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The Complete Guide on Employer of record (EOR): Definition, Benefits, and Liabilities

February 20, 2021
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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 department can handle. In these situations, you should consider turning to employer of record.

What is an employer of record?

An Employer of Record (EOR) is an organization that takes care of the hiring and compensating one or more full-time employees on behalf of another company. This enables companies to legally work with employees from a foreign country, without having to set up a branch there. Basically, relying on EOR services allows you to legally and painlessly hire anyone, anywhere in the world.

The employer of record could take responsibility for the following personnel operations:

  • Processing and funding payroll
  • Filing taxes
  • Processing timesheets
  • Creating, maintaining, and terminating employment contracts
  • Employee onboarding processes for new hires
  • Maintaining insurance
  • Running various background checks
  • Administering benefits and handling worker’s compensation

Benefits of using EOR 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.

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 focus on other aspects of your business.

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.

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.

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.

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Liabilities of EOR

So, for example, if you are a company offering full-time employment in the US, you would be responsible and liable for all of your employees. However, if you decide to rely on EOR services, they will take upon themselves all the responsibilities and liabilities for any problems regarding employment functions from payroll processing and payroll taxes to health insurance. This will give the client company more time and resources to plan and innovate, making the business more profitable. Keep in mind that while the employer of record handles all employment issues that may arise, you will still be in charge of your business operations and responsible for workplace safety.

EOR vs Staffing agencies

This is why EOR services are usually used for more lasting types of contracts, while staffing agencies are used for “at will” contracts where a company can terminate the contract if the recruit isn’t suitable for the job. Employer of record is a legal entity that treats the recruits as employees, completely compliant with local labor laws and employment contracts. So, a staffing agency would be more appropriate for hiring independent contractors, while EOR would be better when looking for a more permanent employment relationship.

In addition to this, when you use staffing agencies for recruiting and hiring, you may have legal issues with co-employment. Even though it isn’t illegal, it can still cause confusion and unnecessary risk when employees have their contracts altered or terminated.

EOR vs PEO (Professional Employer Organization)

The first main difference lies in the fact that EOR services are used to place a part of your employees on their payroll (especially when they are working from a country with different employment laws), while a Professional Employer Organization (or PEO) assumes responsibility for all of the client’s employees and provides all the human resources services required.

The second, though surely not less important, difference is that when you employ a global PEO, the contract is still between the client company and the employee. The employer of record, on the other hand, signs a contract with the employee, in place of the client company, thus ensuring that the client is protected.

Whether you are planning on running a global business or just planning to hire in a different country, a global employer of record can handle all the legal processes and implications. This will allow you to not only save time and money but to also give a great onboarding experience to your employees. So, if you’re looking to make use of the expanded markets and new global employment opportunities, relying on the employer of record is a good choice for your business.