What is an Employer of Record?

In the age of remote work and global teams, understanding the concept of an Employer of Record (EOR), or global EOR, is more important than ever. This guide will shed light on the intricacies of EORs and EOR services, their differences from record services like Professional Employer Organizations (PEOs), payroll services, and staffing agencies, and the benefits they offer to tech talents and companies building remote or distributed teams.

How Does an Employer of Record Work

An Employer of Record (EOR) is a third-party company that hires employees on behalf of another company. Essentially, the Employer of Record becomes the legal employer, managing HR, global payroll, employee benefits, insurance, and regulatory compliance in various jurisdictions. This setup allows the global employer to focus on their core business functions while leaving the administrative and legal complexities of employment to the EOR. HR services, employment contracts, and international payroll services are part of their offering.

When a company hires an Employer of Record, the employees work for the client company but are legally employed by the Employer of Record. This setup greatly simplifies the process of managing international workers, particularly when it comes to legal and compliance risks.

When to use employer of record services

An Employer of Record can be a powerful tool for businesses relying on the need to expand or maintain a workforce in multiple geographical locations. Its Employer of Record services can be leveraged in various situations, including but not limited to the following scenarios:

Expanding Internationally

When your company plans to enter new global markets, setting up a local entity or legal entity in a foreign country can be a daunting task. It typically involves a complex process that includes legal paperwork, understanding the new region's employment laws, setting up payroll services, and more. An Employer of Record, with its local expertise and industry expertise, simplifies this process. They already have the necessary infrastructure in place, which allows you to start operations in the new global market much faster than if you were doing it independently.

Testing New Markets

Sometimes, a company may want to test a new global market before committing substantial resources to full-scale operations. An Employer of Record allows businesses to hire employees or hire contractors temporarily, providing insights into the market's potential. If the venture proves successful, the company can then decide to establish a more permanent presence. Conversely, if the market test does not yield the expected results, the company can exit the market with minimal legal and financial implications.

Reducing Administrative Burden

The administrative tasks associated with maintaining a global workforce can quickly become overwhelming. This burden increases with the number of jurisdictions in which a company operates due to varying local labor laws and regulations. An Employer of Record, offering global workforce solutions, can shoulder these responsibilities, freeing up the company to focus on its core business operations. These operations include payroll processing and human resources.

Hiring Specialists for Short-Term Projects

Companies occasionally require the services of international talent for short-term projects. An Employer of Record can be the perfect solution in these situations. Instead of going through the complicated process of hiring these specialists directly, the company can use an EOR to hire contractors swiftly and compliantly.

Handling Compliance

Different countries have different employment laws and tax laws. Navigating these varying laws can be challenging, especially for companies without a dedicated legal team. An Employer of Record, with its local knowledge and experience of local labor laws, ensures that the company remains compliant at all times. This is especially critical when it comes to managing statutory benefits for international employees and dealing with tax authorities.

An EOR service provider is a trusted partner in ensuring compliance risks are managed effectively. Safeguard global operations by relying on a global EOR and its vast local expertise.

Employer of record vs PEO: What's the Difference?

Navigating the landscape of HR solutions can be complex, particularly when it comes to distinguishing between an Employer of Record (EOR) and a Professional Employer Organization (PEO).

Both EORs and PEOs are designed to alleviate the burdens of HR administration, allowing businesses to focus on their core competencies. However, they operate in fundamentally different ways and serve different needs. For a legal employer, the choices might seem daunting but understanding these services can greatly help.

Employer of Record (EOR)

An EOR, or a Global EOR, takes on the legal responsibility for your employees, making them the legal employer. When a company engages an Employer of Record, the EOR becomes the official employer for tax, insurance, and record services purposes. This does not mean the Employer of Record controls the day-to-day activities of the employees; instead, the client company maintains control over business operations and employee management.

When working with an Employer of Record, the company has fewer employment liabilities because the EOR assumes responsibility for compliance with local labor laws, payroll taxes, and benefits administration. This can be particularly advantageous for companies looking to expand into global markets, as the EOR is responsible for navigating the complexities of international employment laws and regulations.

Professional Employer Organization (PEO)

A PEO, on the other hand, enters into a co-employment relationship with your business. In this arrangement, the employees are technically employed by both the client company and the PEO. This shared employment model allows the PEO to pool the international workers of many smaller companies together to negotiate better rates on benefits like health insurance.

However, the client company still carries legal responsibility for its employees, even though the PEO may handle tasks like payroll, benefits administration, and tax filing. This makes PEOs a good fit for companies that want to outsource their HR services but still maintain more direct control over their employees.

Ultimately, the choice between an EOR and a PEO depends on your business's specific needs and circumstances. A careful evaluation of the differences and advantages each service offers can guide you in making the right decision.

Employer of Record vs Staffing Agency: What’s the Difference?

The difference between an EOR and a staffing agency is primarily about the range of services provided. Staffing agencies typically recruit employees for temporary or project-based work. In contrast, an EOR provides comprehensive services, including handling HR, payroll, benefits, and compliance, and allows for more permanent employment contracts. An EOR service can be invaluable when managing these details.

How to Compare Global Employer of Record Services

When considering global expansion, it's essential to understand how different Employer of Record (EOR) services stack up against each other. Comparing global EOR services isn't a one-size-fits-all approach. Different businesses have unique needs, and what works for one might not work for another. Here are some factors to consider to ensure that you select the EOR that best suits your business needs:

Country-Specific Experience

Not all EORs are created equal when it comes to their geographical expertise. Look for an EOR that has a robust presence and a strong track record in the countries where you're planning to expand. An EOR with in-depth knowledge of local employment laws, tax regulations, and business customs can provide invaluable guidance and ensure your operations remain compliant. As your business expands, the ability to hire employees for a local entity becomes increasingly important.

Breadth of Services

A good Employer of Record should be able to handle more than just global payroll. They should offer a comprehensive suite of services, including international employment recruitment support, employee benefits administration, risk management, and more. Especially when dealing with remote workers, the human resources aspect becomes even more crucial. The more services an EOR can effectively manage, the less your business has to worry about.

Pricing Structure

While you might be tempted to choose the EOR with the lowest fees, it's important to understand what those fees cover. Are there additional charges for contract staffing and advisory services? Are there hidden costs that might surprise you later? A transparent, straightforward pricing structure is a sign of a trustworthy EOR.

Client Reviews and Reputation

Testimonials from other businesses can provide valuable insights into an EOR's reliability, customer service, and ability to handle complex situations. Look for an EOR with a strong reputation and positive client reviews, along with demonstrated industry expertise.

Compliance and Legal Support

Navigating employment laws and regulations can be a minefield, especially when hiring workers and operating in multiple legal entities. An EOR with strong legal support and compliance capabilities can provide peace of mind and help mitigate risks.

What Are the Benefits of Employer of Record Solutions?

Employer of Record (EOR) solutions have emerged as a strategic resource for businesses looking to expand their global team and navigate complex international labor laws, manage independent contractors, and maintain performance management standards. The benefits of these services are manifold, encompassing not only regulatory compliance but also operational efficiency and strategic agility.

Seamless Global Expansion

One of the foremost benefits of using an EOR solution is the ease with which companies can expand into new international markets. Traditionally, establishing legal entities in a foreign country could take several months or even a year, involve substantial paperwork, and require a deep understanding of local labor laws and regulations. An EOR, or global eor, eliminates these challenges, allowing businesses to hire overseas employees in a matter of days without needing to set up a local entity or navigate the intricacies of international payroll.

Risk Management and Compliance

An EOR also carries the responsibility of ensuring compliance with local labor laws, tax regulations, and statutory benefits. This aspect is crucial as non-compliance can result in hefty penalties, legal complications, and reputational damage. By managing all local employment risks, an EOR allows businesses to operate with the confidence that they are meeting all their legal and regulatory obligations while hiring workers.

Administrative Efficiency

The logistical and administrative burden of managing global talent can be immense. From processing payroll in different currencies to handling varying tax regulations and employment benefits, these tasks can consume a significant amount of time and resources. By taking over these duties, an EOR enables businesses to focus on their core operations and strategic goals rather than getting bogged down in administrative details.

Cost Savings

While there is a cost associated with using an EOR service, businesses often find that it results in net savings over time. The cost of setting up a foreign subsidiary, combined with ongoing expenses for legal, HR, and administrative support, can be substantial. By consolidating these costs into a single service, an EOR can provide a more cost-effective solution for businesses looking to attract international talent and expand their global team.

Strategic Flexibility

Finally, an EOR offers businesses strategic flexibility. Whether a company wants to test a new international market, hire a remote expert in a foreign country, or respond quickly to changing market conditions, an EOR can provide the agility needed to act quickly and decisively. This can be a significant competitive advantage in today's rapidly evolving business landscape.

What to look for in an Employer of Record provider

When choosing an Employer of Record (EOR) provider, it's important to consider various factors that can impact not only the effectiveness of the service but also the well-being of your international employees. Let's delve into the significant aspects you should consider:

• Compliance Expertise: One of the most crucial elements to consider when choosing an EOR provider is their knowledge of and adherence to compliance. The provider must demonstrate a thorough knowledge of employment laws, tax requirements, and industry regulations in each country where you're planning to hire. Remember, the main reason to hire an EOR service is to ensure your business is compliant with all local laws and regulations, mitigating any legal risks associated with global hiring. Therefore, the EOR's understanding of these laws and regulations is paramount.
• Range of Services: EOR providers offer a suite of services that extend beyond employing staff. They manage HR tasks, payroll, benefits administration, tax deductions, and even employee terminations. When looking at different providers, ensure they provide comprehensive services tailored to your business needs. This could include worker's compensation, unemployment insurance, and support with immigration or work permit issues, among other services. In essence, the more services an EOR can efficiently manage, the less your company has to worry about.
• Track Record: Closely related to compliance expertise is the provider's track record. Check the provider's history, looking at how long they've been in business, the size and diversity of their client base, and any public recognition they've received for their work. Look for client testimonials and case studies, which can give you a better sense of their capabilities and reliability. A strong track record with positive client reviews is a good indicator that the EOR provider is trustworthy and effective.
• Transparency: Finally, transparency in pricing and contract terms is essential. A reputable EOR provider should be upfront about their fees, with no hidden costs. They should be able to provide a clear explanation of what their services include and how they charge for these services. Moreover, they should clearly outline the terms of the contract, including the obligations of all parties and the conditions for contract termination.

Build your globally distributed team with Skuad

Choosing the right Employer of Record is a vital decision for any organization aiming to expand its workforce globally. It's crucial to find a provider that possesses strong compliance expertise, a comprehensive range of services, a solid track record, and a commitment to transparency.

In your search for an EOR provider, Skuad emerges as an exceptional choice. As an Employer of Record platform, Skuad enables organizations to hire full-time employees and contractors in over 160 countries, all without the need for setting up subsidiaries or legal entities. This not only streamlines your global hiring process but also ensures full compliance with the diverse employment laws and tax regulations of each country.

For those looking to hire internationally and simplify their global workforce management, Skuad offers a compelling solution. To know more about Skuad's comprehensive services and how they can support your global expansion, book a demo today.

What is the difference between payroll and employer of record?

Payroll refers to the process of compensating employees for their work, including the calculation of wages, withholding of taxes, and distribution of payments. An employer of record (EOR), on the other hand, is a third-party organization that takes on the responsibilities of being the legal employer, handling all administrative, HR, and legal tasks including payroll, taxes, insurance, and compliance with labor laws.

Why hire an employer of record?

Hiring an employer of record simplifies the administrative workload of your business. This includes handling of complex HR issues, payroll, benefits administration, and regulatory compliance. It can be particularly beneficial for companies expanding into new geographical areas where they're not familiar with local labor laws and regulations. EORs also provide a level of risk management, as they assume many of the liabilities related to employment.

What are the problems with an employer of record?

While there are several benefits, some potential issues with using an EOR include loss of direct control over certain aspects of employee management, a potential cultural disconnect between the EOR and your staff, and the costs associated with hiring an EOR, which may be higher than managing these tasks in-house. Also, there may be potential complexities if you decide to end the relationship with the EOR and take these responsibilities back in-house.