The popularity of remote work has been growing. With more workers choosing to work remotely, the possibilities abound for companies to find talented and qualified individuals for their remote roles in almost any country in the world. With the help of human resources outsourcing solutions, organizations can recruit and onboard employees into globally dispersed teams to work remotely.
Companies looking to hire international employees and contractors have several options. Globally expanding companies can hire international employees in several different ways. An employer can set up local branches in each country where they will be hiring. They can use a payroll processing organization (PEO) and enter a co-employment arrangement with their client company.
Employers can also partner with an employer of record (EOR) to handle almost all aspects of human resources, including hiring and paying employees. Each of these options can have its strong points and drawbacks. This article will inform you of some pros and cons of using an employer of record to hire and pay international employees from the global labor market. By the end of the article, you will know if an EOR is the right global employment solution for your company.
Pros of Hiring Through an Employer of Record
Employers of Record Handle Hiring and Onboarding
With several different options for companies to employ employees or hire international contractors, it might make sense to compare the different types of organizations.
Professional employer organizations, or PEOs, are an option for expanding companies to outsource some of their human resources. With a professional employer organization, a company would be co-employing its employees. This means both organizations would share in the risk and liabilities. Some nations do not allow co-employment arrangements.
While a professional employer organization becomes a co-employer of your staff and takes care of payroll processing, an Employer of Record takes on full responsibility for the following:
- Hiring employees
- Drafting legal contracts
- Onboarding new hires
- Processing payroll
- Providing benefits
- Ensuring compliance with international labor laws
- Taking care of compliantly offboarding and terminating employment contracts
An Employer of Record Doesn’t Require a Local Entity
One of the drawbacks of the professional employer organization is that, most likely, you will still need a local legal entity to hire employees. Establishing a subsidiary can be an expensive and time-consuming endeavor. Most globally expanding companies have better options than establishing subsidiaries in multiple countries.
It is possible to set up a branch, or even a subsidiary, in any country where you intend to hire employees. Establishing a local entity involves dealing with administrative regulations and being responsible for the risks and responsibilities of hiring, including compliance with local labor laws. These tasks may also take some time to complete, obtain approval, and maintain.
Employer of Record for Independent Contractors Can Pay Contractor Invoices
Employer of Record payroll for employees is one of many services an employer of record can provide. Onboarding independent contractors are also possible with an EOR. Using an employer of record’s contractor management software to pay contractor invoices may be the best way to pay independent contractors.
Paying contractors may be significantly easier than paying employees because, in most cases, contractors are not entitled to the same benefits as employees. Unlike employees, no deductions, income tax withholding, or social security and pension contributions are paid on the contractor’s behalf. To pay contractors, you pay invoices for labor hours provided.
An Employer of Record May Be the Fastest Employment Option
Setting up a local entity can be a time-consuming process. Organizations must meet local requirements, and all registrations with government agencies such as the tax authority must be completed. Organizations must open bank accounts, and minimum funding requirements must be met for the type of entity formed, such as a limited liability company or a corporation. It may take some time for all approvals to be made and tax IDs assigned to the entity before any hiring or employers can pay payroll taxes.
An Employer of Record platform already has entities globally and can legally hire and pay employees, withhold appropriate taxes, and pay taxes and social security contributions without delay. EORs will be able to onboard employees and get them to work faster than any other option.
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Cons of Hiring Through an Employer of Record
You May Feel a Lack of Human Resources Control
As can happen when you outsource any element of your business, when outsourcing human resources, you may feel a lack of control over these matters. There may be a disconnect between your team and management, with whom the employees may need to interact on a day-to-day basis when human resources matters arise.
However, you are still in control of your staff and day-to-day operations and can still interact with your teams. Your company still sets policies for leave, paid time off, other HR matters, and shift schedules. The Employer of Record platform follows your guidance vis-a-vis policy enforcement.
Hiring Employees Comes With Compliance Risks
Across the world, each country has its set of statutes that govern employment, known as labor laws or labor codes, which vary by country. As noted above, independent contractors are not, legally speaking, the same as payroll employees. If you intend to pay independent contractors, you risk misclassifying them. Misclassification happens when an employment relationship exists even though the company classifies and pays the workers as contractors. For that error, intentional or not, a company may have to pay unpaid wages, fines, and other penalties.
When outsourcing employment responsibilities and human resources, you may feel you need more control over making sure local laws are followed. To ensure full compliance, partner with good Employer of Record platforms such as Skuad to ensure you remain fully compliant and take full responsibility for the hiring and employment processes.
An Employer of Record Can’t Do Everything
While it might seem like a good idea to outsource everything, an employer of record is limited to hiring, payroll, and other human resources responsibilities. When running your business, your employer of record partner will defer to your management and policy-setting.
Also, an employer of record cannot set the recruitment goals that should come from company leadership. It is best practice to partner with an Employer of Record platform when setting recruitment goals and strategies, after which the employer of record will follow through and hire the kind of qualified applicants you would like to see on your team.
There may be some drawbacks to using an employer of record, but employers hiring globally may find the benefits outweigh the risks and disadvantages. Your company can establish local entities in the countries you plan to hire, but that may take a significant amount of time and resources and can be prohibitively expensive if hiring in numerous countries. When using a branch or subsidiary to hire employees, you are solely responsible for the risks and liabilities of employing local staff, including handling worker’s compensation claims and ensuring compliance with local labor laws.
The other option, a professional employer organization, still requires a local entity for you to be able to hire employees. The PEO then co-partners with you to handle payroll and payroll taxes. Your company and the PEO are responsible for the compliance, which means you both would be responsible for the risks and consequences of non-compliance.
Choose Skuad For International Employer of Record Services
The best way to pay international contractors and hire international employees is to partner with an EOR like Skuad that assumes all the risks and liabilities of employment. More than just payroll processing, an employer of record can draft legal contracts with employees and contractors and take care of almost all human resources tasks such as hiring, payroll, and benefits administration.
With Skuad, your company can expand internationally and hire in any of over 160 countries, paying your globally dispersed teams or employees or contractors in over 100 local currencies.
Skuad can help your company to:
- Draft locally legally compliant employment agreements and contracts
- Hire and onboard remote employees
- Pay independent contractor invoices
- Administer statutory benefits
- Offer comprehensive supplementary benefits and perks
- Handle worker’s compensation
- Provide health insurance enrollments
For reliable and expedient international employer of record services, such as EOR payroll, hiring, and benefits for your remote teams, contact Skuad for a demo today.