Employers entering the international market face the challenge of navigating various labour laws in each country where they hire employees. Understanding these complex regulations can be a time-consuming task, and errors can have significant consequences. Many employers turn to third-party specialists known as employers of record (EORs) to get help in managing administrative tasks and minimizing the risk of compliance issues. EORs focus on managing payroll, benefits, HR and other essential functions, allowing businesses to save time and resources.
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What is an EOR?
An employer of record (EOR) is a third-party organization that takes on the legal responsibilities for the employees of another company. This entity might operate within the same country as the business it serves or in a different country with varying employment regulations.
The EOR handles essential employment functions, such as payroll and compliance with legal standards, while the client company maintains control over its employees and their assignments. This arrangement allows businesses to expand their operations without being weighed down by the administrative and risk management challenges that often come with entering new markets.
What does an EOR do?
An EOR takes on several important tasks, including:
- Managing payroll and ensuring employees get paid accurately
- Handling the filing and payment of employment-related taxes
- Administering employee benefits
- Overseeing workers’ compensation claims
- Managing unemployment claims
- Ensuring compliance with regulations
Transferring these responsibilities to an EOR doesn’t diminish an employer’s influence over employee matters. In fact, employers retain complete control over daily operations, work assignments and the performance and development of their staff.
When should businesses use an EOR?
Using an EOR service can be beneficial for businesses operating internationally. Here are some scenarios where it might help to rely on an EOR:
- When businesses are expanding domestic operations into a new country
- If a business is merging with or acquiring a company that operates across international borders
- When a business has employees working remotely in different countries
- If a business manages a global workforce or conducts business in multiple nations
When a business needs assistance with payroll, benefits, workers' compensation and other HR tasks
Benefits of using an EOR
Navigating the complexities of hiring employees overseas or launching new offices in foreign markets can be daunting. Employers often find themselves wondering, “Is it worth the risk?” Partnering with an EOR might just provide the solution. Here’s how an EOR can benefit businesses:
Seamless market expansion
Setting up a business in another country can involve many bureaucratic hurdles that can delay progress. An EOR that is already established in the target country can hire and onboard employees much more efficiently. This would allow the business to start operations much sooner than if it were to handle the registration process on its own.
Risk mitigation
EORs are well-versed in local laws and regulations, which means employers won’t have to navigate the legal landscape on their own. Moreover, if a compliance issue arises, the EOR typically assumes responsibility, protecting its client from potential liabilities.
Reduced administrative burden
Managing employee-related tasks, like payroll processing and tax filings, can consume valuable time and resources. By entrusting these responsibilities to an EOR, businesses can redirect their focus to more strategic areas, such as enhancing client relations, product development and growth initiatives.
Cost savings
By cutting through red tape, minimizing compliance risks and outsourcing time-consuming administrative tasks, businesses may find significant financial benefits. Using an EOR can be more cost-effective than the expenses involved in establishing an entity abroad and handling the complexities of onboarding, compliance, payroll and taxes independently.
EOR vs. PEO
When it comes to employment services, it's essential to grasp the distinction between an employer of record and a professional employer organization (PEO). An EOR acts as the legal employer for a company’s workforce located around the globe, while a PEO functions as a co-employer alongside the company.
An EOR takes on all HR responsibilities, including onboarding, payroll, tax compliance and employee benefits, while a PEO collaborates with small and medium-sized businesses to deliver essential HR services.
EOR vs. staffing agency
A staffing agency serves a different purpose than an EOR. While an EOR handles employment responsibilities for a company, a staffing agency focuses on sourcing candidates to address temporary workforce demands. Essentially, these agencies recruit workers and pair them with businesses to cover absences, fulfill specific skills requirements or assist with special projects.
Choosing the right EOR
When exploring potential EOR partners, it’s important to consider a few key factors. Look for an EOR that:
- Has experience in the regions where your employees are located
- Understands local employment laws and regulations
- Serves a client base that includes reputable or like-minded businesses
- Offers scalable software solutions that can seamlessly integrate with your existing tools
- Uses communication methods that align with the preferences of your stakeholders
- Implements robust data security protocols to protect sensitive information
FAQs
What is an example of an EOR?
Employers are required to meet specific financial and legal responsibilities for their employees. When these duties are delegated to a third-party provider, it can be referred to as an EOR partnership, especially in cases of international expansion. An EOR typically possesses a deeper knowledge of global employment laws, making them more equipped than the client organization to handle payroll, manage benefits and reduce compliance risks across various regions.
Is it easier to open an entity in another country or use an EOR?
When considering whether to establish a business entity in another country or use an EOR, it's important to note that the process of registering a business abroad can be time-consuming and may require involving financial, legal and HR professionals, depending on local regulations. By collaborating with an EOR that is already established in the target country, businesses can often seize new market opportunities quicker and with lower overhead expenses compared to attempting to set up a new entity.
How much does an EOR generally cost?
Pricing models can differ, but EORs usually bill on a per-employee basis. This could be a set fee or tied to payroll amounts. Additionally, the total cost will be affected by the quantity of EOR services needed.
This guide is intended to be used as a starting point in analyzing employers of record and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
