What Is an Employer of Record (EOR)?

The last few years have illustrated how critical it is for businesses to remain nimble and be quick to adopt new operational strategies made possible by globalization, remote work, and ever-enhancing technology. Businesses that turn to the global talent market put themselves in great positions to succeed—but employing international talent isn’t always easy. Fortunately, employers of record (EORs) are able to streamline the complex process of employing global talent.

Not only does using EOR services allow your business to access talent across the world, but it provides a compliant, cost-effective, and efficient way to do so by simplifying time-consuming and complex employment processes.

EORs are great resources for businesses ready to tap into the global talent pool, but there’s a lot to understand about them. In this guide, we’ll tell you everything you should know about EORs, so let’s get right to it.

Employer of Record Meaning Explained

Simply put, an EOR becomes the legal employer for their client’s global talent. For example, if your business based in North America wants to hire someone in the UK, an employer of record could employ them on your behalf.

This type of agreement allows your business to experience one of the main benefits of an EOR— they take on the responsibility of complying with local employment laws for their clients. On paper, the EOR is the employer of your chosen talent, but your business still maintains control over the relationship with the talent and their work.

EORs ensure compliance with local regulations regarding:

• Compensation
• Holidays
• Benefits and welfare
• Severance and termination
• Payroll tax
• And more

Benefits of Working With an EOR

The benefits of working with an EOR are extensive; doing so can help your business eliminate a number of administrative headaches while building a stronger team.

• Hire the best talent, no matter where they’re located: With an unlimited talent pool, EORs enable you to hire the world’s best talent to grow your business and drive results.
• Expand your business globally without setting up local entities: If you’re testing out new markets and want to stay agile, EORs allow you to hire local talent to scope things out without setting down permanent roots. After all, setting up local entities abroad can be time-consuming and costly.
• EORs help you remain compliant: One of the biggest hurdles businesses face when hiring abroad is staying compliant. Working with an EOR eliminates most of the legal and regulatory risks that come with trying to navigate global employment on your own.
• EORs can save you time and money: By taking on HR compliance for you, EORs free up your time and resources so you can focus on higher ROI activities. They also help you mitigate legal risk, saving you money in the long run.

Types of Employer of Record Services

When you’re considering using an employer of record service, you’ll find that there are two primary types of employer of record companies. These are local EORs and global EORs. Although they share characteristics, it’s important to understand the distinctions between the two. Let’s take a closer look at what makes them different:

Local EORs

Traditionally, an employer of record is a local organization. This means a company can work with them to hire talent based in another jurisdiction, local to the chosen EOR. For example, a company in the U.S. might work with an EOR in Spain to employ workers based in Spain.

It’s worth noting that the concept of employer of record services isn’t always treated the same from country to country. In Germany, for example, an EOR is known as an Employee Leasing service provider, which is regulated by the Labour Leasing Act (Arbeitnehmerüberlassungsgesetz - AÜG). This has a fixed term of 18 months, after which the employer is required to set up a Foreign Registered Employer (Ausländischer Arbeitgeber ohne Sitz in Deutschland) to continue the employment.

Using a local EOR is beneficial if you only want to hire talent in one country abroad. If you want to hire in multiple foreign countries, using a global EOR is better suited.

Global EORs

Unlike most local EORs, global EORs offer their services worldwide. Rather than looking for an EOR in each country, your company can work with a global EOR - or global employment partner - to manage your remote workers worldwide. Working with a global EOR can streamline your operations, drastically reduce onboarding timeframes, and can create lower overhead costs overall.

Other Employer of Record FAQs

Here are some frequently asked questions about EORs:

Employer of Record vs PEO: What’s the Difference?

EORs and Professional Employer Organizations (PEOs) sometimes perform similar functions, like managing payroll and taxes, offering benefits, and managing holidays or time off, but they shouldn’t be confused with one another.

While EORs employ talent on behalf of their clients and take on legal responsibility for them, PEOs do not. Instead, PEOs take on more of an outsourced HR function. As such, you need to have an established local entity in the hiring country in order to use a PEO.

Do You Need to Use an EOR to Hire Globally?

No, you don’t necessarily need an EOR to hire globally. However, hiring globally is an incredibly time-consuming process, and without the proper expertise, it can expose your business to a number of regulatory risks.

That said, if your business is interested in hiring talent around the world rather than establishing a local entity, using an EOR is one of the safest, most efficient, and cost-effective ways to do so.

Why Not Hire Independent Contractors?

Hiring an independent contractor might seem like a simple solution if you don’t think an EOR is right for you, but the independent contractor model is fraught with risks.

For starters, the definition of contractual work varies widely from country to country. This can lead to another common issue with independent contractors, which is misclassifying workers. If you are working with a contractor for a long time, you’re their only source of income, and if you determine their working hours, among other potential factors, many countries might determine that you’re employing them but have misclassified them as a contractor. This can lead to serious regulatory issues and fines.

The best way to avoid these pitfalls is to simply start with employment (with the help of an EOR). This helps you remain compliant while also establishing better relationships with workers, simplifying processes like onboarding, and maintaining control over your business's intellectual property.

Choosing an Employer of Record

An EOR can have a significant impact on your business. To make sure you’re setting yourself up for success, make sure you’re choosing the right employer of record service.

Here are some critical things to consider:

• Do they operate where you need them to? When you’ve identified talent and are ready to bring them onto your team, you want to know that your employer of record is set up and capable of hiring them compliantly.
• Can they accommodate your diverse business needs? Not all EORs are equal, and some will have limited service offerings. Finding a high-quality, flexible service ensures your business gets what it needs to grow effectively.
• Do they provide a cost-effective service? Cost-effective doesn’t necessarily mean cheap. While some EORs have inexpensive service fees, you may experience hidden fees, complex invoicing, and accumulated costs in the long run. Finding a provider that meets all your requirements is often better for your business than opting for the cheapest one.
• What steps do they take to protect your data and your talent’s data? With sensitive information from both your business and the talent flowing through the EOR, it’s important to be able to trust that they’re taking steps to keep it safe and or from falling into the wrong hands.
• How can you communicate with them? It’s essential to be able to contact your EOR service provider with relative ease to quickly mitigate any errors or have your questions answered without needless delay. Read reviews and testimonials to discover how other businesses have rated their customer support.

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