Companies are becoming aware of the positive effects of hiring people from around the world, yet there could be difficulties in managing, compensating, and selecting workers in different countries.
Working with an employer of record (EOR) is the simplest and most convenient way to take advantage of a global workforce if you need legal organizations in all the countries you want to hire. Whether you have a new startup, a small to medium-sized enterprise, or an extensive business, it is a cost-effective strategy that reduces the many challenges of expanding globally.
This article outlines the significance of an employer of record, how it works, the key services provided by EOR, and the advantages of working with a global EOR to meet your objectives for global expansion.
Let us get started.
What is an EOR?
An employer of record, or EOR, is a service offered by a third-party business. It acts as a legitimate local employer on your behalf, allowing you to hire workers in other countries. While you continue communicating regularly with team members, the EOR undertakes all legal and compliance responsibilities.
Simply put, an EOR handles the HR responsibilities of a business, onboarding, paying, and monitoring your supported employees while you manage and maintain your company’s everyday activities.
An EOR has numerous functions, including:
- Generates and maintains employment contracts that comply with local regulations.
- Creates and keeps employment contracts to remain legally valid according to local regulations.
- Offers assistance and expertise on local employment rules and regulations.
- Administers all withholdings for income tax and expenditures on labor.
- Complete salary disbursements to workers.
- Provides worker benefits.
- Guaranteeing local labor law adherence for off-boarding/terminations
How Does the EOR Service Model Work?
The EOR service model transfers the company’s employment responsibilities to the EOR. The EOR service model is broken down here:
1. The company and EOR’s agreement
The company must sign an agreement with the EOR that governs the implementation of EOR services, such as the services to be provided or performed, the costs of the given services, and duties to be performed by each party.
2. Recruiting of employees
The company hires employees independently or through the EOR in the new country. If the business directly recruits workers, the EOR becomes the employee’s employer. If the company hires an employee via the EOR, the EOR takes on the employer role.
3. Employee onboarding and maintenance
Employee management, onboarding process, benefits and payroll, and compliance with regional labor regulations and laws are all handled by the EOR. The business can provide the EOR with direction and instructions on managing their workforce.
4. Staff compensation
In addition to paying taxes and other mandated deductions, the EOR is responsible for deducting and remitting all employee payments.
5. Compliance with laws and regulations
The EOR ensures the business complies with all applicable local employment rules and regulations, as do the employees.
6. An employment layoff
The EOR handles all employee terminations, including severance pay or other benefits mandated by local law.
Fundamental Services Provided by an EOR
Legal Employment
It works as your local employer, allowing you to hire workers in other countries. While you maintain routine communication with the team members, the EOR undertakes all legal and compliance responsibilities.
Payroll Management
Paying team members with their local currency is more accessible to an EOR. This results in a reduced administrative burden and exchange rate risk. Businesses working internationally that employ people dispersed across borders will find this service especially beneficial.
Benefits Administration
EORs manage the administration of employee benefits. Medical Care plans, savings plans, and other benefits are among the packages they can provide that satisfy employee expectations and comply with local laws.
Tax Compliance
EORs file employment-related tax forms, including income tax, social security, and unemployment assistance. EORs also manage tax withholding by each country’s population.
HR Support
EOR manages employee relations and labor laws. They also support the resolution of disputes, fostering a peaceful workplace where conflicts are meticulously resolved—a crucial component of maintaining excellent employees.
Onboarding and Offboarding
EOR services manage administrative responsibilities for recruiting and terminating employees. They facilitate seamless transfers and compliance with regional legal requirements.
Advantages of Using an EOR
Global expansion without establishing legal entities
An EOR makes it simple and quick to hire employees if you intend to do so across countries or if you choose not to start your own company in a specific country. Identifying new business prospects and accessing talent worldwide is much more straightforward.
Compliance management
Your business can focus on its core operations without worrying about compliance and administration due to the local expertise of an EOR. Managing all the complicated and ambiguous tax and labor working conditions is the EOR’s responsibility- It will free you from such jobs.
Time and cost savings
Establishing a local legal business can be time-consuming and costly. Hiring global employees swiftly and can be done more affordably using EOR. You can have employees available to work in a few days for an affordable, predetermined price per worker.
Risk mitigation
EORs assist in upholding compliance with regional labor laws and regulations, reducing the possibility of customer penalties or non-compliance concerns.
Security of intellectual property
By ensuring that contracts are resilient, EORs assist in preventing the theft or misuse of your intellectual property (IP). In international businesses where IP regulations may differ, this is important.
When to Consider Using an EOR
Collaborating with an EOR could be beneficial in the following scenarios:
1. If you prefer to avoid setting up a brand-new local legal entity
Creating a local legal corporation can be costly and time-consuming. It can cost as much as one million dollars and take several months. An EOR is a cost-effective means to hire global staff rapidly, provided it makes financial sense for your company.
2. Recruiting and maintaining the most outstanding talent
Organizations can hire the best employees and fill positions from any location with the support of a global EOR. Furthermore, a global EOR allows companies to keep their best personnel without establishing a new business when employees need or desire to relocate.
3. For hiring International remote labor
Remote Workers are less bound to a single physical location as remote work grows more prevalent. Modern workers can relocate anywhere in the world without losing their jobs. Employees who decide to relocate can be quickly and easily retained with the help of an EOR. Even remote workers who travel internationally can be hired with an EOR.
4. Apprehension regarding worker classification
However, there are national differences in definitions and implementation. With the local knowledge of a trustworthy EOR partner, you can minimize the risk of misclassification by correctly classifying contractors and workers.
5. Securing Intellectual Property
You could expose your intellectual property to unexpected threats if you are not vigilant when working with international staff. EORs provide excellent intellectual property protection, making you relax and feel safe as you develop your international staff.
EOR vs. Other Global Employment Solutions
What is the difference between an employer of record and a PEO?
An “employer of record” (EOR) serves as the company’s employer, becoming accountable for its workers, whereas a “professional employer organization” (PEO)” shares employment responsibilities with the client business, allowing the client to maintain its legal employer status.
What is the difference between an employer of a record vs. a staffing agency?
An EOR can manage administrative duties, such as identity verification, onboarding, payroll management, benefits enrolment, and prioritizing compliance with relevant payroll and tax legislation. A staffing agency is an intermediary between talent and the hiring organization. The principal intent is to assist the client organization in identifying and selecting the most suitable candidate for the available position.
How and When You Choose Each Option:
Employer of Record (EOR)
When you need to immediately hire staff in different countries without establishing local entities or when you need thorough compliance support in a global marketplace.
Professional Employer Organization (PEO)
If you have a legal business in a target nation and require help with payroll and benefits for your employees or want to outsource specific HR tasks within the existing local workforce.
Staffing Agency
If you want help to fill a specific position at your current workplace or need short-term or project-based hiring.
Choosing the Right EOR Provider
When choosing an EOR, there are several crucial factors to consider:
Make a List of the Top International EOR Companies.
Initially, list the leading EOR firms active in your target countries and provide all the services you require based on your specific requirements. Online searches, business directories, peer recommendations, and professional associations can help generate this list.
Determine Your Specific Needs
You must map out your requirements before choosing a specific EOR service provider. Figure out all your essential needs. Consider significant things, such as your budget, how many workers you intend to bring on in a specific country, payroll, and compliance taxes, and how involved you want your EOR partner to be in your daily operations, etc.
Global reach in the industries.
Verify that your EOR partner is well-versed in the sectors where you bring in talent. Collaborating with an unskilled partner exposes you to potential labor law violations and needless time and financial expenditure.
Transparent cost.
Check for an employer of record that offers cost transparency, and easy budgeting for your distributed workforce.
Reliable calculations of the employer load.
Check out a provider with accurate and up-to-date information regarding employer burden expenses. When determining payroll costs, the business must consider other social contributions, such as medical coverage, social security, and paid time off.
Assistance and response time.
Select an EOR partner who is vigilant and sensitive to the requirements of both you and the employees. Determine that your EOR partner assigns a client account manager who promptly responds to inquiries from your team, onboards new employees with support, and considers regional time zones and language preferences.
Wrap up!
The Employer of Record (EOR) service model benefits businesses across all sectors and sizes. Companies can save money, access specialized expertise, stay compliant with labor laws and regulations, focus on their core business operations, and enter new markets by outsourcing HR-related work to an EOR. Consequently, businesses seeking to increase productivity, minimize expenses, and improve profits should look closer at the EOR service model.
