Employer of Record (EOR)

An Employer of Record (EOR) is a company that acts as the legal employer for workers hired by another company. The EOR handles all the employee paperwork, payroll, taxes, benefits, and compliance with labour laws on behalf of the client company. This allows the client to hire talent globally without having to set up local legal entities in every country they want to source workers from.

The EOR is the official employer on paper, but the client company manages the employees, work duties, salaries, etc. The workers are contracted by the EOR but fully controlled by the client organization. This arrangement allows companies to hire anyone around the world while minimizing legal risks. The EOR takes care of all employer obligations and compliance in the foreign country, freeing up the client to focus on their core business.

What is an Employer of Record?

An employer of record is a company that provides employer of record services to other companies. The employer of record meaning refers to an entity that acts as the legal employer for tax, payroll, and compliance purposes when a company hires remote workers or contractors globally.

Under this arrangement, the employer of record handles all the employer responsibilities and obligations that come with hiring staff in foreign countries. This includes payroll management, tax withholdings, employment paperwork, worker visas, benefits administration, and compliance with local labour laws.

By using an employer of record, a company can engage with contractors, freelancers, or full-time employees in other countries without having to set up their own legal entities abroad. The employer of record essentially acts as the legal employer on paper while the client company manages the employees and assigns their day-to-day work.

Some key employer of record services include

• Handling all HR paperwork, contracts, onboarding/offboarding
• Paying salaries and benefits, withholding taxes
• Ensuring compliance with employment laws
• Managing worker visas and immigration paperwork
• Providing local insurance and retirement plans
• Recording vacation days, sick leave, etc.
• Filing necessary reports and documents with tax agencies
• Representing the business in any employment law disputes

Benefits of Using an Employer of Record

There are many benefits of using an employer of record for companies wanting to hire internationally without setting up foreign legal entities. Some key benefits of employer of record services include:

• Access to global talent – Companies can hire contractors, freelancers and full-time employees from all over the world. This gives access to skills, expertise and language abilities that may be hard to find locally.
• Minimize legal risks – The EOR handles compliance with local employment laws and acts as the legal employer. This minimizes the risk of noncompliance for the client company.
• Cost savings – Outsourcing payroll, taxes, benefits administration and HR to EOR results in significant cost savings versus doing everything in-house. Check out our article on the pros and cons of outsourcing payroll.
• Operational efficiency – The EOR handles all HR and payroll duties, allowing the client company to focus on their core business. This also provides access to HR expertise.
• Flexibility in hiring – It’s easy to scale teams up or down as business needs change when using an EOR. No need to hire/fire locally.
• Expand globally with ease – Companies can expand and hire overseas without first establishing local entities, which is a complex process.
• Peace of mind – The EOR becomes the legal employer and handles compliance. This provides peace of mind for the client.
• Cultural knowledge – A good EOR will have extensive knowledge of labour laws, hiring best practices and cultures for each country.
• Data security – Reputable EORs invest heavily in data security to protect sensitive employee information.

By leveraging an employer of record, companies can tap into global talent pools and efficiently manage an international team. The EOR takes care of the compliance headache so clients can focus on building their business.

What is the purpose of EOR?

The main purpose of an EOR is to enable companies to hire talent globally without having to set up their own legal entities in every country they want to source labour from. Some key purposes include:

• Expanding access to talent – An EOR allows you to hire from global talent pools to find the best candidates worldwide. This is key for skills in short supply locally.
• Faster start-up in new markets – Rather than establish an entity first, an EOR lets you start hiring in a new country right away to launch operations faster.
• Improving talent management – With an EOR managing payroll, compliance, etc. you can better focus on managing the international team’s work output.
• Reducing legal risk – By serving as the legal employer, the EOR takes on the compliance risks associated with employing in foreign countries.
• Outsourcing HR functions – Handing off payroll, benefits, onboarding, terminations and other HR tasks to an EOR provides efficiency and cost savings.
• Providing flexibility – An EOR allows you to easily scale hiring up or down as business needs change.

The main EOR purpose is to enable agile global hiring and talent management without establishing foreign legal entities. This provides access to skills and drives faster international expansion.

Examples of Using an Employer of Record

One common use case for an employer of record is hiring remote workers based in India. Here are some examples of how employer of record services could benefit companies:

• A U.S. software company wants to hire 10 developers in India to scale up their engineering team cost-effectively. They can onboard the developers as full-time employees through an India-based EOR rather than setting up their own legal entity.
• A consulting firm is opening a new office in Mumbai and needs to hire local staff for sales and marketing roles. The firm uses an EOR in India to hire the staff legally while they get the new office established.
• A startup wants to hire an Indian virtual assistant contractor to manage admin tasks and customer support. The startup uses an Indian EOR to legally engage the VA contractor.
• A healthcare technology company is expanding globally. They plan to hire nurses and technicians in India to provide patient support. An India EOR allows them to hire clinically trained staff faster.
• A retail chain plans to source IT professionals, graphic designers, and developers from India for various projects. Rather than using multiple vendors, they can hire the talent directly through an Indian EOR.
• A UK-based company needs to quickly scale up their customer service team by hiring call center reps in India. They turn to an EOR in India to hire and manage the reps legally.

By leveraging an employer of record in India, these companies can hire the talent they need, when they need it – all while minimizing legal risk and overhead.

Employer of Record Responsibilities

The EOR takes on a wide range of employer obligations and responsibilities on behalf of the client company. Some core EOR responsibilities include:

• Onboarding new hires – The EOR handles all hiring paperwork, employment contracts, I-9 forms, and anything else required to legally hire and onboard new employees.
• Payroll – One of the biggest EOR responsibilities is handling payroll. This includes paying employees, withholding taxes, filing payroll tax returns, and depositing payments with local tax agencies.
• Benefits administration – The EOR manages health insurance, retirement plans, and other local benefits required by law or offered optionally.
• Compliance – Being compliant with complex in-country labour, employment, and tax laws is a huge responsibility of the EOR.
• Worker visas – For foreign hires, the EOR handles work permits, visa sponsorships, and all immigration paperwork.
• Terminations – The EOR manages the employee termination process including paperwork, severance payments, unemployment registrations, etc.
• Employment law disputes – As the legal employer, the EOR represents the business in any disputes, litigation or audits.
• Local statutory reporting – The EOR takes care of required government reporting like census surveys, workplace surveys, employment equity reporting, etc.
• Employee expense reimbursement – Handling and tracking reimbursement for work expenses can also fall under EOR duties.

Difference Between EOR and PEO

There are some key differences between an EOR and a PEO (Professional Employer Organization). Understanding the EOR vs PEO comparison is important when deciding which model best fits a company’s needs.

How Does an EOR Differ From a Staffing Agency?

An EOR differs from a staffing agency in a few key ways:

• A staffing agency sources, screens and provides candidates for open positions. An EOR serves as the legal employer once staff is hired.
• Staffing agencies manage the recruitment process. EORs handle onboarding, payroll, benefits and ongoing compliance.
• Staffing focuses on filling temporary or permanent job requirements. An EOR arrangement is ongoing for managing international teams.
• Workers from staffing agencies are employed and paid by the agency. With an EOR, employees are on the EOR’s payroll but work for the client.
• Staffing agencies charge fees based on salaries or hourly bill rates. EOR fees are fixed monthly costs and volume-based pricing.
• Staffing agencies provide access to talent. EORs enable companies to legally hire and manage global talent.
• Staffing arrangements are typically domestic. EORs allow international hiring across borders.

Considerations When Selecting an Employer of Record

It’s important for companies to carefully evaluate potential employers of record services before selecting one. Here are some key considerations:

• Experience and capabilities – How long has the EOR been in business? Do they have experience operating in your target countries? What specific employer of record capabilities do they offer?
• Services offered – Make sure the EOR services match your needs like payroll, compliance, benefits management, immigration, etc.
• Pricing model – Compare pricing models whether per employee, based on services used, annual contracts, etc. Cost should align with value.
• Compliance record – Ask for the EOR’s history showing compliance with employment laws in jurisdictions they service. Check for any past litigation.
• Data security – Evaluate the EOR’s data security practices for protecting sensitive employee information.
• Client references – Reach out to the EOR’s current and past clients to get direct feedback on their services.
• Global footprint – Ensure the EOR has entities and experience in all the countries you intend to hire from.
• Customer service – Assess the responsiveness and quality of the EOR’s support services.

Risks in EOR

While an EOR takes on the legal employer responsibilities, some key risks in EOR include:

• Compliance failures – If the EOR fails to comply with regulations in a country, the client can still be held accountable.
• Misclassification of workers – Improperly classifying employees vs. contractors can create compliance issues.
• Lack of full control – Clients don’t have full employer control since workers are legally employed by the EOR.
• Data breaches – EORs hold sensitive employee data that could be compromised in a cyberattack.
• Hidden costs – EOR services fees, local statutory payments, or extra taxes can result in unexpected costs.
• Dependence on EOR – It may be difficult to transition from an EOR if they provide poor service or go out of business.
• Local litigation – Being the legal employer exposes the EOR to employment lawsuits and disputes.

Mitigating EOR risks requires extensively vetting EORs for compliance records, cost transparency, data security, client references, and financial stability. Strong contracts and insurance coverage are also advised.

Conclusion

Using an employer of record can provide immense strategic and operational benefits for companies seeking to hire global talent. 

For today’s global business environment, partnering with a reputable EOR provides the talent access and compliance expertise needed to grow and compete worldwide. As long as the EOR is thoroughly evaluated, it’s a minimally risky effort with a major upside.

Some Common Employer of Record FAQs