What is an Employer of Record (EOR)

employer of record

An Employer of Record is a company that is legally responsible for paying international employees. This includes payments for employee benefits, taxes, insurance, sponsorship applications, and more. 

Companies will hire an Employer of Record to handle their international HR, payroll, taxes, hiring, and other expansion-related tasks. EORs will have their own entities in the country where the client would like to operate. This makes it easy to ensure full compliance with local laws and regulations. 

The process of expanding globally can be challenging for even the most well-equipped companies. 

Working with a Global PEO and International Employer of Record helps companies break into new markets while hiring and onboarding international talent with full compliance.

What is an Employer of Record? Common Services Provided:

Take a look at a few of the services provided by Employer of Record solutions:

  • Processing payroll.
  • Managing unemployment and severance.
  • Issuing and handling W-2s and other tax forms.
  • Offering benefits.
  • Employee termination.
  • Administering and collecting employment contracts.
  • Mitigating Risk

What are the Benefits of Using an Employer of Record?

There are several key benefits that accompany working with an EOR:

1 – Save Time & Money 
By working with an Employer of Record, companies no longer have to worry about the complicated process of trying to hire and manage employees in multiple countries. Businesses save substantial amounts of money from not needing to open up their own foreign entities. 

The time saved gives them more time and energy to work on their own business. 

2 – Full Compliance with Local Laws and Regulations  
By having in-country entities, EORs are able to have experts available when you need them. These experts will be able to communicate with contractors in the local language and ensure compliance with local bureaucratic standards. 

3 – Legal Liability Coverage

Employer of Record solutions manage areas of legal liability in order to protect clients from potential fines and/or loss of business permits. These areas of coverage include the following: handling obligatory social and pension insurance enrollment, employee income tax withholdings, liabilities of early-termination such as calculation and mediation, and providing onsite health and safety liability coverage, which is typically shared with the client.

4 – Less Risk. 
By partnering with a Global PEO  companies can mitigate the risks and costs associated with opening their own subsidiary. Building relationships with in-country experts helps ensure full compliance in matters of HR, taxes, benefits, and legal regulations. 

5 – Simplifying the Payroll Process

Allowing an Employer of Record to manage your company’s payroll will free up your employees and help to avoid breaking the local payroll laws and regulations. By streamlining the payroll process, the EOR functions as a dedicated HR team to ensure your local employees are paid in-full and on time. Taxation services are also included to help ensure proper withholdings and give the client direction on how to benefit from local tax breaks.

6 – Quicker Time to Hire

Working with an EOR gives businesses the advantage of being able to hire in a matter of days, as opposed to the weeks or sometimes months it can take to hire an international candidate on your own.

7 -Expert Onboarding

After partnering together to find and hire your ideal candidate, the EOR will assist with the process of onboarding the new local employee and ensuring a smooth transition. The standard practice is for the Employer of Record to schedule a conference call between the client and employee and assist with contract negotiations. The average EOR will be able to execute the candidate onboarding process in between 3 and 7 days.

8 – Overseeing Termination Process

If the client decides to end or pause their relationship with the local employee, an EOR can help process the worker’s termination, severance, and ensure that any additional salary or severance will be paid out in accordance with local business regulations. There is typically a cancellation notice period required for clients, which can range from 30-90 days. Some Employer of Record platforms charge cancellation fees in these occasions, so it is important to be aware of the terms and conditions stated in the EOR – client contract

PEOs vs EORs – What’s the Difference?

When hired, an EOR becomes the legal employer of the client’s foreign employees. The EOR is able to carry out this function with full compliance by having their own entity in the desired country. 

A PEO, on the other hand, becomes the local professional’s co-employer. The client company and the PEO are each partially responsible for any and all liabilities. 

Take a look at a few similarities and differences between a PEO and an EOR:

Managing the Local Employment Contract

PEO: A Professional Employer Organization will often assist clients with handling their local employment contracts. However, the contract itself will be between the employee and end-client.

EOR: When working with an Employer of Record, the employment contract is between the EOR provider and local employee. While the end client will have the freedom to make changes and set the terms for employment with the EOR, all communication regarding local employee benefits and other payroll functions will be manager by the EOR.

Filing and Handling Business Registration

PEO: Because PEO’s are considered “co-employers,” companies may still be required to register their company in the country where they wish to expand.

EOR: An Employer of Record will already have an established legal entity in the country where the business is wishing to operate in. This allows companies to hire employees in local countries without first registering their own legal subsidiary.

Determining Which Service Is The Best Fit

Professional Employer Organizations and Employer of Records provide different solutions for different types of businesses. Depending on their size, budget, and goals, a PEO or an EOR might be the best fit for a given company.

PEO: For companies with an established HR team looking for assistance with a long-term international expansion process, a PEO will likely make the most sense.

EOR: An EOR, on the other hand, will probably be a better fit for companies looking to expand operations internationally and hire local talent quickly and easily.

By working with an Employer of Record, clients are able to maintain control over their company’s day to day functions and take responsibility for matters like workplace safety and industry-specific regulations. 

Additionally, the EOR takes all responsibility and is liable for problems relating to the foreign employee and their payroll, benefits, taxes, and administrative compliance. 

How GlobalPEO Can Help

With the help of an EOR, companies have the freedom to run their business on their terms with the Employer of Record functions as an in-country HR department for their foreign employees. 

At GlobalPEO, we strive to make global expansion as simple and affordable as possible. 

Our Employer of Record service allows clients to hand over the complicated administrative duties to the GlobalPEO team and we take care of all the in-country admin and compliance-related functions. 

By helping companies expand into international markets, we save our clients precious time and money from the hassle of needing to set up their own entities within each country they wish to operate. We judge ourselves based on the success and happiness of our clients and partners. So we are proud to feature the highest compliance rates with an industry pioneering pricing model.

For every business that has dreams of expanding globally, GlobalPEO delivers the exceptional experience and services to make it happen. 

Video: What is an EOR

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