Payrolling Through Your Staffing Vendor? You Might Be Overpaying
By: Ariana Lujan
Payrolling and staffing are often bundled together, but they serve very different purposes. When those differences blur, companies can end up paying far more than necessary for employer of record (EOR) services that could be delivered more efficiently and transparently.
Understanding how these models differ, and where costs quietly compound, can help leaders make more informed decisions about their workforce strategy, including when to use an employer of record (EOR) for payrolling.
Payrolling vs. Staffing: What’s the Difference?
Payrolling refers to an arrangement where an Employer of Record (EOR) manages payroll administration, tax withholding, benefits, and employment compliance for workers you already source or select. The focus is operational accuracy, compliance, and risk management.
Staffing, by contrast, includes recruiting, screening, and employing workers on your behalf. Staffing agencies assume responsibility for sourcing talent and typically charge a markup to cover recruitment, management, and overhead.
Both models have valid use cases. Problems arise when employer of record services are delivered through a staffing structure that was designed primarily for talent acquisition.
Where Costs Start to Add Up
When payrolling is bundled through a staffing vendor, companies often pay staffing-style markups for services that do not require staffing-level effort.
Typical staffing markups can range from 35% to 50% or more of worker pay. While that premium may make sense when sourcing, screening, and managing talent, it often exceeds the true cost of payrolling services alone.
In many cases, businesses are effectively paying recruitment margins for payrolling execution.
Limited Visibility, Limited Control
Another challenge with payrolling through staffing vendors is compliance and transparency, especially compared with direct EOR or employer of record payrolling models.
Costs are frequently bundled into a single bill rate, making it difficult to see how much is going toward wages, statutory costs, benefits, and vendor margin. Without clear line-of-sight into these components, leaders struggle to:
- Accurately forecast payroll spend
- Identify inefficiencies or unnecessary fees
- Compare alternatives on an apples-to-apples basis
This lack of visibility also limits flexibility. Adjusting processes, changing benefit structures, or scaling across geographies can require renegotiating staffing contracts that were never designed for payroll-first needs.
Why Direct Payrolling Models Are Different
Dedicated payrolling or EOR solutions are purpose-built to handle employment, payroll, and compliance without embedding staffing markups.
Key advantages typically include:
- Lower overall cost by eliminating recruitment-based margins
- Clear pricing models tied to payroll services, not bill rates
- Greater transparency into wages, taxes, benefits, and fees
- More control over compliance workflows and worker data
- Scalability across states or countries without restructuring vendor relationships
For organizations that already have access to talent, or that use multiple sourcing channels, separating staffing from payrolling often leads to enhanced governance and more predictable costs.
How to Evaluate Your Current Payrolling Spend
If payrolling is currently managed through a staffing vendor, a few practical steps can clarify whether you are overpaying:
- Review your bill rates – Break down what portion of the rate is wage versus markup, and understand what services that markup is intended to cover.
- Assess transparency – Determine whether you can clearly see payroll costs, statutory expenses, and administrative fees.
- Compare alternatives – Benchmark against dedicated payrolling or EOR providers that price payroll independently of staffing.
- Plan for transition – Any change should include a clear timeline, employee communication, and coordination to avoid payroll disruption.
A More Intentional Payroll Strategy
Payrolling through a staffing vendor can feel convenient, especially early on. But as programs scale, that convenience often comes with hidden cost and reduced control.
Separating payrolling from staffing allows organizations to pay for what they actually need, gain better visibility into spend, and build a more flexible workforce foundation.
The right model depends on your workforce mix, growth plans, and compliance requirements. What matters most is understanding where your payroll dollars are going and ensuring they align with the value being delivered.
