To create and manage a successful international business without the hassle of setting up an entity overseas, most companies are turning to Employer of Record services (EOR). An EOR provides the much-needed flexibility in scaling a global dream team.
When a business hires an employee, it assumes responsibility for all employment tasks, costs, and liabilities associated with having that employee on staff. Modern companies often outsource these Sisyphean tasks to EOR companies to avoid spending time dealing with a truckload of logistics and paperwork.
EOR offers many great benefits to companies located across the globe. But which exactly?
By the time you finish reading this guide, you will learn about the following:
- What EOR is
- What are its benefits
- How to choose the right EOR provider
- The future of the EOR industry
What is an Employer of Record (EOR)?
They hire and pay an employee on behalf of another company and take responsibility for all formal employment tasks. Using an Employer of Record allows companies to legally and efficiently engage with overseas workers in a new country without having to set up a local entity or risk violating local employment laws.
The Employer of Record (EOR) is placed as an intermediary in an existing employee-employer relationship. The EOR is charged with carrying out the legal and regulatory requirements of employment, payroll, legal compliance, and more but does not participate in the day-to-day work activity. In most cases, the EOR will be named as your employee’s employer on paper. EOR companies will allow your business to hire international employees without much of a hassle.
In essence, they will be the registered employer for the worker but do not have any supervisory or management role in the employee’s position. The original employer or the client in this instance maintains the substantive work relationship, making all decisions on compensation, position duties, projects, and performance management.
The Differences Between EOR and PEO Companies
A PEO (Professional Employment Organization) is another type of third-party service that fulfills a similar, although less comprehensive, role compared to an Employment Of Record (EOR). A PEO is most commonly used in countries like the U.S where there are different employment and reporting requirements between states and regions. A Professional Employer Organization may serve as a company’s HR department. From payroll to employee benefits and 13th-month pay, PEOs will handle human resources functions to lessen the burden from the company.
One of the main differences between EOR companies and PEOs is that EOR organizations/services will come up as employers on paper, just like their name implies. While EOR companies may come up as employers, you still have the power and the responsibility for their daily operations.
This can be too great a task for smaller companies to meet all of these rules on their own, so they will use a PEO for assistance. The PEO does not take over the full legal employment role as an EOR does, but can provide help with local payroll, registration, and compliance steps. They solely exist to assist in taking over their client’s human resource department.
Despite their differences, they come together as entities that will allow you to be more flexible and to focus on your company’s core services.
Why Do You Need to Use An Employer of Record?
The main reasons for using an Employer of Record are primarily to overcome the regulatory and cost hurdles when employing workers in a remote location or country. Every country has its own employment, payroll, and work permit requirements for non-resident companies who want to do business in that region. The challenge of meeting those rules can be a major obstacle to business expansion across international borders.
If a company has a commitment to a country, the DIY approach of incorporation, registration, and running a local payroll system may be worthwhile. But for most companies, just entering a new market, or smaller firms with limited HR resources, an EOR can be an ideal alternative.
The Employer of Record is typically used as a solution that makes foreign employment simple for any company size. It is equally effective for both local residents and ex-pats since it is in full compliance with the host country’s laws. There is no reason to risk violating labor, tax, and employment regulations when there is an EOR solution available, especially in the Philippines.
That means the Employer of record significantly mitigates the client’s risk of noncompliance. Moreover, EOR assumes all compliance responsibility, which is critical, considering the huge incompliance penalties in the modern-day. They also have the capacity to not only set up a single employee but fully staff an entire facility or office with hundreds of employees.
A global employer of record’s knowledge of local language and etiquette means they can offer tailor-made onboarding videos and other facilities, which will go a long way in building a solid long-distance employer-employee relationship.
Top Benefits When You Work With An Employer of Record
Starting your very own offshore team may be a daunting task to some individuals, but we assure you that it really isn’t. There are many distinct benefits for a company to use an Employer of Record. In most cases, the EOR solution has the greatest benefit when doing business in foreign countries, where the cost, complexity, and compliance risk of local employment may be prohibitive.
1. Easy international expansion
If a company is seeking to employ professionals in another country, it is usually a requirement to have a local entity in place to formally employ staff.
An International Employer of Record solution can employ professionals in a country with high market potential, without the need to incorporate locally. This saves on the cost of establishing an international subsidiary and allows new employees to be onboarded within days.
2. Easy compliance with payroll and social contributions
Most countries will require a company with employees on assignment to run payroll according to local standards with a registered entity. Paired with payroll obligations, health insurance, and pension contribution requirements that are complex, the law that governs them changes frequently. An EOR service provider, as a compliance expert, understands all applicable legal requirements and is liable for non-compliance.
The EOR service provider takes care of all of the critical details such as calculation and withholding of statutory deductions from pay, health insurance, and taxes.
The Employment Of Record (EOR) service is the perfect employment solution to ensure that there are no issues with local authorities and is the most cost-effective means to quickly deploy employees abroad.
3. Facilitate legal payroll management abroad
Hiring remote workers come with legal implications, depending on the country. For example, taxation rates differ significantly, and with many laws changing every year, it can be challenging to keep track of all requirements.
EOR firms stay up to date with state regulations to ensure their clients observe compliance with state regulations concerning taxation, staff welfare, and retirement benefits.
4. Operate with cost-effective solutions
Without EOR companies, many companies would have to consider setting up physical offices for their global operational needs. EOR services eliminate the need to set up companies abroad, which translates to significant savings as EOR firms only receive payment for hours worked.
5. Save time; because time is money
Dealing with employee matters is time-consuming, especially for large firms. EOR services help firms free up their time concentrating on growing the business and other critical operational functions.
When Do You Need an Employer of Record Services?
Knowing where and when to start choosing an EOR service provider requires evaluating your position and needs. Here are some pointers that your business is ripe for EOR services.
1. When you need to start overseas operations urgently
If you want to establish your operations in a foreign country in record time, EOR service providers are an excellent consideration. Their expertise will help you meet all legal requirements to start your business within a given time frame. This may be difficult to achieve individually, especially when you are unfamiliar with the laws.
2. When you want to hire more employees without the extra space
The size of your operation matters a lot. However, dealing with many employees has its share of challenges, and finding an EOR provider will ensure you skip this challenging step and save time. When you extend team efforts to other quickly hired experts with little to no onboarding process, you stand a better chance of beating the competition in providing services or bringing products to the market.
3. When you need to save time and money
Top employer of record companies take care of background checks, tracking timecards, drug screens, employee benefits, and more when handling payroll and HR functions. Employees stay productive as they are assured of on-time and convenient payment for their work.
Some EOR companies offer a wide range of salary payment methods, including direct deposit. This way, you pay solely for services rendered without taking on human resources, payroll staff, and office space-related expenses. Therefore, your business can expand as you invest in other areas with the money and time saved from hiring an EOR service.
4. When minimizing risk is a must
There are legal issues involved with outsourcing, and the best way to minimize legal risk is to use an EOR. When outsourcing Human resources and payroll services, the EOR company is liable for all the legal issues involved.
These companies are well equipped to keep up with the ever-changing HR and payroll rules and regulations, using the latest technologies in their services. Therefore this is a cost-effective and efficient way to avoid potential hefty IRS penalties and fees as well as plugging the drain on potential lawsuits.
5. When focusing on core business processes is needed
There is never a time a business doesn’t need to focus on its core business, yet distractions that it can quickly do away with continually exist. EOR implementation will take over a good deal of these non-profit-making functions that drag you back.
A Checklist to Choose the Right EOR for Your Company
1. Do they service clients globally?
Not every EOR provider can service international clients or in your country, so it pays to check if they are active and experienced in many global markets. Another consideration is whether they have account managers or offices in the region so that you or your employee can contact them easily without large time zone differences.
2. Does their contract protect your commercial interests such as confidentiality and data security?
When you review their contract, it should have terms that protect your company from breach of confidentiality. This is especially important considering they will be handling both company and employee sensitive data, which will also require a high level of data security.
3. Does the Employer of Record understand what you need?
The EOR should have clients that are similar to your company, and provide the type of service that you need, whether hiring remote workers or assigning staff from home for expansion plans.
4. Who will you be dealing with?
Another question is who will be your point of contact/account manager, and their ease of communication and availability to handle any issues that arise. In effect, the contact person is the link between your company, the employee, and the EOR, so it’s important to know who you will be dealing with regularly.
5. Is the EOR solution part of their core service?
Some companies offer a PEO or EOR service as an adjunct to other customer service representation or accounting services, so it may not be their main focus. The EOR is then usually ‘bundled’ with their core services to add value, so it may not get the attention and investment of time that you need.
6. Are their charges and the requirements explicit and clear?
Every EOR or PEO charges a service fee, as either a percentage of the labor cost for the employee or a fixed rate. You should clarify what the fee is and if there are any additional costs above the service fee.
What to Expect from the EOR Industry in the Future
Everyone is looking for a flexible solution for their business, and in the world of outsourcing, one of the best models to help a business hone in on their specific needs is an Employer of Record service. The benefits of using a local Employer of Record for international assignments become apparent when a company considers the cost and time involved in a DIY approach. The EOR provides a layer of legal insulation for companies, as well as taking responsibility for the numerous elements required to employ workers abroad.
Clearly, the future of the EOR solution is assured, as more and more countries are changing local regulations on immigration and employment to prevent abuses and loss of tax revenue. Companies must have a way to overcome this challenge of doing business abroad, the EOR is becoming a core strategy for employing both local citizens and ex-pats.
Overall, If you seek to handle as little as possible liability and stress in running your business, the decision to hire an EOR should be fairly easy. Determining what type of service suits your business best is important and how complex the number of jurisdictions involved in your staff.
Outsourcing is generally cost-efficient, and most businesses are making use of it to fill in positions. But, if you are time conscious and need to out staff as quickly and effortlessly as possible, this is the best way to go.
This will most likely exceed the difference in the price for service provision between doing it yourself and having an EOR to handle your hiring and HR functions. Considering an Employer of Record service? Get in touch with us today.