent monthly compensation, fixed currency conversion, and no fee inflation.

For the UK statutory comparison, it holds published 2026–27 contribution assumptions constant over a 36-month hypothetical horizon. Actual rates and thresholds may change.

The modeled UK EOR employee and US-covered assigned employee do not necessarily have equivalent net pay, employment protections, benefit entitlements, or immigration arrangements.

Employer pension contributions, employee-tax equalization, mandatory benefits, employment termination costs, transfer expenses, immigration costs, and permanent-establishment exposure are excluded from the main total-cost table.

The shadow payroll packages, their first-year and later-year fees, annual tax reconciliation budgets, and modeled commercial transition are hypothetical inputs.

The $500 EOR onboarding budget is also hypothetical, not a published Deel or Remote charge.

The deposit carrying-cost model assumes a fully refundable deposit returned at the relevant endpoint and does not forecast additional settlement delays, currency changes, or contractual deductions.

No legal conclusion should be drawn from a numerical cost advantage where an underlying employment arrangement has not been verified as viable.

The employer-cost findings should always be cited with their specific scenario assumptions.

Suggested citation: Ivvora Research (2026). Shadow Payroll vs EOR Cost: The Break-Even Point at 3, 6, 12, 24 and 36 Months. Original employer-cost and cross-border employment sensitivity study.