An Employer of Record (short: EOR) is a service provider that enables companies to compliantly hire employees abroad without having to set up a local legal entity. This makes the EOR model a popular global employment solution, since it not only speeds up the hiring and onboarding process, but also saves the business a lot of money.
But how exactly does an Employer of Record arrangement work? What services can businesses expect when hiring international employees via an EOR? And how to choose the right EOR partner?
As mentioned before, an Employer of Record is a company that specializes in providing employment outsourcing services to businesses that want to hire employees in markets where they have no legal presence in the form of a representative office, a branch office or a subsidiary. Since EOR providers are properly incorporated in the jurisdiction(s) where they offer their services, they can hire employees on their client’s behalf by using their own legal entity.
This means that the Employer of Record becomes the employee’s official employer in the eyes of the law, hence taking over the legal liabilities linked to the employment. The employment contract is concluded directly between the EOR and the employee. The EOR and the client business meanwhile sign a service agreement that outlines the terms and conditions of the employment outsourcing arrangement.
While the EOR handles all the legal and administrative aspects of the employment relationship, the organization hiring the EOR remains in full control over the employee’s tasks, activities, and projects. In other words, even though the EOR is the legally registered employer, the client business remains the de facto employer who manages the employee on a day-to-day basis.
Also read in the Lano Employment Academy: PEO vs EOR - What is the difference?
Employer of Record services typically include the whole range of administrative and legal tasks related to the employment. This notably includes:
Drafting a compliant employment agreement
Hiring new employees
Legal onboarding of new hires
Managing statutory and voluntary employee benefits
Handling payroll taxes and fulfilling any existing tax obligations
Providing compliance support with regard to local labor laws, payroll rules, and more
Acting as an outsourced HR function
Applying for work visas and other necessary permits
Keeping employee records for the duration of the employment relationship
Terminating and offboarding employees
It should be noted that, in contrast to a staffing agency, an Employer of Record doesn't provide assistance with recruiting. Instead, it’s up to the organization that contracts the EOR to find the talent they want to hire. The EOR provider only comes in once the candidates have been selected and then takes over the legal side of the employment relationship.
An Employer of Record significantly simplifies global expansion. But choosing the service provider that best matches the organization’s individual hiring and employment needs can be challenging. That’s because there are many different EOR providers available in each country. Here are some criteria for choosing an Employer of Record:
Local knowledge and expertise: The rules around employment and payroll vary from one country to the next, which is why one of the main hurdles of hiring talent abroad is to ensure compliance with statutory regulations. In order to guarantee full compliance, an EOR must possess extensive local knowledge and experience in their field. This can usually best be achieved through a service provider that has a real local presence—instead of operating through a regional hub.
Data security: As the employee’s de jure employer, the EOR will handle lots of personal data, including payroll data, payment information, and more. Since employee personal information is highly sensitive, businesses should check how shortlisted service providers handle employee data and what measures they have put into place to protect said data.
Accessibility: Reimbursing employees for expenses they incurred while carrying out their work, approving leave requests on short notice, granting a pay rise… There are many different situations in which a business would need to contact its Employer of Record provider to carry out some changes related to payroll or other HR matters. Such changes typically need to be implemented quickly, which means that the EOR partner should be accessible during reasonable business hours.
Pricing: Employer of Record providers charge a monthly fee for their services. While some have a fixed service fee per month and per employee, others charge a certain percentage of the hired employee’s wages. Since the first option allows for better financial planning and guarantees full price transparency, organizations should opt for an Employer of Record that follows this approach—if possible.
Track record: Contracting an EOR service means placing the entire compliance liability in the hands of a third party. To make sure this doesn’t backfire, it’s vital to carefully check the EOR’s track record before signing the service agreement. After all, employment compliance errors such as wrongful termination can become quite costly.
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
BECOME A PARTNER
© Lano Software GmbH 2023