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Has an EOR caught your eye? Employer of records can be great solutions for your business when it comes to hiring new team members globally. However, based on the quick and outsourced nature of the product they do come with some risks. So, before you jump in head first, let’s take a look at the employer of record risks.

First things first, what actually is an EOR and how does it work?

An employer of record is a service which employs people in varies countries on your behalf. This solution allows you to access new markets without the need for a legal entity. You still have to recruit the employees, but an EOR will take care of the paperwork and monthly HR and payroll for you. It can be the perfect solution if you’re hiring a small number of employees and don’t want the hassle of setting up an entity, or if you need to hire talent ASAP.

Employer of record risks

There are quite a few employer of record risks you need to be aware of when choosing to use this as global payroll solution.

1. Employee obligations

Your new hire is not actually employed by your company. This means that it can be more complicated to enforce certain employment conditions if the EOR provider is unable to include them in a contract.

2. Data protection

The fact that the employee is not hired by your company means that any transfer of personal data between the business and that individual is a potential breach of data protection laws. This means you need to consider implications and potentially draw up additional contracts between you and the employee.

3. Risk of how the EOR treat the employee

As a business you’ll have a specific standard for how your employees are treated and how any HR and payroll are handled, however, if you’re outsourcing these processes to an EOR they might do things differently, and potentially not up to the standards of your business.

4. Compliance

You’re trusting the EOR to keep everything they do compliant, you cannot guarantee that they will and as you’re not processing the paperwork or payroll your potential employee can end up with payroll issues because of this.

5. Misclassification of workers

In some industries misclassification of workers can often occur, and this has legal ramifications. You need to ensure that the EOR are classifying everything correctly.

6. Indemnity clauses

EOR agreements often include an indemnity clause which transfers liability back to the hiring organisation. This can increase the risk of an EOR, as one of the big selling points is that liabilities and responsibilities relating to compliance in your new territory is covered by the EOR company.

7. Permanent establishment risk

EOR’s are usually helpful in managing social security compliance, but they might not be at advising you on corporate tax liabilities which are associated with hiring globally. This could leave you open to legal challenges and fines if not dealt with properly.

When is an EOR the right solution?

So, when are employer of record risks worth it? EOR’s can be a cost-effective method when hiring a small number of employees, however, if you’re planning to continue to expand in your chosen markets you need to consider your businesses future. EOR’s can become much more expensive and complicated the more employees you hire, and it might be worth considering an alternative

You also need to consider all the risks above and how you as a business can handle any issues that come up from these. If you don’t have the local regulatory knowledge or the capacity to manage this is inhouse then an EOR might not be the right choice for your organisation.

If an EOR still seems like the best solution for your organisation then make sure that you do your due diligence and research the EOR company you choose, as well as checking any how you can be impacted by any liabilities.

If you’re still struggling to decide on a global payroll solution, worried about the employer of record risks or need to chat a bit further about how an EOR might work for your business then reach out to us and we’ll be happy to help! Find out more about our EOR, international payroll and international HR services.