There are several ways for companies to expand operations globally. One option is an Employer of Record (EOR), and another is a staffing agency. Both options have advantages and disadvantages.
An Employer of Record is a company that an employee works for. A staffing agency is a company that provides employees to work for other companies. The main difference between the two is that an employer of record assumes all employment-related liabilities, while a staffing agency does not.
When an employee works for a staffing agency, they are technically working for the agency, not the company they are placed at. The staffing agency handles all payroll and benefits administration and acts as the point of contact between the worker and the client company. The client company pays the staffing agency a fee for their services.
What Is an Employer of Record?
An employer of record is a third-party organization that acts as the primary employer for a worker or group of workers. The employer of record assumes responsibility for payroll, benefits, taxes, and other HR-related functions on behalf of the client company. This arrangement allows businesses to hire employees in countries where they do not have an existing presence.
The employer of record typically uses a local payroll provider to process wages and handle tax compliance in the country where the employee is based. This structure allows businesses to avoid setting up their entities or going through the lengthy and complicated process of obtaining work visas for foreign employees.
There are many reasons a business would choose to use an EOR instead of directly hiring an employee. The most common reasons are:
- To avoid setting up their subsidiary or entity in another country
- To simplify international hiring processes
- To minimize costs associated with employment compliance
- Because they lack the necessary resources or expertise to hire internationally
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What Are the Benefits of Using an EOR?
There are several advantages to using an employer of record service:
Flexibility. Businesses can scale their workforce up or down without incurring the costs associated with setting up their HR infrastructure in another country. An Employer of Record acts as the official employer for a worker in a country where the hiring company does not have an established branch or office. This arrangement is often used when businesses need to hire employees in countries where they are not incorporated.
Of course, there are also cost savings that come from this inherent flexibility. For businesses that need to scale their workforce up or down frequently, an employer of record can be more cost-effective than setting up their HR infrastructure in another country. Additionally, as Employers of Record can help companies navigate complex employment laws and regulations in foreign jurisdictions, they directly save companies time and money otherwise spent on compliance.
Compliance. The Employer of Record ensures that all employment laws and regulations are followed, protecting businesses from potential liabilities. As the employer, you are responsible for ensuring that all of your employees follow the proper employment laws and regulations. This can be daunting, especially if you have a large workforce. Using an employer of record can transfer this burden to them. They will then be responsible for ensuring that all of your employees are in compliance with the law. This will protect you from any potential liabilities that may arise from noncompliance.
Simplicity. By outsourcing HR-related tasks to an EOR, companies can free up time and resources to focus on their core business goals. EOR platforms specialize in HR compliance, payroll taxes, employee benefits, and more. This allows businesses to avoid dealing with these complex issues while complying with all relevant laws and regulations.
Another advantage of using an employer of record to simplify matters is that it can help businesses save money on HR costs. EOR platforms typically have economies of scale that allow them to offer lower rates for services such as payroll processing and health insurance than businesses could obtain on their own. In addition, EOR platforms often provide access to retirement plans and other employee benefits that may need to be made available or affordable for small businesses. Employers also benefit from the peace of mind of knowing they have a team of experts working behind the scenes to ensure compliance.
What Is a Staffing Agency?
A staffing agency is a company that matches employers with employees. It acts as a middleman, connecting companies with workers in a variety of industries. Staffing agencies typically have extensive databases of potential candidates and use them to fill positions that companies request. The process starts when a company contacts the staffing agency and requests workers for a specific job or type of work. The staffing agency then searches its database for candidates who match the company's needs and sends them to the employer for interviews or other assessment forms. Sometimes, the staffing agency also provides training to employees before they start work.
What Are the Benefits of Using a Staffing Agency?
The main benefit of using a staffing agency is that it can save time and resources spent on recruiting new employees.
For example, suppose an employer needs ten new customer service representatives rather than post job ads. In that case, review resumes and interview candidates themselves; they could contact one or multiple agencies specializing in finding customer service reps and provide them with information about the qualifications and experience they're looking for. The agencies would then do all the work needed to find qualified candidates and present them to the employer (e.g., sending over resumes and organizing interviews), thus saving considerable time on recruitment.
Employers don't pay any fees until after successfully hiring someone recommended by an agency — so there's little financial risk involved either way. Other benefits of working with staffing agencies include more accessible access to pools of talented people that may be difficult to reach otherwise and insights into current market trends from experienced professionals in recruitment.
Can You Use an EOR and a Staffing Agency?
There are several reasons why it can be beneficial for companies expanding overseas to use staffing agencies. First, staffing agencies have the industry knowledge and experience to help companies find the right staff for their specific needs. Second, they can provide a detailed assessment of each potential employee, saving time and energy for the company. Third, they can manage all the paperwork and bureaucratic processes associated with hiring someone from another country. Finally, they can act as a liaison between the company and the employee during their first few months on the job, helping to ensure a smooth transition into working in a new country.
However, using an employer of record has some advantages over a staffing agency. EORs allow businesses to avoid many risks associated with direct hiring or using a staffing agency while offering the same benefits. When businesses hire directly, they become responsible for managing unemployment claims. Suppose an employee is terminated or quits unexpectedly. In that case, this risk is eliminated when using an EOR service because the service is responsible for terminating the employee in their system, so there would be no unemployment claim filed against the business by default. Additionally, the business could be held liable for any wage and hour violations committed by its direct hires. In contrast, since EORs take on full responsibility for each worker's wages, hours, and employment taxes, this risk is greatly reduced or even eliminated altogether.
Also note that while employer organizations like EORs do not generally offer healthcare benefits to employees working at client companies (although reimbursement accounts may be considered), they typically outperform staffing agencies when it comes to providing a wide range of voluntary benefits (e.g., dental, vision) to all employees at competitive group rates.
Finally, with employer services, all a client company has to do is sign a contract, giving the partner full responsibility for the entire process and freeing up valuable time and energy that can now be devoted to core functions and initiatives rather than day-to-day employee issues.
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Globalization can be challenging, but with Skuad, it can be a simple task. If you're expanding into new markets, you should avoid dealing with extra HR and payroll complications every time. With Skuad's easy-to-use HR and payroll processing solutions, compliance becomes much less of an issue, so you can focus on what matters most: business growth.
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