Extending a global presence is a natural and prudent move for any expanding company. Hiring international talent is a wonderful way to enter new foreign markets, and a global employer of record (EOR) can assist you in this endeavour.
This tutorial defines an employer of record, explains how to use one, and discusses the advantages of cooperating with a global EOR to fulfil your worldwide expansion goals.
What is an Employer of Record?
An employer of record (EOR) is a third-party organisation that assumes all employer-related responsibilities and tasks on your company’s behalf and becomes the full legal employer of your personnel. An EOR assumes human resource responsibilities for a firm, onboarding, paying, and managing your supported staff while you retain and control day-to-day operations.
How Does an Employer of Record Work?
A worldwide employer of record has already done the often costly and time-consuming task of establishing entities all around the world. This encompasses all banking, insurance, tax, human resources, facility, and contract obligations. They follow local labour rules in order to build an infrastructure that employs and compensates local workers.
EOR services can hire personnel in their entity nations and thereby operate as the legal employer for expanding businesses. It enables organisations to hire abroad without the need for a local presence. And the collaboration with in-country experts ensures that you are always compliant.
Employers who use an EOR rely on the provider to hire employees on their behalf. They also accept legal responsibility for adhering to all local payroll and employment laws. The official employer of record is:
- Employ locals with legally compliant employment contracts.
- Remits unpaid salary, taxes, and perks.
- Supports the HR needs of in-country workers
- A low-cost method of managing payroll taxes
It is critical to remember that the EOR is solely responsible for HR and payroll for in-country personnel. The client company is in charge of managing the day-to-day work of the employees, including performance reviews and termination decisions. In effect, you profit from the efforts of in-country workers without incurring any risks for your organisation.
Is an EOR the Same as a PEO?
An EOR is comparable to a PEO, or professional employer organisation, but they are not the same thing.
Companies may discover that PEOs are more prevalent in the United States than the rest of the world. They are typically structured as co-employment agreements, with HR and payroll administration separated from day-to-day employee management. The PEO handles human resources and payroll, while the co-employer supervises the workforce.
Both the PEO and the organisation must be registered as legal entities in the nation where the employees are situated in order to co-work. Furthermore, both businesses are legally responsible for their personnel.
Vendors frequently refer to a comparable type of service for overseas workers as “global PEO” or “international PEO.”These vendors, however, are not usually referring to the co-employment arrangement commonly associated with a PEO. What they truly mean is an outsourced service, such as a global employer of record.
The entity requirement and shared legal responsibility are the primary distinctions between an EOR and a PEO. Unlike a PEO, the burden of entity formation and legal obligation falls entirely on the EOR.
Benefits of an Employer of Record
A global EOR partner provides numerous advantages to businesses. Because most businesses lack the resources and comprehensive expertise required to hire compliantly in foreign markets, an EOR enables you to hire top personnel from anywhere and assist them based on their local needs. Other advantages include:
#1. People operations compliance
By handling all of the paperwork and red tape associated with hiring an employee, an EOR can help save time and money in the hiring process. From conducting payroll in local currencies to onboarding, services differ by provider, so business owners should ensure that a prospective EOR provides what they require before committing.
#2. Adherence to local labour legislation
An EOR can also assist with local regulatory compliance, with local professionals handling all elements of employment inside the jurisdiction’s boundaries.
#3. Staffing flexibility
When it comes to staffing, an EOR can help a company become more flexible. Companies can use EOR services to recruit overseas contractors on a project or temporary basis.This can be very advantageous for new businesses.
#4. Cost-cutting measures
The cost of using an EOR is much lower than the expense of establishing an organisation in a certain country. A global employment service can save you even more money by allowing you to form teams globally—imagine the expense of establishing organisations in multiple locations around the world.
Paying team members in other nations can also be more cost-effective, as what is considered a reasonable salary by a worker in a specific country or city may be significantly cheaper than what is expected of workers in your operations.
#5. Faster expansion
The ease with which the correct EOR may enable organisations to onboard team members, as well as the massive pool of talent that global hiring opens up, means that teams can expand more quickly.
#6. A more varied pool of talent
It’s no secret that a diverse staff is a better workforce, and forming a global team will automatically broaden your company’s diversity by bringing in people from various cultures and viewpoints.
In conclusion, there are numerous benefits to employing an EOR, and you should carefully consider all of the pros and disadvantages before making a decision.
When to Use an Employer of Record
When it comes to balancing a distributed workforce and navigating global marketplaces, an employer of record is a crucial partner. Businesses can use global EOR to:
#1. Explore new markets
If your company has worldwide expansion objectives and wants to explore a new market but does not have plans to establish an entity, an EOR allows you to test out a new country legally without the commitment of establishing an entity. You may swiftly hire a staff in new global markets, establish new revenue streams, and reach new consumers with an EOR.
#2. Attract and retain top talent
In today’s labour market, the opportunity to work from anyplace is a highly coveted perk. The competition for top talent is as severe as ever, and an increasing number of businesses are turning to remote choices for their workers. Furthermore, hiring without regard to geography broadens the talent pool and allows you to zero in on a workforce with the specific skillsets you require.
A global EOR enables businesses to hire from anywhere and attract top people. Furthermore, when employees want or need to be relocated, a global EOR assists you in retaining top-tier personnel without the need to establish an organisation.
#3. Hire staff during entity formation.
While establishing an entity helps you to hire local people and develop into a new foreign market, it takes a significant amount of time, money, and knowledge of the country’s local regulations. An EOR can act as a go-between, providing recruiting assistance and insight into entity formation while you finalise the prerequisites.
#4. Avoid contractor misclassification.
Instead than hiring overseas staff or creating a subsidiary in another country, consider using contractors. Many businesses employ contractors to hire distant, foreign talent at a lower cost. However, as a firm expands in size, there is a significant risk of misclassifying contractors as employees. To eliminate regulatory problems, a worldwide EOR provides an easy solution to hire contractors as employees.
How to Select an Employer of Record Partner
When choosing an EOR partner, there are numerous crucial factors to consider:
#1. Price transparency
Find an employer of record who offers transparent pricing with no hidden costs or fees, making it simple to keep within your distributed workforce budget.
#2. Accurate calculations of employer burden
Look for a provider who is knowledgeable and up to date on employer burden expenses. An employer must also consider additional social contributions, such as health insurance, social security, and paid time off, when estimating payroll expenditures. Your EOR partner is responsible for giving you with accurate estimations on these employer burdens, which vary by market.
#3. Global coverage in the markets you require
Make certain that your partner has extensive expertise and knowledge of the markets in which you are seeking talent. Working with an untrained partner wastes time and money while putting you at risk of noncompliance with local labour standards.
#4. Responsiveness and assistance
Choose an attentive partner who can respond swiftly to the needs of you and your team. Your EOR partner will engage with your existing staff and fresh talent on your behalf on a frequent basis. Ensure that your EOR partner assigns a client account manager that responds swiftly to your team’s questions, onboards new supported personnel, and accommodates local time zones and languages.
#5. Independent third-party validation
Consider a partner who has been identified by relevant and trustworthy third-party sources as an industry leader. Industry experts’ unbiased validation findings are based on extensive research and customer insights. Examining these reports allows you to rapidly find recognised EOR leaders who provide the best solutions for expanding and supporting your worldwide workforce.
What to Look for in an Employer of Record Provider
When evaluating EOR suppliers, there are key characteristics to bear in mind to help secure your organisation.
The provider’s level of understanding in the various countries you’re considering for expansion is of the utmost importance. Finding out how long the supplier has been in the country and whether it has a direct entity rather than depending on local partnerships is one approach to determine this. You can inquire with the provider:
#1. Is your local entity permanent?
Local invoicing and other full HR services can only be provided by a permanent business, such as an LLC or service branch. A permanent entity will also demonstrate the provider’s commitment to delivering service in the country—it would not have spent the time and effort required for entity formation if the country was not a priority.
#2. What is the amount of local expertise on your staff?
The EOR provider should have local workers to completely manage the clients’ HR and payroll services. Top suppliers will also have at least one year of direct employment experience in the country, as well as numerous client references to demonstrate their ability. If an EOR provider lacks significant local knowledge, it may be unable to manage your complex work issues.
What Is the Difference Between an EOR and a Staffing Agency?
A staffing agency operates as a go-between for potential employees and employers. Their primary purpose is to assist the client organisation in finding the best applicant for the post they are attempting to fill.
Some staffing firms provide extra services such as:
- Advertising the role on job boards.
- Running background checks.
- Reviewing applicants and filtering for role fit.
- Filing paperwork.
An employer of record service, on the other hand, begins once an employee has finished the recruitment process. EOR services are not involved in the talent search and selection process.
How Much Does an EOR Cost?
In general, you will have two pricing schemes to choose from:
- A fixed monthly fee per employee.
- A percentage of payroll plus applicable taxes.
You should keep in mind that no matter whatever way you choose, you will have to pay administrative costs, onboarding fees, and the cost of any other services you may want to add.
It is not necessary to use an EOR for all of your staff. You can choose to deploy it for a portion of your staff and be charged solely for the personnel hired through the EOR.
Does an Employer of Record Protect your Sensitive and Confidential Information?
Both yes and no. You should always be aware that when you share your data with a third party, you expose yourself to additional risks of data breaches.
Having said that, there are EORs that prioritise data security. They go above and above to assure security.
Does an EOR Help with UK Tax Filings?
In the UK, an EOR can automatically compute and file your taxes. It can enlist your employees in the UK PAYE programme on your behalf and ensure that the correct amounts of tax are deducted from their paychecks. These are some examples:
- National Insurance
- Income tax
- Pension scheme
What are the Employer Costs for Full-time Employees in the UK?
Employers must deduct National Insurance from their employees’ paychecks. Employee contributions vary according to earnings, with contributions ranging from 0% to 14%.
Conclusion
Recruiters and other businesses can save time by employing an employer of record. Saving time by not having to deal with payroll and HR issues.
An EOR is a low-cost option to outsource payroll and human resources activities. For the employee’s labour, the company pays the EOR a defined hourly or monthly charge, and the EOR handles all chores.
This guide has effectively covered everything you need to know about an EOR.
Related Articles
- RIGHT TO WORK CHECK UK: An Employer & Employee’s Guide
- EMPLOYERS NATIONAL INSURANCE:Contribution Rates and Thresholds
- Whistleblowing Policy: Code & Guidance For Employers
- What is Annual Income? What It Is & How To Calculate It
- Chief Operating Officer (COO): Definition, Duties & Job Description
References
