What is an Employer of Record?

A business that wants to employ workers outside its own country faces a minefield of admin such as labour and immigration laws, HR, payroll, and cultural complexities. Whether you’re ready to open your business operations in a new international market or need to bring on contractors or off-site employees from overseas to execute a development project – it can become challenging. This is where an Employer of Record (EOR) can help.

You may be wondering what an employer of record is, how it works, and why it is the best way to facilitate global hiring for your business. If you’re interested in finding out more, we’re going to break it down one step at a time.

What is an Employer of Record?

An employer of record is a third-party organisation that serves as the ‘legal employer’ for companies looking to hire international talent. The EOR becomes the legitimate employer for purposes of tax, compliance, and legal ownership, effectively managing employment-related matters on behalf of the client company. While the EOR overseas these administrative functions, the actual management of the workforce remains under the client's control.

What does this mean for your business? You can hire workers in another country on their local payroll without needing to set up a separate legal entity. The employer of record will take care of payroll, taxes, benefits, and other responsibilities, such as visa support and background checks. This ensures your business complies with local laws without requiring a substantial local presence.

EOR services have become increasingly popular over the years, primarily attributed to globalisation and the increasing acceptance of remote work, offering greater opportunities for both employees and employers.

How does an EOR Work?

With an employer of record, you, the client company, will retain full managerial control over the employee, including what they do and how they perform at their job. The EOR assumes the role of the official employer for all legal, administrative, fiscal, and HR responsibilities, thereby allowing the client company to concentrate on management and operational functions. Here’s how it works:

• Hiring and Onboarding

If you’ve found the employee you wish to hire, the EOR completes the hiring process to ensure all legal documents are in place and contracts comply with local laws.

• Payroll and Benefits

The EOR processes the payroll in the local currency, manages any withholdings or deductions (such as taxes or social security contributions), and ensures any required local benefits are paid.

• Compliance/Legality
  

One of the biggest obstacles to international hiring is local regulations and the vast difference in employment laws between countries. The EOR will handle the necessary employment contracts, tax filings, regional or national social security compliance, labour law compliance and other items required of employers.

• Termination/Offboarding

When it’s time to let an employee go, the EOR helps the company follow all local legal requirements around termination, such as severance, notice periods, and other special considerations.

Benefits of Working with an Employer of Record Company

• Speed of Implementation

It can take months to create a legal entity in a foreign country, and you’ll also need to spend a lot of money. When you partner with an employer of record company, you can start hiring almost immediately, without the operational and financial stress of registering a local establishment.
 

• Risk mitigation

The EOR assumes responsibility for legal management, such as ensuring compliance with local labour laws, thereby mitigating the chances of fines, legal disputes, and penalties resulting from mistakes in foreign markets and regulatory compliance.
 

• Cost-effective

The registration of a local entity requires legal costs, administrative overhead, and ongoing maintenance costs. EORs remove many of these expenses, allowing you to scale your workforce with little or no upfront budget.
 

• Focus on Core Business
  

If you outsource these functions to an EOR, you can keep your business's core functions front and centre while relying on experts to address the HR, payroll, and compliance requirements.

Employer of Record vs. Alternative Services

Although this approach might address numerous issues for many companies immediately, how does an employer of record compare with the alternatives like establishing a local entity or partnering with a Professional Employer Organisation (PEO)?

1. Employer of Record vs. Setting Up a Local Entity

Opening a legal entity in each target country of expansion is usually the first option a business looks at. However, this typically comes with a longer lead time, hefty investment, and many bureaucratic processes, particularly if you are unfamiliar with the local legal framework.

While starting a legal entity provides you with complete control, it also requires a lot of administrative work to operate in the country, including opening a bank account, registering with local tax authorities, and adhering to local business rules. An employer of record enables you to skip all of this. The EOR becomes your legal employer and takes care of your compliance, and HR needs while you focus on your business operations.

Why Choose an EOR?

• Speed: You can hire employees quickly without waiting for entity setup.
• Simplicity: The EOR manages all compliance and legalities, reducing your workload.
• Cost: EOR services are generally more affordable than the long-term costs associated with maintaining a foreign entity.

2. Employer of Record vs. Professional Employer Organisation (PEO)

Another noteworthy model is the Professional Employer Organisation (PEO). A PEO helps businesses reduce their administrative burden by managing some of their payroll, benefits, and HR responsibilities. However, it’s important to note that with a PEO, you remain the legal employer. This means you are responsible for adhering to all local regulations and employment laws. Essentially, the PEO acts as your co-employer, assisting with specific HR tasks but not assuming legal responsibility for your employees.

A PEO is ideal for firms that want to maintain high degrees of operational control and already possess a local presence. An employer of record is better suited for those who wish to avoid all tasks related to local employment laws and may not have the budget to set up a local entity. With an EOR, the bulk of your legal and compliance issues are ceded, reducing your liability and administrative overhead.

Why Choose an EOR over a PEO?

• Full legal responsibility: The EOR is the legal employer, handling all compliance, unlike a PEO where the burden is shared.
• No need for local presence: You can operate in a country without establishing a local entity.
• Streamlined operations: With an EOR, there’s no need to navigate local regulations or deal with multiple service providers.

When Should You Use an Employer of Record?

An employer of record is the best solution for companies looking to expand into new markets quickly and efficiently without being slowed down by legal or local constraints. If you’re a startup exploring new opportunities or a scale-up aiming to expand your international workforce, an EOR can provide the flexibility and economies of scale you need to grow your team effectively.

Here are some situations where an employer of record makes the most sense:

• Testing a new market: If you’re exploring new international markets and want to hire locally without the commitment of setting up a legal entity.
• Short-term projects: An EOR provides a seamless hiring solution for companies needing to hire in a foreign country for a temporary or project-based period.
• Global expansion: If you’re expanding rapidly and need to hire talent across multiple countries, an EOR streamlines the process and keeps you compliant with regional laws.

Simplify Global Hiring with an Employer of Record

Hiring employees in foreign markets is easy, reliable, and compliant through an employer of record. Often, the best way to manage employer responsibilities without setting up local entities or overcoming complex local legal requirements is through an EOR company.

Are you ready to take your business global? NES Fircroft can guide you through the uncertainty of international recruitment and help you realise your business's full potential.  With over 80 global offices and an extensive talent pool, we can manage your international workforce no matter where you are based.

Contact us today to learn more about our EOR services and how we can help you with your talent acquisition!