What is an Employer Of Record? A Comprehensive Guide

Mayank Bhutoria

Global expansion presents significant growth opportunities for businesses. However, it also introduces a major hurdle: navigating the ever-changing labor laws across different countries. 

According to a study, over 87% of companies plan to enter a new geographic market, and 63% identify compliance with local regulations as a key barrier. This is where Employer of Record (EOR) services step in as a game-changer. 

What is an EOR? How can they help you manage your global workforce and avoid compliance risks? What criteria should you consider when selecting an EOR service provider? Let’s explore these.

What is an Employer of Record?

An Employer of Record (EOR) is a service provider that acts as the legal employer for an organization’s workforce, managing essential HR functions like payroll, compliance, and administration. 

The EOR assumes employment's legal responsibilities and risks, while the client company maintains direct control over its employees’ day-to-day operations.

What does an EOR do?

An EOR plays a vital role in managing various aspects of employment for client organizations. Here are the key functions of an EOR:

1. Legal compliance

EORs ensure adherence to local labor laws, employment regulations, and industry-specific legal requirements in all employment aspects, such as employment contracts, payroll processing, benefits administration, and more. 

By staying updated with the evolving legal frameworks of different countries, an EOR effectively mitigates legal risks for client companies. 

2. Payroll management

EORs are specialists in handling payroll tasks such as salary calculations, tax deductions, benefits administration, and timely and accurate payments. By leveraging advanced payroll systems and staying up-to-date with local laws, an EOR streamlines payroll processes and ensures compliance.

3. Tax compliance

Tax compliance is a complex area that requires specialized knowledge and meticulous attention to detail. EORs take on the responsibility of managing tax-related matters for client companies. This includes withholding taxes, filing tax returns, and maintaining accurate tax records. By staying abreast of tax laws and regulations, an EOR helps minimize tax liabilities for clients.

4. HR administration

EORs manage employees throughout their employment lifecycle, handling HR functions such as employee onboarding and offboarding, benefits administration, performance management, leave management, and compliance with HR policies and procedures. They also support handling employee relations, disciplinary actions, and resolving HR-related issues to maintain a productive and compliant work environment. 

When To Use an Employer of Record

An Employer of Record is a strategic solution for various scenarios where companies need a reliable and compliant global workforce. Here are some scenarios where utilizing the services of an EOR is beneficial.

1. Global expansion

As businesses expand into new territories, they encounter a myriad of legal and compliance challenges that are unique to each country. Being experts in global compliance, EORs manage the complexities of payroll, benefits, and taxes in multiple jurisdictions with ease. Outsourcing this complex function enables companies to focus on their core operations while ensuring legal compliance and smooth operations in new markets.

2. Building and managing remote or distributed teams

With the rise of remote work and distributed teams, companies often hire employees from different countries. Managing payroll, taxes, benefits, and HR tasks for remote workers can be intricate and time-consuming. An EOR simplifies these processes by handling all employment-related responsibilities. This ensures accurate payroll processing, tax compliance, and consistent HR administration for remote teams.

3. Avoiding employee misclassification

Misclassifying employees as independent contractors or vice versa can lead to significant financial and legal consequences. An EOR helps companies correctly classify employees according to legal criteria, reducing the risk of misclassification and its associated penalties. By ensuring compliance with employment laws and regulations, an EOR protects businesses from potential legal disputes and liabilities.

4. Short-term projects

Companies engaging in short-term projects and temporary assignments in different countries can benefit from partnering with an Employer of Record when hiring international contractors

EORs excel in managing compliance, ensuring that all legal and regulatory requirements are met seamlessly. This includes payroll, taxes, and HR support, streamlining administrative tasks and ensuring timely payment for contractors. 

EORs also manage risks associated with international hiring, offering flexibility and scalability without the hassles of long-term commitments. Their expertise in international employment laws and standards helps companies avoid misclassification of contractors.

Advantages of Using an EOR Service

Leveraging EOR services offers businesses numerous advantages that aid companies in navigating complex HR and compliance challenges more effectively. It enhances operational efficiency and helps businesses to focus on driving business growth and innovation. Here are the key advantages of using an EOR service:

1. Risk mitigation

EORs are well-versed in local employment laws, regulations, and compliance requirements. They help businesses overcome legal complexities and minimize employment risks, ensuring that all employment practices, including hiring, termination, payroll, benefits administration, comply with local regulations. By delegating the legal responsibilities to the EOR, companies reduce the risk of legal disputes, penalties, and reputational damage.

2. Cost savings

Employing an EOR can result in significant cost savings for the client companies. Instead of establishing and maintaining an in-house HR department in each country, companies can outsource these functions to an EOR. It saves a considerable amount in hiring HR professionals, investing in HR technology, and managing administrative tasks. 

Doing so reduces overhead costs, eliminates the need for an extensive HR infrastructure, and allows businesses to focus their resources on core operations and strategic initiatives. Additionally, EORs can provide cost-effective solutions for payroll processing, benefits administration, and compliance management.

3. Global expansion support

For companies looking to expand their operations globally, an EOR provides invaluable support. EORs have expertise in international employment laws, taxation, immigration, and cultural nuances, making them ideal partners for global expansion initiatives. 

EORs can facilitate employee management in different countries, handle work visa and work permit applications, ensure local compliance, and provide guidance on international HR practices. 

4. Access to expertise

EORs bring a wealth of expertise and experience to the table. They have dedicated teams of HR, legal, and compliance specialists who constantly stay updated with industry trends and regulatory changes. This expertise is especially beneficial for businesses operating in highly regulated industries or venturing into unfamiliar territories. 

EORs offer strategic guidance, personalized solutions, and customized HR support based on each client's unique needs and goals. This ensures a seamless and compliant workforce management experience. 

What Are the Alternatives to an EOR?

Instead of partnering with an Employer of Record, businesses can engage a professional employer organization (PEO), work with staffing agencies, or open a new entity in a foreign country.

Let’s delve into the key differences between these approaches

EOR New Entity PEO Staffing Agency
Legal Compliance and Risk Management Takes up legal compliance responsibilities, reducing risk for the client company. Requires extensive legal setup and continuous compliance management. Shares legal responsibilities and compliance, offering a co-employment model. Provides staffing solutions but does not assume employer responsibilities.
Global Expansion support Facilitates global expansion by managing compliance and HR functions in multiple countries. Supports expansion but involves complex legal and regulatory requirements in each country. Offers global expansion support in select countries where the PEO operates. Limited support for global expansion - primary focus is on staffing needs within the specific region or country.
Cost Efficiency Service fee is based on the number of employees and services utilized. Involves significant upfront costs, operational costs, compliance-related expenses, and investments in infrastructure and staffing. Costs vary based on services provided, employee count, and scope of HR functions. Fees for recruitment services are based on a percentage of the candidate’s salary or fixed placement fee.
Flexibility and Scalability Provides flexibility and scalability for managing workforce fluctuations. Offers full control but may lack flexibility and scalability in the initial stages. Offers flexibility in managing HR functions, but scalability may vary depending on the agreement. Provides staffing solutions on a temporary or project-based, but limited scalability for long-term workforce management.
Employee management and benefits Manages employee relations, benefits administration, and HR tasks on behalf of the client company. Requires setting up HR processes, benefits, and employee management internally. Offers co-employment benefits, including access to benefits packages and HR support. Does not handle employee benefits or long-term HR management.

By evaluating these options based on these criteria, companies should determine which workforce solution best aligns with their needs, budget, and growth objectives.

How much does an EOR cost?

The cost of an EOR varies depending on factors such as the services required, the number of employees, geographic locations, and the EOR provider’s pricing model. The two common types of pricing models are:

1. Fixed pricing

Fixed pricing involves a set monthly fee for the EOR services per employee. This fee remains consistent regardless of the services provided. Fixed pricing offers predictability, allowing businesses to budget effectively without unexpected cost fluctuations. Some EORs offer tiered fixed pricing plans based on number of employees, allowing for scalability as the business grows.

2. Variable pricing

Certain EORs charge the clients based on a variable pricing model, where the fee is based on using EOR services. This could include a percentage of payroll and charges for specific services rendered. This model ensures price efficiency, as businesses pay only for what they use. This model is effective for companies with fluctuating workforce needs. It allows for greater flexibility. However, it involves a complex billing process.

When choosing pricing models, businesses should assess their budget, workforce size, growth projections, and the level of flexibility required. The models should align with the company's financial goals and operational needs.

How to Choose the Right Employer of Record

Choosing the right EOR service provider is crucial for businesses looking to expand globally while ensuring compliance and efficiency. Here are some key factors to consider when selecting an EOR provider.

1. Global capabilities

Evaluate the EOR’s ability to operate seamlessly in multiple countries or regions where you plan to expand. Check if they have a global network of experts, legal knowledge about each jurisdiction, and an understanding of local labor laws and regulations.

2. Reputation and experience

Consider the reputation of the EOR in the industry and its track record of successful partnerships with businesses similar to yours. Look for experience in handling diverse workforce challenges and compliance issues. 

3. Technology and support infrastructure

Assess the EOR’s technology platforms, software solutions, and support infrastructure. Ensure they have a robust system for payroll management, HR administration, compliance tracking, and reporting. Seamless integration with the existing systems is also crucial for efficiency.

4. Cost analysis and transparency

Request detailed cost breakdowns and pricing structures from potential EOR providers. This should include setup costs, ongoing fees, and other additional charges. Transparency in pricing and clear communication and costs are essential for smooth functioning.

5. Client references and testimonials

Seek client references and testimonials from other businesses that have worked with the EOR. Ask about their experience, level of satisfaction, and any challenges faced during the partnership. Feedback from existing clients can provide valuable insights into the EOR’s reliability, responsiveness, and overall performance.

Choose Gloroots as Your Employer of Record

Gloroots offers comprehensive EOR services and unmatched support to help you overcome the challenges and complexities of international operations. 

Our expertise in global compliance, robust technology infrastructure, and client-centric approach make us the ideal choice for businesses seeking to streamline their global workforce management. Choose Gloroots as your EOR partner and get started in days.

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