Everything you Need to Know About Employers of Record
Global expansion is the logical goal for all businesses, whether it is for entering new markets, hiring global talent, or entering new industries. However, hiring across borders is no mean feat; it requires a deep understanding of local labor laws, the local taxation framework and other legal and regulatory compliance. In terms of the timelines, this can take anywhere between 3-9 months.
An Employer of Record, or EOR, is a mechanism to easily add employees in new international markets without having to incur the expense and risk of creating a legal entity abroad. An EOR is a third-party organization that serves as the legal employer for a company’s foreign employees. The EOR undertakes the management of all workforce-related aspects – from hiring & payrolls to taxation, employee benefits, and legal compliance.
Functions of an EOR
By entering into employment contracts with your international employees on your behalf, EORs enable you to hire across multiple countries without having to set up a legal entity. While acting on behalf of the employer, some functions undertaken by the EOR include:
- Ensuring compliance with all employment and labor laws: Every country has its own set of laws governing employment. Well versed with the legal regime of the country, the EOR ensures due compliance with all employment laws.
- Management of payrolls: The EOR undertakes the process of negotiating compensation, and pays the employees through its local bank account. It is the responsibility of the EOR to ensure the application of the correct taxation framework in accordance with the country’s laws.
- Management of perks and benefits: Being in the same geographical location, the EOR has a much better grasp of the perks and benefits, and ensures that your workforce has access to the benefits that are most valuable to them.
- Connect with the local ecosystem: An EOR gives you direct access to the right resources within a specific geography – the right recruiting partners, legal and financial consultants, and even the workspace.
When speaking of functions of EORs, we often also hear another term – PEO. While the two have their similarities, they also have key differences.
PEO vs EOR
Professional Employer Organization – PEO
A Professional Employer Organization (PEO) offers a comprehensive range of HR services, including payroll processing, foreign transactions, tax preparations, employee incentives, employee benefits, and compliance management. To manage their employees, PEOs collaborate with a nearby business that is a registered organization. The PEO’s name will appear on the employee’s payment invoice and any HR communication materials.
Employer Of Record – EOR
An Employer of Record is a third party organization that specializes in handling all the legal and operational requirements of building a global workforce for its client companies, like management of payroll and taxation, employee benefits, and other such administrative and legal obligations.
While a worldwide EOR offers services comparable to those of a PEO, it also assumes all of the workers’ legal obligations. As a result, the employer is able to provide personalized HR services to its workforce without worrying about compliance.
Choosing the right partner
Knowing the difference is crucial, but when choosing between EORs and PEOs, knowing your use-case is more important. Consider these questions before selecting your choice:
- How big is your workforce?
An EOR is a common option if you want to recruit a small number of people in a country. However, the cost of talent acquisition often rises when you recruit more personnel from a nation with a high level of talent. So, if you need to employ a large number of professionals quickly, a PEO is your best bet.
- Do you have a legal entity in the host country?
If you don’t possess a legal business in the employee’s nation, your sole option is an EOR. Different nations have different levels of legal entity formation complexity, taxation requirements and employer compliances.
- Are you hiring contractors, temporary employees or full time employees?
Typically, when working with interim and contractual personnel, firms opt for an EOR. This is due to the fact that EOR offers the crucial HR solutions that are ideal for contract employment. On the other side, a PEO offers you access to all of its services, which improves your management of full-time staff.
Now that you know which one to select, there are certain things that you must keep in mind before engaging an EOR.
The cost of engaging an EOR
An EOR manages payroll, employee incentives, bonuses, benefits management, talent retention, complies with changing labor costs, offers consistent HR assistance, and acts as a liaison between the business and the employee, to name a few tasks.
Without knowing the specifics, the cost of an EOR cannot be calculated with accuracy. These might include factors like the hiring area, the amount of employees employed, and the type of person hired (contractual vs. full-time), among others. So let’s examine what often influences an EOR’s price.
EOR pricing models
EOR pricing schemes may be divided into two categories: flat fee structures and percentage agreements. Avoid any potential partners that charge a percent rather than a set number if you wish to work with an EOR.
EORs using percentage calculations dissuade their client companies from paying employees appropriately. When you levy a percentage, you must pay a third party more money in order to provide an employee a bonus or a raise. Despite the fact that percentage-based EORs were previously the standard in the industry, things are beginning to change.
Factors affecting EOR quotes
Any taxes, required contractual perks, and other fees that the local authority may demand are costs to the firm when hiring an employee in a particular country.
The total cost to the company will vary based on the employing nation, specific area or region, and staff wages. For instance, in Canada, employers pay for the Canada pension plan, the occupational health tax, the parental health bonus, and workman’s compensation insurance.
Choosing the right EOR
If you’re ready to take the next step, the only question left for you is figuring out which EOR to choose, and how. There isn’t a lack of EORs out there, and they all offer different quotes and services. Here are some of the major things you need to keep in mind when selecting the EOR you’re going for.
Transparent costs & communication
When contrasting several companies, select a global Employer of Record that is transparent about its costs. They might add setup fees, taxes, or cancellation fees to their initial estimates. They may also later introduce hidden fees and surcharges, which would change your budget and have an effect on many departments inside your business. Request a complete price breakdown from prospective EORs upfront.
Accurate quotes & calculations
Pick an EOR that is honest and informed about employer burden costs. When calculating payroll expenses, the business must include extra social contributions like health insurance, social assistance, and paid time off. Due to the fact that these employer restrictions differ depending on the market, your EOR supplier must provide you specific rates on these parameters.
Read reviews on unbiased websites and get in touch with references to see whether current clients of the EOR are happy with the company’s services. Asking a potential partner for references from businesses that have goals and characteristics similar to yours, such as budget, industry, and types of people they work with, is also beneficial.
Pick a provider who has experience with EOR work and complies with global standards to ensure due compliance with all legal and regulatory requirements.
Help & support
Choose a proactive partner who can move quickly in response to your requests and the expectations of your team. Your EOR partner will regularly interact with both your present staff members and any future hires on your behalf. Make sure your EOR partner designates a client account manager who takes into account language barriers and regional time variations, reacts quickly to questions from your team, and onboards members of your workforce.
Businesses need a customer success partner that can respond quickly and support your personnel. Look for a global EOR that offers a specialized client manager rather than one that will direct you to a chat window or a manual.
Benefits of EOR
Hiring across borders becomes easy when you have the right global recruitment partner. An Employer of Record (EOR) helps you hire superlative talent across the world, without spending a fortune.
Let’s take a look at the different benefits of working with an EOR ~
Global talent made accessible
Although there are many advantages of global teams (competitive cost of labor, a broader applicant pool, workplace diversity), many business owners are hesitant to hunt for talent abroad due to the difficulties involved in establishing a legal entity in a new country.
Government approvals can take months, which means that companies might have to wait for a long time to begin commercial operations overseas in nations with a high degree of bureaucracy. Additionally, by undertaking the responsibilities of payroll and tax management, an EOR makes global talent accessible.
It takes a lot of time to manage paperwork, handle benefits & administration, process paychecks, and end employee contracts. Business owners who attempt to balance dozens of management responsibilities on their own wind up not devoting enough time to the company’s essential operations, such as developing strategy, enhancing the product, and cultivating deep relationships with customers or partners.
Company managers may spend much more time doing useful things if they have a trustworthy vendor handle their tax filing, payroll, and other formalities. Instead of spending hours learning foreign rules and regulations, company owners may work with an EOR to advance their abilities in areas they are knowledgeable and enthusiastic about.
From registering a legal entity, to opening a local bank account, incorporating a new organization requires substantial capital investment. Building a team overseas from the start ends up costing business owners a fortune.
EORs also enable company owners to save money by avoiding the costs of employing fiscal, HR, and judicial consulting firms. In case the relationship is not as successful as the business management first anticipated, the versatility of EOR agencies allows for the exploration of new markets and the closure of international offices without being concerned about maintenance and HQ termination fees.
Compliance with regional law
International enterprises frequently experience costly litigation as a result of failing to understand local trade and labor rules. Due to ignorance of the legal intricacies, a business owner may find themselves in hot water.
Companies rely on EORs to steer clear of such circumstances and manage teams in a way that complies with the law. EORs will ensure that all corporate procedures are compliant since they have a thorough understanding of labor and business laws.
This article originally appeared on Talent500