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What is an Employer of Record?
An Employer of Record (EOR) is an organisation that helps businesses legally employ workers in other countries. The EOR becomes legally responsible for managing all aspects related to the employment of a worker, including payroll, benefits, taxes and labour law compliance.
An EOR can be used by businesses to hire international workers without bringing them onto their payroll. This is especially useful for businesses that want to expand into foreign locations or want to quickly grow their workforce without the administrative burden of hiring and managing their employees directly.
By partnering with an EOR, the organisation has the freedom to focus on the core aspects of its business' growth while the EOR handles all of its administrative responsibilities.
In order to explain the Employer of Record meaning, it is best to turn to a relatable example.
Think about jobs you’ve been hired for in the past...
After the initial excitement of accepting the offer, it’s time to get down to business...
- You begin completing the necessary employment paperwork and processes.
- You will need to get paid.
- Applicable taxes will need to be deducted.
- You will likely need employee benefits, such as health insurance
- And all necessary work permits must be verified and recorded by the employer.
This piece of the employee onboarding process is typically managed by Human Resources. But in many cases, companies choose to outsource this function to a third party.
This third party is called an Employer of Record, or EOR.
Why or when would a company use Employer of Record services?
An EOR is often used for global expansion when a company plans to conduct business activity in a new country without a physical entity.
The process of registering a local business entity can be expensive and arduous. The company may need to move swiftly in order to meet the needs of a project or new business venture. Or they only require a short term solution.
Thus, a global Employer of Record can be an efficient way to hire workers in that country. The EOR will have a legal entity to manage local payroll, employment tasks and immigration. The EOR will also appear as the legal employer for your remote employees in the host country.
How does an EOR differ from a Global Employment Organisation?
The use of EORs is typically one component of a larger Global Employment Outsourcing (GEO) strategy. A GEO is a service that helps companies of any size mobilise a workforce in a foreign country. The GEO will have full compliance with country and local labour laws, taxes and work permits. Additionally, they may use an EOR to manage the payroll functions for the workforce.
The GEO functions as a single point of contact for the company that is using an EOR through the GEO service. An EOR could also be an interim solution while they establish a local entity and operations.
What are the benefits of using an Employer of Record?
An EOR is attractive when expanding overseas without an existing footprint. The EOR will have a legal responsibility to manage your payroll processing, tax and immigration in the host country. An Employer of Record can also help you hire international talent, perform background checks, oversee benefits and perform various administrative tasks.
Companies can ramp up operations faster than incorporating a foreign entity in the country without running any compliance risks.
Using an EOR is also a convenient and cost-effective option for smaller companies. Especially firms without the corporate infrastructure to manage local payroll, tax and immigration.
What are the limitations of working with an Employer of Record company ?
The legal employment relationship will exist between the employee and the EOR. But the EOR has no dealings with the employee around daily work responsibilities. This direction comes from the original employer. Thus, the lines of responsibility can become somewhat “blurred” when using an EOR.
Additionally, as the employment relationship is technically between the employee and the EOR, the original employer essentially gives up control over the payroll process.
This might cause confusion if the company’s pays employees bi-weekly and the host country dictates monthly payment.
In this instance, the international employee is paid through the EOR according to the host country’s laws, and NOT the company’s payroll process.
What are the alternatives to using an Employer of Record?
Should I use a PEO or EOR?
One alternative would be to use a Professional Employer Organisation, or a PEO. They differ in that a PEO does not hold the employment relationship, and associated risk, as an EOR would.
Instead, a PEO provides guidance on payroll service, registration and compliance needs. This may include connecting a company with an Employer of Record. This would involve the company managing relationships with both the PEO and the EOR.
Independent contractors or EOR?
Another alternative would be to hire independent contractors to carry out in-country operations. Although, for long term assignments this might not be the best alternative. Independent contractors, by the very nature of the work they’ve chosen, may be more likely to change jobs frequently.
Employer of record or a staffing agency?
There is some crossover in the services provided by an employer of record and a staffing agency. Both will manage the temporary deployment of personnel for a client company.
However, many staffing agencies do not have the specialist in-house expertise to manage global employment contracts, laws and regulations.
Is it easier to register an entity in-country?
A company can always opt to register an entity in-country. This process is a viable situation if funding and timescales allow. It is also an effective approach if you are planning a long term, permanent base in-country.
If you need a temporary solution while registering an entity, an EOR can be valuable. In countries with long registration periods, the EOR could temporarily assume responsibility for international employment. This can be an effective way to save time and money.
They would then transition back to the client company once an entity is established.
How do I choose an Employer of Record provider?
Most Employer of Record companies offer similar services but it's important to work with a provider that you feel the most comfortable with. Don't rush into the selection process and make sure to ask these questions below before making a decision.
- Do they have operations in the destination country? Not every Employer of Record has experience working in every country. The ideal scenario is to for the EOR to have substantial experience working in-country with local expertise.
- Are they internationally compliant with local employment law? the major upside to using an EOR is mitigating the risk of violating local payroll, tax and immigration laws. In-depth knowledge of such legislation is critical when selecting a provider.
- Do they have experience with similar business owners in your industry? If they understand the business, they can tailor a solution to fit the needs of the company.
- Will you be assigned a single point of contact or an online portal? When managing people, you don’t want to be treated as a number, with little human interaction.
- Is the Employer of Record service part of their core business? If the EOR is an ancillary part of their business, it will not be a core focus. This can impact performance and employee morale.
Our article on comparing Employer of Record companies provides you with a helpful framework on how to the best EOR service provider for your business' needs.
Simplify your global business expansion with Airswift's Employer of Record
If you are expanding your business operations internationally, Airswift can help. We can provide integrated outsourced global employment organisation, working side-by-side with clients.
Our Employer of Record services cover a wide range of essentials that can be customised to your needs. Some of our core services include outsourcing payroll management, ensuring compliance with labour laws, tax filing and work visa sponsorships.
We are a truly global business with a local approach to innovative employee solutions. We don't just work in the countries we operate in - we live there.
