Thinking about hiring someone internationally? Then you’ve probably come across the term Employer of Record (or EOR for short), and you’re probably wondering, how does an employer of record work?
When it comes to global expansion, there are so many resources out there—making it tricky to work out what each term means, how it works, and find out all the information about how to engage employer of record services. Luckily, we’re experts in all things international expansion, so let us explain how an EOR works.
What is an EOR?
The first big question on your mind is probably ‘what is an employer of record?’ We’ve actually written a whole blog post on this subject, but to keep it simple:
EOR’s are companies who employ your talent on your behalf, becoming the legal employer of a worker in a certain country while that worker fulfils the duties of your role. This lets you hire, pay and insure employees in a place where you yourself don’t have an entity, while keeping you fully compliant with employment law in whatever location they’re working.
You might have heard of some companies using Professional Employer Organization (PEO) instead of EOR, but they’re not quite the same thing. So, now you’re probably asking, ‘What is a PEO?’ A PEO will ‘co-employ’ your employees to help with HR responsibilities. EOR’s and PEO’s have a lot of differences. With a PEO you must have a legal entity set up in the country you’re hiring someone in, however, this is not required for an EOR. You’ll also find that with a PEO, you’re responsible for knowing the local compliance and labour laws whereas with an EOR, this is something that they’ll take care of for you.
When should you use an EOR?
EOR can be an excellent choice under the right circumstances, and is usually used when you don’t want to set up an entity, or you need to hire someone quickly. You can also use an EOR when you want someone to help with the global compliance of hiring someone abroad.
How does an employer of record work?
So, we’re finally down to the big question: How does an employer of record work?
Hiring
You’ll need to start by searching for local talent in your chosen country, this is something that an EOR can’t help you with. However, many EOR providers might be able to give you advice on best practices and HR policies around hiring someone in your chosen country, which is important when offering a position to your chosen talent.
Employment compliance
Once you’ve selected your chosen talent, the EOR will then take over the hiring process. They’ll onboard the employee and figure out all the paperwork such as contracts, payroll, HR, and benefits in an efficient and compliant manner. They’ll then be the company who processes the payroll and arranges any HR changes throughout the employee’s contract length. And they will stay up to date with local legislation and labour laws, saving you the tricky task of staying on top of when hiring in different countries.
Payroll and taxes
Each month your EOR will be in charge of running the payroll for your employees, including calculating any taxes, deductions, or changes which need to be made. Running a payroll in a different country can be tricky, and can be costly having to find additional services, so to have this included in your EOR can be helpful.
Risk management
One of the biggest things a company needs to consider when hiring someone new is risk management, however, with an EOR this is something that they assume responsibility for. This includes workers compensation, employment liability and other employment-related insurance coverage. Make sure you conduct a thorough scrutiny of any EOR agreements, and keep a vigilant eye on regulatory updates—it’s not unheard of for EOR agreements to feature indemnity clauses that transfer liability back onto your business, which is really important to be aware of.
Termination
If an employee’s contract needs to be terminated, this is a process which your EOR will manage for you. They’ll ensure that all the paperwork and processes are done legally and in compliance with local laws. Another area to bear in mind here is post-termination restrictions—given that the EOR holds the legal employment relationship, there’s a slight gray area that might hinder you from imposing the necessary post-termination restrictions.
Billing
The way that the billing works for an EOR is that your company will be billed for each employees salary, benefits, and any additional services, plus a fee on top for the EOR services. This of course can mean that your cost associated with payroll each month is slightly higher than it might be running payroll in house. But whether an EOR is the most cost-effective option can depend on how many people you’re hiring in each location, if you’re hiring more than 5 people in a location it might actually cost you more than using an in-country provider. So, it’s worth considering how much you plan to grow in a country in the future, and how many people you might employ before deciding on an EOR.
Do I need an employer of record?
An employer of record is one of your options when thinking about international employment, but it’s not your only option. You can set up a local entity which would give you some additional options such as PEO or hiring your new employees directly. However, with setting up an entity you have things to consider such as compliance or making sure you’re choosing the right payroll providers. You can use domestic payroll providers, human capital providers and multi-country payroll providers instead of using an EOR, but each of these can come with their own set of challenges, and many of them require you to be established in some way in the local country.
How do I find an employer of record provider?
When you’re on the hunt for an Employer of Record (EOR) provider, it’s like looking for the perfect travel buddy—do your homework! Start by digging into the EOR scene, sussing out providers known for smooth operations in your target countries. Check if they’re playing by the local rules and tax codes.
Now, here’s where Just Payroll Services steps in. We’re all about international expansion, and we’ve got the expertise to guide you through the complexities of EOR’s. We’ll help you figure out which route is best for your business and get you on your path to international expansion. Get in touch!