Paulina Twarogal
Embarking on the exciting journey of expanding your global team brings incredible opportunities, but let’s face it—dealing with international tax and labor laws can be a real headache. While navigating this independently is still an option, there’s a solution that can considerably streamline the entire process—employer of record (EOR) services. As companies spread their wings across borders and teams go remote, EOR services step in to simplify the complexities of global employment.
In 2021, the global employer of record services market was valued at a whopping $617 million. Today, it’s expected to grow at a rate of 12% annually, hitting $1.2 billion by 2027. It’s even predicted that it will become a $3 billion industry by 2030.
In this article, you’ll discover the main responsibilities of an EOR, its benefits, potential risks, and how Neontri’s expertise can support your business in managing global expansion.
What’s an employer of record and how does it work?
An employer of record (EOR) is an organization that legally employs workers on behalf of another company. It’s an employment solution that enables businesses to quickly and compliantly bring someone on board, regardless of their location worldwide. And it’s possible to do it without the need to establish a legal business entity in that specific location.
So, rather than directly recruiting a candidate, all you need to do is engage with a local in-country partner in your desired location. They, in turn, hire the candidate on your behalf. Officially, the worker is employed with an EOR who handles administrative aspects such as payroll, employee benefits, tax payments, and monthly paychecks.
However, an EOR doesn’t intervene in workflows, providing you with full management freedom. You’re in charge of overseeing your employees’ workload and day-to-day responsibilities.
How does an EOR work?
The employer of record model is nothing new. It originated in the United States during the 1960s due to challenges faced by companies when hiring across state lines. Nowadays, with many teams spanning international borders, EORs facilitate international hiring of specialists from different countries.
When a company opts for an EOR, a three-party contract is established. It involves the company, the employer of record, and the employee:
- The company maintains a direct relationship with the employee, overseeing work assignments, performance management, and other job-related aspects.
- The EOR serves as the legal employer of the employee, handling administrative and legal responsibilities such as payroll, taxes, benefits, compliance, and potentially managing employee visas and taxation matters in the host country.
- The employee is responsible for fulfilling the obligations outlined in the job description.
Why and when should you use an EOR?
Imagine discovering the ideal engineer for your business, only to learn that they reside in a different country—let’s say Poland—while your company is based in London.
Determined to make it work, you explore solutions. While onboarding the person as a contractor seems plausible, your preferred candidate may be swayed by the security of full-time employment. Another option is establishing a local entity to hire your first Polish employee. This not only appears right but also sparks visions of potentially expanding your team in the future.
However, without having a dedicated global expansion team and substantial resources, you may come across challenges. Polish regulators pose questions, requiring multiple trips to complete all the documentation. That takes a lot of time (up to 30 days), money, and effort. This is where an EOR becomes invaluable.
With an employer of record at hand, the process becomes more manageable and efficient. EORs streamline the process of hiring international workers by handling legal and regulatory requirements as well as administrative duties. They navigate complex local regulations, saving you time and resources which, in turn, allows you to focus on your core business operations. This positions them as a strategic solution for companies looking to expand their teams across borders seamlessly.
Responsibilities of an employer of record
An EOR is the legal employer of your workers. As such, they will take care of many compliance aspects that you don’t have to worry about. Let’s take a look at the crucial tasks that an employer of record typically handles.
Payroll management
At the core of an employer of record’s duties lies the full responsibility of running payroll. This entails overseeing payroll taxes, registering with local tax authorities, filing necessary documents, and ensuring legal compliance. Additionally, EORs manage payroll details, collect forms like W-2 or I-9, make deductions, and handle documentation such as payslips and tax returns.
Contracts
Onboarding employees through an employer of record service significantly simplifies the employment contract setup. The EOR service not only conducts thorough background checks but also makes sure that the contracts align fully with local employment laws and regulations. For example, if you’re looking to hire in a specific area; it’s important to know its regulations regarding PTO, sick days, and other related aspects.
Benefits
The same goes for employee benefits, with expectations varying significantly by location. Employer of record services build relationships with various benefit providers, such as pension funds, health benefits, and sometimes training companies. This ensures comprehensive support for employees, covering both mandatory and optional benefits.
Working with local authorities
Fostering a close working relationship with local authorities in every region where your company has employees is yet another responsibility of an EOR. This involves obtaining local insurance, setting up bank accounts, completing registrations, and more. To have compliant hiring practices, you need to have someone who will understand the local language, culture, and expectations.
Termination of employment
In some situations, you might need your EOR partner to help you with terminating or switching contracts to new arrangements. This could happen if an employee is relocating, getting promoted, or leaving the company. In cases of departure, it’s crucial that the EOR provides support with contract termination without charging high fees or waiting until the contract term is over.
HR advice
Your employer of record is your go-to source of local expertise. Whether it’s securing visas, overseeing equity arrangements, ensuring compliance with local holidays, or addressing various challenges, your EOR is well-equipped to handle a wide array of issues. The support of local labor law experts proves invaluable in navigating these intricate matters.
Managing employee visas and work permits
EOR can also help your employees obtain the visas and work permits they need to live and work in other countries legally. As the legal employer, the EOR takes care of visa sponsorship applications and gives advice on what is needed to make the process faster. Without this help, the process can be long and often unsuccessful.
The benefits of an employer of record
Expanding your workforce abroad or establishing operations in foreign markets doesn’t come easy. And the challenges are very likely to appear on the way. That’s why business owners often ask themselves whether this risk is worth the effort…
Fortunately, with the support of an employer of record, the answer might be yes. An EOR acts as the go-between for an international business and the local government, making the whole process much smoother. What benefits does this bring to the table?
Expand into global markets with ease
Dealing with paperwork to register a business in another country can take a while. Well, it can take months, particularly in locations with a high level of bureaucracy. An employer of record that’s already set up in the destination country can step in to hire and onboard employees on behalf of the client.
This speeds up the process, allowing work to kick off faster than if you tried to go through the registration independently. You can start looking for the best talent and working on projects straight away, without the hassle of cutting through the red tape.
Save time
Teaming up with an employer of record offers a cost-effective way to explore new business locations without the trouble of setting up and closing entities. Managing paperwork, benefits, payroll, and contracts can consume a lot of time for business owners, diverting attention from core activities.
An EOR steps in as a reliable partner, handling tax payments, employee payroll, and formalities, saving you precious time. Leveraging EOR services allows business owners to focus on their strengths, avoiding the complexities of international laws. This streamlined approach enhances productivity and expertise in critical areas.
Comply with local laws
Operating in your home country involves various regulations, from hiring and labor laws to financial reporting and insurance coverage. Expanding internationally doubles your compliance workload unless you partner with an international employer of record. They significantly lighten your compliance burden, making sure you adhere to overseas regulations and handle compliance monitoring for your home country.
After all, EOR agencies stay updated on changing laws, conduct research on foreign regulations, and complete mandatory reporting benchmarks. This proactive approach gives you more time to focus on innovation, operations, and international growth.
Reduce compliance risks
It’s hard to expect business owners to know everything about local trade and labor laws in the country where they want to hire their employees. This, however, might result in expensive legal problems and costly lawsuits—something that many international businesses often face.
Thus, hiring an EOR agency is a way for business owners to shift the burden of responsibility off their company to a vendor. It’s the EOR who is featured in the official documents, agreements, and taxes. So, in case of a legal breach, you’re not held directly responsible—the EOR assumes liability, providing an added layer of protection and peace of mind.
Cut costs
Setting up an office in another country can be costly, with expenses like establishing a subsidiary and legal support putting a strain on a company’s resources.
An employer of record is a cost-saving solution. It enables business owners to cut costs associated with hiring financial, HR, and legal consulting firms. EOR agencies, known for their flexibility, facilitate exploring new markets and, if necessary, closing global offices without the concern of added upkeep and HQ termination expenses.
Optimize your day-to-day operations
Integrating EOR services into your existing HR systems can make your HR tasks easier, helping to manage payroll, benefits, and compliance without disrupting your daily operations. As a result, your HR team can focus on what really matters rather than getting bogged down in administrative tasks. With smoother processes, your employees will get better support, no matter where they are.
Scale easily
As your company expands, an EOR can quickly adjust to your needs. Whether you need to hire a few employees in a new market or grow fast in multiple countries, an EOR provider makes it simple. With this flexibility you can seize new opportunities without setting up new offices or hiring more HR staff. You can manage growth while keeping costs under control.
Are there any risks involved?
While an employer of record can offer a practical solution, it may not suit every business or situation, as it comes with its drawbacks.
Reduced control over employees
Working with an EOR might make those within the business feel a loss of control, even if it’s you who calls the shots. That concerns workforce management and things like payroll, benefits, and other HR functions. Regardless of the employer of record’s level of involvement, entrusting core administrative processes can be challenging.
Operational limitations
Local labor laws may impose constraints on your ability to hire employees in specific countries. For instance, in many locations, there’s a timeframe during which someone can be engaged as a contractor. Once this period is over, transitioning to an employee status becomes essential to continue the working relationship.
Moreover, the range of services offered by EOR providers may vary. Some of them might have limitations in terms of the countries they cover, the depth of their compliance services, or the level of support provided. This can affect the scalability and comprehensiveness of EOR solutions.
Potential cultural misalignment
Opting for an EOR can lead to shifts in company culture. Entrusting core processes and involving another entity in the employee relationship can impact how employees perceive the employer. What can be done in this situation? As long as the company is aware of this challenge and actively works to cultivate a culture aligned with its vision and values, cultural differences can be mitigated.
Cost considerations
EOR services provide efficiency, yet they come with costs. Businesses need to weigh the expenses associated with an employer of record against the benefits and determine if they align with their budget and financial goals.
Data privacy and security issues
Partnering with an EOR provider means putting a lot of trust into a third-party organization to manage sensitive employee data such as Social Security numbers, bank details, and salary information. If this data is mishandled, it could lead to serious consequences like regulatory fines or lawsuits. That’s why, making sure your EOR has robust data security measures in place is so important.
EOR vs staffing agencies: the differences
Is an employer of record and a staffing agency the same thing? Well, despite being similar, they are two different employment solutions. The main differences can be seen in the hiring process, employee management, compliance and paperwork.
A hiring process:
- The employer of record generally doesn’t participate in the recruitment process or selection phases. The client company takes charge of identifying the candidate, and the EOR takes on the formal employment duties.
- In contrast, staffing agencies actively engage in recruiting, screening, and selecting candidates for their client companies. They often maintain a talent pool of pre-screened candidates ready for various roles.
Employee management:
- An EOR assumes the role of the legal employer, overseeing HR responsibilities such as payroll, taxes, and benefits. However, the client company usually takes charge of the day-to-day management and supervision of the employee’s work.
- In the case of staffing agencies, they may supply temporary staff who are legally employed by the agency. While the agency manages HR tasks, the day-to-day management can be either handled by the agency or the client, depending on the terms of the contract.
Compliance and paperwork:
- EORs specialize in guaranteeing adherence to local labor laws and regulations, with a focus on international contexts. Their responsibilities encompass managing employment contracts, tax forms, and compliance documentation.
- On the other hand, staffing agencies are involved in overseeing compliance and paperwork related to recruitment, encompassing contracts and payroll for temporary workers. While they ensure compliance with employment laws, it is typically within a single legal jurisdiction.
In essence, an EOR provides a holistic, long-term employment solution with full administrative support, while staffing agencies offer more project-specific, temporary staffing services, allowing the client to maintain control over the assigned personnel.
The choice between an EOR and staffing agencies depends on the nature of the workforce needs and the desired level of involvement and control by the client company.
How can Neontri help you?
Would you like to manage your workforce effortlessly and expand your business to new locations? At Neontri, we understand the challenges in handling your workforce and can support you in successfully navigating the legal and regulatory aspects.
Whether it’s payroll, taxes, benefits, or fostering positive employee relations, we’ve got it covered. Why? Because we believe your focus should be on growing your business, not wrestling with paperwork. How about diving into our EOR solutions that work well and just make sense?
FAQ
How can an EOR improve the scalability of my business?
An Employer of Record can help your company manage the legal and administrative aspects of hiring staff in new locations. This gives you the flexibility to easily grow your business and adapt the size of your team to the changing needs. As a result, you can reduce risks, save time and budget, and access top talent from around the world.
What are the costs associated with using an EOR?
The typical EOR cost is USD 200 – USD 500 per employee per month. This includes setup fees, salaries and benefits for employees, EOR service fees and currency conversion fees. Prices vary depending on the EOR and your business needs.
What industries commonly use EOR services?
EOR services are used across many industries including technology, healthcare, finance, e-commerce and professional services. Businesses in these sectors often need to expand quickly into new markets or hire specialized talent remotely.
How do EOR services support remote and distributed teams?
EOR services help companies grow globally and provide services like payroll, taxes and benefits for remote employees. EOR services is an affordable and easy way to expand into new markets across borders.
How can an EOR improve the scalability of my business?
By handling the administrative tasks of hiring specialists across borders, EOR helps your business expand without the need to set up a local entity. As a result, you can both scale quickly and stay compliant with local laws.
How does an EOR manage confidentiality and data security?
EOR uses encryption, secure data storage and strict access controls to protect confidentiality and data security. EORs also comply with data protection laws like GDPR to keep your data safe.
What are the best practices for working with an EOR?
When working with an EOR, define your business needs and expectations. Then choose an EOR provider with a good reputation and history. Once you have chosen the right provider, communication and regular reviews of the EOR’s performance.
