What Is Employer of Record (EOR): Everything You Need to Know
Need help onboarding international talent?
Hiring the right person for the job has always been one of the most complex challenges for a company. This is especially true now that hiring people from all over the world is possible. Not only should you focus on getting the best-qualified candidate for the position, but you must also be in compliance with the local labor laws and regulations.
There is a lot of work to be done, and this could be more than your average human resource or business operations department can handle. But you should know that there's no need to open a local entity when you want to test the grounds with the global talent pool. In these situations, you should consider turning to an employer of record.
What is an employer of record?
An employer of record or simply EOR is an organization that takes care of the hiring and compensating of one or more full-time employees on behalf of another company. Working with global employers of record enables companies to legally work with employees from a foreign country.
Basically, relying on the employer of record services allows you to legally and painlessly hire anyone, anywhere in the world in less time than if you had to set up a new business entity.
Keep in mind employer of record services are not needed if you are hiring independent contractors. If your business is looking to hire an independent contractor, take a look at our detailed guide on hiring foreign contractors.
What does an employer of record do?
The employer of record, sometimes called the global employer of record, could take responsibility for the following employment tasks:
- Payroll processing
- Filing payroll taxes
- Processing timesheets
- Creating, maintaining, and terminating employment contracts
- Employee onboarding processes for new hires
- Maintaining insurance
- Running various background checks
- Administering benefits for your global employees
- Handling worker’s compensation, health insurance, etc.
Are an Employer of Record and a Professional Employer Organization (PEO) the same?
EOR is similar to a PEO, or professional employer organization, but the two are quite different. PEOs are quite popular in the United States and are providing so-called co-employment services. Co-employment means that both the client company and the PEO are sharing the management of the employees, as well as assuming legal liabilities. They often need to be registered in the country where the employee is located.
When it comes to international hiring, many companies refer to it as "global PEO" or "international PEO". It's important to note that this type of service is not offered by a PEO but by an employer of record.
To sum it up, the employer of record is employing the worker on behalf of the client company, ensuring compliance according to the local laws and labor regulations, as well as running payroll and other HR and/or administrative tasks. The employment relationship exists between your employee and the EOR and they're the ones with legal responsibility, but day-to-day management of the workers is the responsibility of the client company. In this case, opening a subsidiary or a local branch is not necessary.
Employer of record vs. staffing agency
A staffing agency acts as a "middleman" between hiring companies and talent. Their responsibility lies in finding the right candidate to match it to the job vacancy.
Depending on the staffing agency, the services can include anything from advertising the job to filing paperwork and running background checks.
On the other side, EOR services do not include talent search and vetting but come into play only when the right candidate has been selected.
Hire employees abroad, without setting up an entity
Get access to the world’s best talent. Hire full-time employees in 150 countries without having to set up a legal entity in a new country.Learn more
When to use an employer of record?
You should consider using an employer of record when:
- Your company is expanding to a global market and wants to hire people on the ground
- You want to ensure compliance with the labor laws and regulations in a foreign country
- You want to reduce compliance and misclassification risks of hiring independent contractors
- You don't have the capacity to perform the research and operations in-house
- You want to hire full-time employees without opening a subsidiary
Why use an EOR? The benefits of using Employer of Record services
As businesses embrace remote and online working, enticing markets open all over the world. Apart from these new markets, new opportunities for business expansion open up, as well as chances to introduce new members to the team. Unfortunately, this introduces some legal challenges when hiring international employees. This is where the employer of record services come in.
By using an employer of record you will:
- Have a cost-effective solution for your hiring needs
- Reduce compliance risks
- Ensure a good onboarding process for each new employee
- Fully leverage the power of global workforce
1. Saving substantial resources for your core business
Relying on an employer of record will help you save the time it usually takes to go through the hiring process. EORs have their own team of trained experts that handle the hiring and onboarding process. This will reduce the time and resources you spend on the hiring process so you can cater other business needs your company may have.
Finally, EOR can save your company a lot of money that would usually go into back-office operations, such as training your HR and recruiter team on legal matters, seeking legal counsel, and obtaining various legal permits in the countries you would like to hire in.
2. Reducing compliance risks
The employer of record ensures compliance with the laws of the country you’re planning to hire in. So, whether you’re planning a global expansion or just looking to hire in a single country, you will need to follow employment laws and regulations. Instead of learning a new set of rules each time you hire people from a new country, you can rely on EOR. By outsourcing hiring new people, you effectively don’t have to worry about local regulatory laws or work permits, as the employer of record will take care of it on your behalf.
Another important aspect of EOR services is that they give you opportunities for international employment while remaining completely compliant with the tax laws of the country they are hiring in. Thus, apart from knowing your employees have all of their rights and employee benefits protected, you can have peace of mind knowing that employment taxes are covered.
3. Employer of record services help with the onboarding process
Apart from following the right employment laws, and keeping your employees on a local payroll, employers of record can help you with preparing new recruits for the job. As their legal employer, they will take care of the onboarding process for any new employees.
A global employer of record can help your international business grow at a faster pace. At the same time, you avoid the time-consuming process of handling the global payroll, learning about diverse tax and labor law regulations, and rest assured you won't be dealing with non-compliance penalties when it comes to your global team.
4. Going beyond your local talent pool
Why limit yourself to the talent available locally when you can easily hire from all over the world? Running your payroll, benefits, and contracts through an EOR allows you to truly leverage the power of having a global workforce, which means fresh perspectives, unique company culture, facilitated international expansion, and more.