The Contractor Switch Rarely Saves What You Think

A client we have worked with for many years decided to move a small team from employment through an Employer of Record to contractor arrangements. It was a calm account that needed very little support and ran smoothly, and the change came from the team themselves. They proposed it, the company took it seriously, and we sat down with them to walk through the advantages, the risks and what good practice looks like before they decided to go ahead.

On paper, the logic was simple: without the service fee, the company would spend less, and that was the saving. When we asked afterwards how it had gone, the answer was that it had been harder than they expected. My view is that the fee was never the whole cost. It was the price of a structure, and when you remove the fee you remove that structure along with it.

The Fee Disappeared. The Cost Did Not.

The service fee did go away, but the company’s costs did not fall so much as change shape, and three things followed:

• The pay reset: The team negotiated hard as part of the change, and their pay moved to direct payment in a stronger currency. They received raises that were funded largely by fee savings, with top-ups from the client, while annual leave stayed the same, so their earnings overall rose by a meaningful amount.
• The requests multiplied: Within the first month, the team asked for extra benefits, for leave to be paid out, and for bonuses to come earlier and more often. The company’s admin team had never handled any of this, and now it was the one answering.
• The currency became the employer’s problem: At a later payroll, the market rate looked good, but after remittance and conversion fees, the rate the team actually received was lower, and when they noticed, they asked the admin team why.

While the individuals were paid better, the company was not much further ahead, because the lower cost it had expected was only one part of the picture. It still had pay negotiations to handle, an admin team answering requests it had never faced before, a currency question it now owned, and risks that no longer sat with a provider. It had given up the structure of an employer and kept the work of one. The cost had not gone away. It had moved.

What The Fee Was Really Paying For

A service fee is a single line on an invoice, but what it covers is a bundle, and here is what that bundle looks like under each model.

• Payroll and statutory handling: An Employer of Record runs payroll and handles statutory contributions and filings. A genuine contractor looks after their own tax and contributions, so you pay invoices instead of running payroll.
• Pay and currency: An Employer of Record converts at that month’s rate and handles remittance, so employees go through one consistent process. A contractor is paid directly, so the rate they actually receive after bank and conversion fees becomes a question for your admin team.
• Leave, allowances and bonuses: Under employment, statutory leave and allowances apply, alongside any bonuses in the contract. Contractors usually have no statutory leave or allowances, so these become whatever you agree, and they can be reopened.
• Day-to-day questions: The Employer of Record’s team answers questions on pay, leave and benefits. With contractors, those questions land on your own admin team.
• When things go wrong: Employment comes with defined processes and statutory protections for illness, performance and exit, for both sides. A contractor relationship rests mostly on the contract, and the more you direct how the work is done, the more it starts to look like employment.
• If the arrangement is challenged: The Employer of Record is the legal employer and carries the statutory employer obligations. If a contractor arrangement is later treated as employment, you may be treated as the employer, and back contributions and penalties become yours.
• What you see on the bill: With an Employer of Record, the cost shows up as a visible fee. With contractors, that line disappears, but the cost often returns as pay demands, admin time and risk.

Details differ by market, so take local advice before relying on any single point. Remove the fee and you remove the line, but you do not remove the work. You remove the structure that did the work for you, and you keep the job.

That is the real trade. A contractor arrangement is not a cheaper version of employment but a different arrangement altogether, and the costs you avoided come back as admin, risk and negotiation, because when the rules change for the people involved, their expectations change with them.

Count The Cost in Four Buckets

Before any conversion, I now ask people to look at four buckets of cost, each of which needs an honest estimate over twelve months:

• Visible costs: What do you pay today for fees and statutory costs, and what really disappears?
• Shifted costs: Who will now run payroll, handle leave, manage banking and currency, and answer questions? What do their time and tools cost?
• Behavioural costs: What will the team ask for in return? What will they expect on pay, bonuses and leave once the rules change?
• Risk costs: What happens if the arrangement is challenged? Which protections disappear for each side? What happens when someone is unwell, resigns, or the work becomes steady and full-time?

Write down a number or a range for each bucket, and if you cannot estimate one, that is not a gap in the exercise but the finding itself.

A Contractor Label Does Not Make Someone a Contractor

There is one more risk that is easy to miss, which is that calling someone a contractor does not make them one. In many markets in this region, authorities look at what the relationship really is rather than what the contract calls it, and they tend to ask a few plain questions: who controls how and when the work is done, whether the person works for one client only, whether the pay is fixed every month, and whether the person uses the company’s tools. If the answers look like employment, the label may not protect anyone.

A Contractor Arrangement Only Makes Sense for a Genuine Contractor

I am not saying a contractor arrangement is never the right answer. I am saying it only makes sense when the person genuinely qualifies as a contractor, which depends on how the work is actually done and not on what the contract says.

The questions above work in both directions. A specialist with several clients, project-based work, their own tools and the freedom to send a substitute is a real contractor, and for them the arrangement fits. A person who works for one client, is paid a fixed amount each month and works inside your team with your tools is not one, whatever the paper says, and for them this is not a cost-saving choice. It is an employment relationship under another name, with every cost and risk in this article still attached.

Even for a genuine contractor, the arrangement is not automatically cheaper. Some conversions do save money, but the test is whether the saving survives all four buckets.

What to Try This Week

1. If a conversion is on the table, fill in the four buckets for twelve months, writing a number or a range for each one.
2. Ask the team why they want it and what they would trade for it, because their answer will tell you what the behavioural bucket looks like.
3. Run the independence test by asking whether this person could work for others, set their own hours and send a substitute, and if not, take advice before changing anything.

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Why I am sharing this

I hear the same logic often: the fee looks large and the change looks small, so it rarely feels like a decision with four parts.

This is part of why Glints TalentHub exists as an Employer of Record and HR partner globally. An Employer of Record is not just a fee but the structure that carries payroll, statutory compliance, currency handling and employee questions, so your team can focus on the work.

If you have been through a conversion, I would like to hear which bucket surprised you most.