What Is an Employer of Record (EOR)?

The Employer of Record model is increasingly being talked about as a simple, compliant cost-effective way for globally distributed companies to access and employ global talent. 

Put simply, an Employer of Record is a third-party organisation that handles all formal employment responsibilities, including payroll, taxes, and legal compliance, on behalf of a company for its international workforce. 

For example, if your business is based in North America and wants to hire someone in the UK, an employer of record could employ them on your behalf.

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 globalisation, remote work and new techologies. Businesses that seek to access a global talent market put themselves in great positions to succeed—but employing international talent is fraught with risk.

As businesses choose to scale their global presence, an Employer of Record can make it easier to: 

• Ensure adherence to local tax laws and employment regulations, reducing the risk of legal issues and financial penalties.
• Provide standardised benefits packages that comply with local laws, enhancing employee satisfaction and retention.
•  Streamline the hiring process across different countries, enabling access to a global talent pool without the associated complexities of establishing local entities.

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The Benefits of Working With an Employer of Record Explained

While there may be many pros and cons of an EOR, the benefits will, in many cases, far outweigh any disadvantages. 

Expand your business globally without setting up local entities:

 If you’re creating a global expansion strategy and want to test out new markets as a way to stay agile, EORs allow you to hire local talent and scope out a promising market without setting down permanent roots. 

An Employer of Record can also offer valuable cost savings when compared to a legal entity or foreign subsidiary. Establishing a local entity involves significant financial investment, including registration fees, legal costs, and ongoing administrative expenses. EORs eliminate these costs, allowing you to allocate resources more effectively and focus on other key growth initiatives. 

Then there’s local expertise that using an Employer of Record can bring to your business. Working with an EOR can help you understand market nuances, cultural differences, and business practices. Such insights are crucial for making informed decisions and successfully navigating the local business environment.

And finally, an Employer of Record is uniquely placed to manage the entire employee lifecycle in a selected market. We’ll explain how this can help your business in the next section. 

Hire the best talent, no matter where they’re located: 

For businesses looking to expand beyond borders, the ability to access top talent for key vacancies is invaluable. An Employer of Record enables you to hire staff in new or previous untapped employment markets. 

This means you can hire the most skilled professionals from anywhere in the world, ensuring you get the best fit for your roles. 

As well as giving you the ability to source global talent, an Employer of Record can also simplify the process of managing and onboarding staff members too. 

For example: 

• EORs handle the complexities of international hiring, from job postings and candidate screenings to interviews and offer letters.
• EORs can manage the entire onboarding process, ensuring that new hires are quickly and effectively integrated into your organisation.
• EORs can provide continuous support for managing international employees. This could extend to performance management and handling employee grievances. 

As well as saving you money on establishing a legal entity, using an Employer of Record can also save your HR team valuable time that can be better spent on looking after your company’s core strategic functions (which is especially useful if you’re still scaling a small or medium sized business). 

An Employer of Record can help you stay compliant in local markets

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. 

This could include any of the following. 

Localised legal expertise

EORs possess in-depth knowledge of local employment laws and regulations in various countries. This helps your business stay updated with any changes or new legislation, ensuring that your business operations remain compliant with local requirements.

This could include 

• Labour laws
• Minimum wage standards.
• Changes to employee legislation 

In the event of your company facing employment disputes or legal issues, EORs can also provide support and expertise to navigate the local legal system

Immigration compliance 

Handling visas, work permits, and residency requirements can be challenging. EORs manage all aspects of immigration compliance, ensuring that your international employees have the necessary documentation to work legally in their host country. 

Tax compliance 

EORs manage payroll and tax obligations, ensuring accurate calculation and timely payment of local taxes. They can also handle withholding taxes, social security contributions, and other statutory deductions.

Employee benefits compliance 

EORs ensure that employee benefits packages comply with local laws and regulations. This includes mandatory health insurance, retirement plans, and other statutory benefits.

Data protection and privacy 

Different countries have varying regulations regarding data protection and employee privacy. EORs ensure that your business adheres to these regulations, safeguarding employee information and reducing the risk of data breaches and legal repercussions. This includes compliance with regulations such as GDPR in Europe.

Employment contracts 

EORs draft and manage employment contracts that comply with local laws.

In practice, this means that all of your employment contracts include all necessary clauses and protections, aligning with legal requirements and industry standards. This is win-win for both you and your employees, and ensures legal compliance in the long-term. 

• 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.

How to choose the right Employer of Record for your business

There are a growing number of Employer of Record providers on the market. And most EOR providers will offer you some of the features you’re probably already familiar with: payroll support, fast onboarding and a tech platform to manage your global employees from one place. 

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So as you evaluate your shortlist of preferred new providers, ask yourself the following questions. 

1. Does this new provider offer alternative employment models in countries where EOR models face regulatory pressure?

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In the previous section, we explored an example of a country where the EOR partnership model is made more complex by German employment law. Does the EOR you’re evaluating have alternative employment models (e.g. PEO and VEO) that ensure you’re not limited by regulatory pressures in new markets where you need to hire? 

2. Are you buying into a platform or a partnership? 

A truly empowering, employee centric EOR provider needs to offer you a full partnership. Specifically, this means legal, HR, benefits and payroll experts who can support you and your employees in navigating the different legal, financial and HR complexities you’ll face as you seek to grow a global business. 

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Examples of this partnership model could include. 

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• Helping you to identify and assess contractor misclassification risk at a time when multiple countries are tightening their worker classification rules. 
• Legal, Benefits and HR consultations on key cultural norms and employment laws to support your entry into a new market
• Support in helping you find and assess competitive benefits providers when you’re carving out your company as a separate entity. 

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3. Does your prospective new EOR provider offer transparent & flexible pricing? 

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When you’re evaluating an EOR provider, it can be tempting to think that ‘value for money’ is synonymous with ‘low cost’. 

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But in an ever-changing global marketplace, we’d recommend looking for an EOR provider that offers transparent, flexible pricing that can be more easily customised to your growing business. 

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Again, ask yourself if the fees you’re paying will give you full access to the legal, HR and benefits experts that can sit alongside an EOR platform. And will this support be available at all pricing tiers? 

While some EORs have inexpensive service fees, you may experience hidden fees, complex invoicing, and accumulated costs in the long run

When you’re looking for a new provider, look for hidden costs such as 

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• Supplementary costs for benefits provision
• Hidden severance fees
• Offboarding fees. 

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4. Can your EOR provider support you at every stage of your business’s growth? 

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Many businesses typically think that EOR is simply there to save you the cost of establishing a legal entity in a new country. And while this is still the core use case for many companies looking to engage with an EOR, the providers of tomorrow can and will support you at every stage of your company’s growth. 

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Other potential use cases you should consider when choosing an Employer of Record could include: 

Converting contractors to full-time employees

Contractors are a great interim solution for global companies. However, as your business scales, so does any and all employment-related risk.  The best EOR will help you quickly convert contractors without disrupting your day-to-day operations.

Preparing for a merger or acquisition 

A merger and/or acquisition may be a very real and viable prospect in your company’s future. The best EOR providers go further than just outsourcing your HR operations. EORs are increasingly becoming crucial to a merger or acquisition process. 

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Examples could include: 

• Identifying the employee-related risks that could compromise post-deal synergies, such as inheriting entities and employees in new markets.
• Staying compliant with local labour laws during the process, including drawing up employment contracts or transferring statutory benefits in line with TUPE laws. 
• Helping your business retain acquired hires and ensure staff retention after the M&A has concluded. 

Preparing for an IPO

An EOR provider can streamline HR processes if your business is preparing for an IPO by managing complex payroll, tax, and compliance issues across different jurisdictions. This allows your company to maintain focus on strategic objectives and growth without being bogged down by administrative burdens. 

Using an EOR provider can ensure regulatory compliance and operational efficiency, reducing risks, enhancing investor confidence and increasing the likelihood of a successful IPO. 

Again, this is another example of why it’s important to look for an EOR that can offer you the necessary expertise to proactively manage this exciting step in your company’s journey. 

5. How robust is your EOR’s local expertise? 

You’ll often hear EOR providers talk about their global reach (including us here at Omnipresent). But is this global reach backed up by in-depth local expertise? As you evaluate a new provider, ask yourself if your new EOR provider’s local expertise in all things legal, HR, payroll and benefits will be robust enough to ensure you can employ staff anywhere and everywhere. 

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Can you count on support from US employment law experts when you’re hiring contractors in the USA? Are you able to access a wide range of trusted benefits providers when you’re trying to align your employee benefits in advance of an M&A? 

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These are the key criteria that you should use to evaluate an EOR vendor, but you should also ask yourself the following questions before making a final decision. 

• 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.
• 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.

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 United States 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 to handle your global payroll, hire employees, comply with local labor laws, and more.

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 employee onboarding timeframes, and create lower overhead costs overall.

Employer of Record (EOR)  vs Professional Employment Organisation (PEO): What’s the Difference?

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

Here are some of the most crucial differences. 

Employment Responsibility 

One of the primary distinctions is that EORs employ talent on behalf of their clients and assume full legal responsibility for these employees. 

This means that the EOR is the official employer on record, handling all legal, tax, and compliance matters. 

In contrast, PEOs do not take on legal responsibility for employees. 

Instead, they provide more of an outsourced HR function, assisting with payroll, benefits administration, and compliance support, but the legal employer remains the client company.

Local Entity Requirement 

 Another critical difference is the necessity of a local entity. To utilise a PEO, your company must have an established local entity in the hiring country. The PEO acts as a co-employer, sharing certain employer responsibilities while the client company retains overall legal employment responsibility. Conversely, an EOR eliminates the need for a local entity. 

And as we explained earlier, this makes EORs particularly advantageous for companies looking to quickly enter new markets without the time, expense, and complexity of setting up a local subsidiary.

Using an Employer of Record vs. Hiring Independent Contractors 

Why use contractors? 

Hiring contractors can be an ideal solution when scaling your business into a new market, offering flexibility and cost-efficiency. 

For example, contractors can be onboarded quickly, allowing you to respond rapidly to market demands. They also bring specialised expertise to short-term projects without long-term commitments. However, using contractors is best suited for the initial stages of market entry, where the need for flexibility outweighs the necessity for long-term stability.

Why switch to an Employer of Record? 

While contractors are beneficial for short-term projects, employing staff via an Employer of Record (EOR) becomes advantageous as your business solidifies its presence in a new market, or you think you’re ready to have a more firm business footprint. 

Because and Employer of Record handles legal, tax, benefits and HR management, they can be a better solution when you’re ready to invest in compliant, long-term employment solutions that can help you grow a more stable workforce. 

Do You Need to Use an EOR to Hire Globally?

No, you don’t necessarily need an EOR to hire employees 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, especially if you do not comply with local labor laws.

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.