11.07.2024 employer of record

An Employer of Record (EOR) is an organization that officially employs workers on behalf of another company. This entity assumes full responsibility for employment-related tasks such as compliance, payroll, taxes, and benefits.

EORs can be located either in the same country as the business they are working for or in another country with different employment laws.

Key functions of an EOR

The specific responsibilities of an EOR can vary based on the service and location. Here are some common tasks typically managed by an EOR:

• compliance with Local Employment Laws: An EOR ensures that employees are hired in accordance with the local laws of each country or jurisdiction. They provide compliant employment contracts, making sure all legal requirements are met.
• onboarding New Employees: After a business hires a new employee, the EOR manages the onboarding process, including employment agreements and setting up necessary processes for the new hire.
• international Payroll Management: The EOR handles payroll and local taxes for both the employee and the employer, ensuring timely payments and correct payroll processing.
• managing Compensation and Benefits: EORs often provide various benefits, which can include health insurance, time-off policies, and parental leave. These benefits vary by service.
• handling Contract Terminations: When an employee’s contract ends, the EOR manages all the necessary details and processes.

Example of an EOR

For instance, a company based in the United States might use an EOR in Poland to hire local employees in Poland. The EOR in Poland would handle all legal responsibilities associated with employment.

Differences between an EOR and a PEO

An EOR differs from a Professional Employer Organization (PEO) in several ways:

• employment Responsibility: With an EOR, the EOR is the sole employer, whereas a PEO involves a co-employment agreement where both the PEO and the client company share employment responsibilities.
• risk and Compliance: In a PEO arrangement, the client company and PEO share the risk and responsibilities, which can sometimes lead to legal complications. An EOR, on the other hand, takes on full responsibility, reducing legal risks for the client company.

Differences between an EOR and a Staffing Agency

A staffing agency helps in the recruitment process by matching candidates with job roles, advertising positions, conducting background checks, and more. In contrast, an EOR steps in after the recruitment process to handle employment-related tasks. They do not assist in the talent search or vetting process.

Deciding between opening a foreign entity or using an EOR

The choice between opening a foreign entity and using an EOR depends on the company’s specific circumstances:

• foreign Entity: Setting up a legal entity in another country is suitable for companies planning to hire a significant number of employees. This approach involves managing compliance with local laws, payroll, benefits, and other employment-related tasks.
• EOR: For companies with uncertain or limited expansion plans, using an EOR can be more cost-effective and less complicated. EORs manage all aspects of employment, allowing the business to focus on its core operations.

Advantages of using an EOR

1. Compliance with Local Laws: EORs ensure compliance with local employment laws, saving businesses time and reducing legal risks.
2. Flexibility: EORs allow companies to hire international contractors on a temporary or project basis, which is beneficial for startups and businesses with flexible staffing needs.
3. Cost Savings: Using an EOR is generally cheaper than setting up a foreign entity, especially for businesses with limited expansion plans.
4. Faster Expansion: EORs streamline the onboarding process, enabling quicker expansion into new markets.
5. Access to a Diverse Talent Pool: Hiring through an EOR allows companies to build a diverse workforce with different cultures and perspectives, enhancing overall business performance.

Choosing the right EOR

When selecting an EOR, consider the following factors:

• presence in Target Countries: Ensure the EOR operates in the countries where you plan to hire employees.
• support Services: Check the support materials and services offered by the EOR to ensure they meet your needs.
• platform Features: Evaluate the EOR’s platform and features, and if possible, request a demo to understand its capabilities.

Cost of an EOR

EOR costs vary depending on factors like location, services offered, and the number of employees. Many EORs charge on a per-employee basis.

Onboarding contractors through an EOR

Yes, EORs can help companies onboard contractors in various countries, providing a streamlined process for managing international contractors.

Alternatives to an EOR

Alternatives to using an EOR for international hiring include:

• opening a Foreign Entity: Suitable for large companies with extensive hiring plans in a specific location.
• sponsoring Employee Visas: Employers can sponsor visas for international employees, though this process can be complex and time-consuming.

In summary, using an EOR can provide numerous advantages for businesses looking to expand internationally, offering flexibility, cost savings, and compliance with local employment laws.