Employer of Record Definition
An Employer of Record serves as a “go-between” for the employee and the client company when the latter expands to a new country without an existing footprint.
In order to explain the concept of an Employer of Record, 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 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.
An Employer of Record serves as a “go-between” for the employee and the client company when the latter expands to a new country without an existing footprint.
Why or when would a company use an EOR service?
An EOR is often used for global expansion when a company sets up in a new country and does not have an existing footprint.
The process of registering a local legal 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 of employing personnel in that country. The EOR will have a legal entity to manage local payroll, employment and immigration.
How does an EOR differ from a Global Employment Organisation?
The use of EORs is typically one component of a larger Global Employment Organisation (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 manages the risk of legal, payroll, tax and immigration violation in the host country.
Companies can ramp up operations faster than incorporating an entity in the country.
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 potential limitations of using an Employer of Record?
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 Employment 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 local payroll, 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?
- 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? 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 clients 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 have an impact and performance and employee morale
If you are expanding internationally, Airswift can help. We can provide integrated outsourced global employment organisation, working side-by-side with clients as an Employer of Record.
We are a truly global business with a local approach. We don't just work in the countries that we operate in - we live there
