What Is an Employer of Record? A Deep Dive for Employers and Employees

Having your business expand across borders or hiring remote employees from across the world can be a complicated exercise, with legal, administrative, and compliance issues galore. And that’s where the Employer of Record (EOR) comes in as a remedy that’s been all the more necessary in the current era of global employees.

Understanding the Employer of Record

A Third-Party Employer, or EOR, is someone who employs individuals in good faith on behalf of another organization. Your firm exercises control of day-to-day management, but the EOR maintains full formal responsibility for employment. This includes compensation, benefits, withholding tax, compliance with the labor laws of the local country, and other functions. The EOR appears on the outside world as the lawful employer, while your firm maintains control over operating the employees.

For instance, if a German company needs sales representatives in Brazil but no local infrastructure, an EOR in Brazil would be able to recruit the representatives on behalf of the company. The company controls the employment but all the issues related to local employment are handled by the EOR.

How Does an Employer of Record Work?

The EOR concept operates through a three-way model:

• Your Company:Sources, interviews, and manages the employees’ workload and performance.
• The Employee:Works on your team, under your direction.
• The EOR:Does all the administrative, legal, and HR work, such as contract writing, onboarding, payroll, tax reporting, benefits, and compliance.

The model enables you to hire talent where you need it, without having to create a legal entity or deal with onerous local employment laws.

The Services Employers of Record Typically Deliver

Employers of record provide a complete spectrum of services, such as:

• Payroll Administration: Accurate and timely payment of employees, according to local legislation.
• Tax Withholding and Reporting:All the employer’s and employee’s tax obligations.
• Benefits Administration:Offering access to local benefits like health care, retirement plans, and time off.
• Employment Contracts:Preparing locally compliant contracts and onboarding documentation.
• Compliance:Remaining current with constantly changing labor legislations and minimizing the risk of legal challenges or fines.
• Work Visas and Immigration: Facilitating visa processing and immigration compliance in the hiring of foreign employees.
• Termination and Offboarding:Carrying out end-of-service termination as per local laws.

Why Do Companies Use Employers of Record?

Businesses utilize EORs for numerous strategic purposes:

• Quick Market Entry:An EOR allows businesses to have staff operating in new markets in weeks or days, without having to go through the complex process of establishing a local subsidiary.
• Cost Savings: Eliminates the cost of establishing and maintaining a legal entity in every country, and saves HR overhead.
• Compliance Assurance: Reduces risk of legal non-compliance through ensuring national employment law, which can be complex and can vary significantly, is followed.
• Focus on Core Business:Outsourcing administrative and legal HR tasks to an employer of record means that your employees will be able to concentrate on operations and growth.
• Scalability: Scale foreign workforce easily, without the slow legal bureaucracy.

Employers of Record vs. Other HR Solutions

It should be noted that EORs are different from the rest of the services:

• PEO (Professional Employer Organization):PEO asks your company to have a legal presence in the destination country and bear responsibility in work. An EOR, in contrast, has single legal employer responsibility, which would be suitable for companies without the local representation.
• Staffing Agencies:They generally provide temporary staff and have more control over placement, while EORs enable you to hire and manage your own workers.
• HR Software: HR software can automate but is not assuming legal employer obligations or compliance risk such as an employer of record can.

Benefits of Hiring Employers of Record

Employers of record provide strong benefits:

• Legal Risk Avoidance:EORs remain current with local laws, minimizing the risk of fines or lawsuits.
• Time Savings: Onboarding, payroll, and compliance automation save your HR and leadership team precious time.
• Lean Operations:You don’t have to hire internal HR or legal professionals for each country you do business in, maintaining your organization’s agility.
• Employee Satisfaction:Timely payroll and benefits administration and accurate assistance contribute to maintaining international employees’ morale and confidence.

When Do You Need an Employer of Record?

Use an EOR if:

• You need to hire talent in a foreign market where you lack a legal entity.
• You require employees to be onboarded rapidly in growth markets.
• You would prefer to minimize administrative burdens on your internal teams.
• You are concerned about compliance with local labor laws and regulations.
• You’re testing a new market before making a long-term investment.

Final Thoughts

Employers of record have become essential partners for companies navigating the complexities of international hiring and remote work. By leveraging an employer of record, your business can access global talent, enter new markets swiftly, and remain compliant without the headaches of setting up foreign entities or mastering local labor laws.

If you’re considering global expansion or want to streamline your international HR processes, exploring employer of records solutions could be the key to your next phase of growth.