What is Employer of Record (EOR)?

An Employer of Record (EOR) simplifies global expansion by handling payroll, benefits, and compliance, saving businesses time and resources. Companies can achieve a global presence without the complexities and costs of establishing a new office or entity.

By Brad Nakase, Attorney

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Table of Contents
1. Introduction
2. What Is an Employer of Record?
3. What is the Employer of Record Responsible For?
4. The Benefits of Using an Employer of Record
5. How to Choose an Employer of Record
6. Frequently Asked Questions About Employer of Record

Introduction

There are many times when a business would benefit from having a presence in new countries, but without the cost and long set up times of opening a new office. These are the situations when it would be beneficial to work with an employer of record so you can get all the benefits of a global presence without the administrative headaches, high costs, and legal issues that come from a lack of familiarity with local regulations.

What Is an Employer of Record?

An EOR, or employer of record, is a company that employs people on behalf of another company. The employer of record handles everything related to the employment, including the benefits, taxes, payroll, and compliance for the other company. The employer of record is the employer in all official capacities, including tax and legal purposes.

However, the employer of record is not in charge of assigning work to the employee or setting workplace policies. That is the responsibility of the business working with the employer of record. The business can manage the day-to-day of the employee-employer relationship, though the employer of record may provide guidelines on local workplace laws and cultural expectations. For example, the employer of record may advise a US company hiring employees in France that French employment laws forbid employers from emailing or otherwise contacting their employees outside of work hours.

The Difference Between an Employer of Record and a PEO

A professional employer organization (PEO) has some cross-over in responsibilities with an employer of record (EOR) but the main difference is a PEO requires a co-employment agreement. This co-employment agreement clearly states the responsibilities of each party, but neither the employer nor the PEO is responsible for all aspects of employment.

An employer of record is the employer for all intents and purposes. The business (the EOR’s client) is just the one who assigns the work and duties to the employer. If an employee wants to sue someone for a breach of their employment contract, they would sue the employer of record, thereby giving the business more protection. In this type of partnership, the employer of record takes on all of the employer risk. In a PEO partnership, the employer risk is jointly shared between the business and the PEO and therefore both would be sued in an employment law dispute.

The Difference Between an Employer of Record and a Staffing Agency

Staffing agency’s role is to support companies to hire the correct talent for a job vacancy. They are similar to a recruiter, in that they will work as a middleman between the company and talent available for hire. A staffing agency may perform the following services:

  • Writing and posting job descriptions
  • Reviewing applicants and presenting the company with a shortlist
  • Performing background checks
  • Filing hiring paperwork

Often a business will work with both a staffing agency and an employer of record. A staffing agency assists an employer before and during the hiring process. Once the business has hired a new employee, the employer of record’s services come into action to onboard the employee and get them set up to start work.

What is the Employer of Record Responsible For?

It is important to understand the responsibilities of the employer of record and the employer before entering a partnership with an employer of record (EOR).

The employer of record is responsible for…

  • Benefits and Compensation – In addition to payroll, the employer of records will also be responsible for all other benefits like parental leave, leave, health insurance, and any other benefits an employee will receive. The employer will be responsible for any additional perks.
  • Compliance – One of the major benefits of employer of records is that they can help multi-national companies stay compliant with local employment laws and practices. The company can rest assured that compliance is taken care of without them having to learn the local employment laws or set up a HR department in each market they operate in.
  • Onboarding – While the employer is responsible for any inductions or training, the employer of record is responsible for onboarding new employees and ensuring they are set up on payroll and have a signed employment contract.
  • Payroll – The employer of record will manage the payroll and local taxes. While for all intents and purposes, the employer will oversee most aspects of the employment relationship, the employee will receive payslips from the employer of record.
  • Termination – While the employer will be responsible for the decision to terminate an employer contract, the employer of record will process all the paperwork and handle any other admin related to the termination.

The employer is responsible for…

  • Hiring the employee – All decisions on the job description, who to hire, and salary negotiations are the responsibility of the employer (or whoever they choose to outsource their recruitment.)
  • Assigning work – The employer of record will not assign any work to the employee, that is the job of the business. They will be responsible for the employee’s day-to-day duties.

If you are ever in doubt about how the responsibilities will be divided in an employer of record partnership, consider talking to your employer of record. They will be able to give you a full list of what they will handle on your behalf and what would be your responsibility.

The Benefits of Using an Employer of Record

The following 6 benefits of working with an employer of record represent the main reasons why employers may choose an employer of record (EOR).

  1. Local employment ease – Each country has its own processes for managing people operations. An employer of record will help employers to stick to standard practices and significantly cut down on the admin. It allows the business to run payroll easily without having to set up a structure to pay employees in the local currency.
  2. Compliance with Local Employment Laws – An employer of record can ensure that a business stays compliant with employment laws in new markets without having to hire local HR departments. Employer of records are experts in local laws and regulations, especially employment laws as that is a major reason why businesses hire them. They will prevent businesses from being hit by any fines or penalties.
  3. Staffing Flexibility – Businesses can easily hire temporary contractors or freelancers for their business to fill a temporary gap or to gain additional expertise on a project basis. Not only will employers of record help businesses to follow the correct processes for engaging contractors, many will have a list of approved contractors or freelancers they can recommend.
  4. Cost-Efficiency – Employer of records allow businesses more flexibility and lower costs. Working with an employer of records means that businesses don’t necessarily have to set up an entity in new markets. They could just manage their internal resources entirely through an employer of record. In many cases, it is also far more cost efficient to pay local employees through an employer of record. They have data about local salary expectations and pay standards for various roles and positions.
  5. Rapid Expansion Capabilities – Due to the removed need to set up an entity in a new market, businesses can expand their global presence much quicker through an employer of record.
  6. Diverse Talent Pool – Employing people from different countries, culture, and background will provide your company with a diverse team. An employer of record enables you to expand your team to new markets, thereby diversifying your workforce and bringing an injection of new perspectives and ideas.

How to Choose an Employer of Record

Working with an employer of record is a strategic decision, so it is important to think about it strategically. Here are some things to consider before choosing an employer of record.

1. Global Presence

Consider whether the employer of record operates in the countries that your company needs. Many employers of record will have presence in multiple countries so you don’t have to hire multiple employer of records every time you want to expand. It might be worth thinking about your future expansion plans when deciding if you want to hire one employer of record or a global employer of record.

2. Services and Support

What kind of support do you need from an employer of record? They will offer many different services and solutions, so it is important to think about your current and future needs to compare them to the service menu of the employer of record companies you are considering. Do you want a self-serve portal? Do you want a partner who will consult with you on your future growth plans?

3. Self-Service Capabilities

Many employer of records have self-service capabilities that will make it easy for both the company and employers to perform their necessary tasks. For example, an employee can manage their leave entitlement and request leave and the business can approve the employee’s leave using the self-service portal.

Frequently Asked Questions About Employer of Record

Got burning questions about employer of record? So have many other businesses. Here are some of the FAQs we receive about employer of record companies and why businesses use them.

1. What Is an Example of a Situation Where a Business Will Use an Employer of Record?

Let’s say a US company wants to hire employees in Spain so they have local assets on the ground to serve a European client. This company may not see the benefit in opening a branch in Spain for just one client or in the admin and cost of arranging visas and additional pay to send American talent overseas. Instead, they would use an employer of record to hire a team in Spain for considerably less.

The employer of record would take on the responsibilities of employing the Spanish team, saving the US company time and money in setting up.

2. Is It Easier to Use an Employer of Record or to Open a New Entity?

It really depends on the company’s needs, wants, and circumstances. Some businesses may find it more beneficial to set up a new entity. For example if they plan to establish a significant presence in a particular country and hire a large workforce there.

In other cases, a business may find it more beneficial to use an employer of record. An employer of record can save a business from needing to secure legal, administrative, and accounting resources locally. The employer of record will handle those responsibilities on behalf of the business. This is perfect for businesses that only require a small presence in the new market or if there is any uncertainty around the business’s future expansion plans.

3. Is It Possible to Hire Contractors or Freelancers Through an Employer of Record?

Yes, an employer of record can hire employees and independent contractors. Many established employer of record companies will have a list of trusted independent contractors or freelancers who they can arrange to support you on short-term projects. Alternatively, they would be able to manage the employment of short-term contracts, including maternity leave contracts.

4. What Are the Alternatives to Working with an Employer of Record?

If a company needs to hire international teams, working with an employer of record is often the best option as a it is cost-effective and allows the business to outsource all the work. Alternatively, a business could take one of the following approaches:

  • Open an overseas entity – The business can establish a presence in the new market. This would mean setting up legal, financial, and administrative presence overseas in order to start hiring the local talent that you need. This requires significant lead time to get set up, not to mention the cost of these resources.
  • International employee visas – Another option is to relocate one of your current employees to the new market, which involves visas and relocation costs. Depending on the target market, it may also be more expensive to pay US wages instead of hiring locals in a market with a much lower cost of living.

These lead times and costs make an employer of record very attractive for businesses that want to move fast.

Have a quick question? We answered nearly 2000 FAQs.

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