Department takeover: a distribution company cut department costs 24% with EOR and office hosting

Summary

A regional distribution company with operations in Ontario and Québec had an 11-person internal department handling IT support, logistics coordination and administrative operations. The team was essential, but the department’s fully loaded cost no longer fit the company’s budget. Rather than lay the team off or hand the work to an outsourcing vendor, the company chose a department takeover: InfraDev became the employer of all 11 people, hosted them in our office, and charged a fixed monthly fee.

The same people kept doing the same work for the same stakeholders. The client’s annual cost for the department fell from $847,000 to $644,000, a 24% reduction, and every employee accepted the offer and stayed through the first year.

The challenge: reduce cost without losing the team

The department supported daily operations: inventory systems, warehouse technology, carrier coordination and the internal help desk. Several people had been with the company for more than five years, and their knowledge of its systems and vendors would have been hard to replace.

A cost review found the department, with salaries, benefits, office space, equipment and management overhead, was taking a larger share of the operating budget than the company’s cost-reduction plan allowed. The options were:

• Lay off the team and outsource the work, risking lost knowledge and a drop in service.
• Cut costs in-house, which meant reducing headcount or pay and risking attrition.
• Move the department to a partner that would keep the team and the service level.

Two constraints were fixed. The department had a set annual budget that could not be exceeded, and the transition could not disrupt service: in distribution, a systems outage or a missed carrier booking reaches customers directly. The company also wanted to treat long-serving staff fairly.

Our approach

Employer of record for the whole department

We offered employment to all 11 people on terms comparable to or better than their existing compensation and benefits, and took over employment contracts, payroll, source deductions and remittances, benefits administration, and compliance with provincial employment standards. The client no longer carried employment liability for the team.

The employees were assigned exclusively to the client’s work. Their responsibilities did not change, and the client kept day-to-day direction: it set priorities, approved workflows and received the same outputs as before, with one point of contact and one invoice.

Office hosting

The client was consolidating its own office space as part of the cost plan, so we hosted the team in our office: a dedicated area with desks, meeting rooms and storage. The team kept access to the client’s inventory, logistics and help desk systems from our network, under agreed security and confidentiality rules. Integration took two weeks from the transition date. Moving the team freed space the client could release.

A fixed fee inside the budget

The monthly fee covered employment costs (salaries, benefits, employer contributions), the office space, and our margin. It was set at 24% below the client’s in-house cost. The agreement defined how the fee would change if headcount changed by mutual agreement or statutory costs rose beyond a threshold, with 90 days’ notice for any adjustment. None was needed in the first year. Monthly reports showed headcount, role mix and the cost breakdown.

The transition

We announced the change jointly with the client and offered every employee a one-on-one conversation about pay, benefits and career path. People kept working for the client from day one with the same tools and access, and had a named InfraDev contact for HR questions.

The numbers

Figures are annual.

	Before (in-house)	After (InfraDev)
Department headcount	11	11 (same team)
Annual cost to the client	$847,000	$644,000 (fixed fee)
Effective cost per employee	$77,000	$58,545
Office space	Client-provided (about $132,000 allocated)	Included in the fee
Payroll and HR administration	Client-managed (about $28,000 allocated)	Included in the fee
Management overhead	About $45,000 allocated	Included in the fee
Employees who left in the prior / first 12 months	2	0

The annual saving was $203,000 (24%), and the fee stayed within the agreed amount for the first year.

When a department takeover makes sense

This model fits when:

1. The department’s work is well defined and can be clearly scoped.
2. The company wants to keep the team and avoid layoffs.
3. The budget is fixed and predictability matters more than flexibility.
4. The company is willing to move employment, and possibly workspace, to a partner.

Questions about department takeovers

What is a department takeover? InfraDev becomes the employer of an existing team that previously worked for the client. The employees continue doing the same work for the client under a service agreement; the client pays a fixed fee and InfraDev handles payroll, benefits and HR.

Do the employees have to work from InfraDev’s office? No. We hosted this team because the client was giving up its own space. Remote or hybrid arrangements work too. See Host your hire.

Can the client still direct the team’s work? Yes. The client sets priorities and manages the work; InfraDev handles employment, payroll and HR.

How long does a takeover take? This one took six weeks from planning to go-live, including offers, payroll setup and office integration. Larger teams or several locations take longer.