EOR (Employer of Record) Explained In Detail

Businesses are becoming increasingly borderless. Thanks to advances in technology and a deeper understanding of different cultures, companies can operate all over the world, enjoying more opportunities for growth and development.

However, globalisation is not only a matter of selling or offering services worldwide. Employing people outside of your home country has also become a possibility. One that will generate better results and aid your global expansion plans. While expanding to international markets or considering opening operations abroad, companies rely on professionals who are familiar with other cultures and can guide them through this process.

New technologies have also contributed to this borderless mindset. Google Trends reveals that searches for the term “remote work” skyrocketed in February 2020 worldwide and continue to grow steadily. The COVID-19 pandemic has accelerated the search for remote working, and the use of technology has made it possible for people to work from anywhere in the world. More people are looking for jobs beyond their regions, and more companies are open to this possibility. However, this is not without its risks.

It is important to note that there are challenges in this approach. When hiring abroad, companies believe that they only have several options: they can establish an entity in the country where their employee is based; operate an overseas parent payroll; utilise an Employer of Record, or operate on a business-to-business agreement. All of this will depend on the taxable presence of the business in that territory. Other options work just as well, and certainly, Employer of Record is not a case of one size fits all!

How Does an Employer of Record Work?

An EOR, or Employer of Record, is a company that will legally contract your employees abroad. As the EoR, they are, in most senses, the legal and true employer of each member of staff and responsible for every aspect of that employment relationship, including hiring, payroll, taxes, benefits, offboarding, and so forth.

So, where does this leave you in the equation?

You are not the legal employer, and therefore how do you work with the relevant staff? How do you instruct them? How do you incentivise them? How do you retain and support them to be the best that they can be?

Depending upon the employment and tax laws of each jurisdiction, there is a range of methodologies to enable the staff to be employed by the EoR and yet work for you. Be very aware that if you get this wrong, you leave your corporation liable to hefty civil fiscal penalties both linked to the staff members and also to the local territory legislature.

Employer of Record companies outside of North America will only work if there is no permanent establishment and the local territory laws permit such arrangements.

What are your other options? There are tried and tested, low-risk solutions such as NRER (Non-Resident Employer Registrations) that will achieve your desired output whilst retaining the staff on your own payroll, thereby securing hearts and minds. Not quite as “cool,” but much more conducive to team culture.

You may believe or have read that working with an EoR is a way to quickly hire people in other countries without the complications of establishing a new organisation in a new market.

Don’t always believe what you read or hear; watch out for the bear traps.

Whether you choose EoR, Global PEO, NRER, or any of the wider range of options open to you (location-specific), remember the golden rule:

If you have a Permanent Establishment/Taxable Presence, then NONE of these will be fit for purpose!

The Difference Between EOR, PEO, and Global PEO

A Professional Employer Organisation, or PEO, relates to North America and does not provide an international solution. Global PEO is a high-risk and dangerous game of smoke and mirrors.

Within North America, the heavily regulated PEO market provides a much-needed service through which the bonded PEOs provide co-employment arrangements with a primary company. This enables both employers to exist in harmony in a compliant manner and for the employee to be paid, incentivised, and retained.

The Difference Between an EOR and a Recruitment Agency

Recruitment agencies are also not the same thing as an EOR company. These agencies will find and connect potential employees to their clients, providing them with all the information necessary for companies to decide between hiring someone. They will manage resumes and applications and, sometimes, even contracts, but they will only handle some issues EORs are responsible for.

When discussing these differences, it is important to remember that EORs are direct employers.

While Global Recruitment Agencies might help businesses find the right employee in other countries, they will not provide the same services EORs do and are not responsible for ensuring compliance with local rules and regulations.

Why Work With an Employer of Record?

You should now be aware of all the benefits of working with an Employer of Record.

An EOR provides an invaluable service to companies looking at global expansion, find talent in other countries and explore different markets. The service is particularly beneficial to rapid growth and fluid enterprises that seek the right person, irrespective of global location.

By making it easier for businesses to find the right people and manage the bureaucracy of hiring abroad, EORs help facilitate the growth of companies. Since Employer of Record companies are already in place in overseas locations, the process of hiring and start working with someone abroad can be quick and much more accessible than opening up your entity first.

Therefore, working with EORs should enable you to test the water before committing to a local corporate structure. Leave the compliance costs until needed but retain your low-risk position at all times.

Responsibilities of EOR Companies

If you understand the next step for your business is to look for talent abroad, partnering with an EOR is the best move.

But what are the services you can expect from an EOR?

Monitoring for Permanent Establishment

If you think that the laws in your home jurisdiction are tough, try monitoring those around the world!  If you get it wrong, this could lead to civil or criminal charges against both the Parent Company and its Officers (personally). That is a price that no one wants to pay….

Ensure that your EoR has the skills to monitor this and to ensure that you avoid these painful risks.

Offering You the Most Appropriate Option

As mentioned above, there are many versions open to you and how to first test a new jurisdiction. Make sure you compare each version before you choose the one that works best for you. EoR is just one of those options, but your EoR should be able to provide each service in each location.

Hiring the Employee

As the legal employer, the EoR will handle all aspects, from onboarding, payment, benefits, bonuses, commissions, and insurance, to offboarding and cessation. This is not your responsibility as these are not your employees.

What to Look for in an Employer of Record Company

Knowing everything an Employer of Record is responsible for, the next step is choosing the company that best fits your needs and provides the solutions you need to expand your business.

Before making a decision, there are some factors you should consider:

Services offered

Will the EOR provide everything you need? Will they walk you through all of the options – including those that are significantly cheaper and lower risk than the standard EOR/Global PEO product?

Some companies offer execution-only services for hiring abroad, while others can deal with every task involved in employment. Make sure you know the EOR can handle every step of the hiring process and ensure compliance with the rules and regulations of the country in which you will be operating.

Countries covered

Ensure that your chosen EoR has the depth of local country knowledge to ensure that you have opted for the right path. There is never just one option. Local laws provide a range of solutions with varying risk factors. Consider and measure what works best for you and your people.

Technology and privacy

People are your greatest and most valuable asset. Without them, you have nothing of true inherent value.

When there is a lot of personal data being transferred across borders, you must make sure the company you are partnering with can remain compliant with all aspects of international and local country Data Protection legislation.

Experience and reputation

A company’s reputation is a crucial factor when making a partnership decision. When hiring a company that will be your special advisor and provider in overseas territories, you need to ensure they you can trust them.

Are they reliable, knowledgeable, and trustworthy?

Assessing the EOR’s history in the marketplace and seeking references will help you understand if they can deliver exactly what you need. If they are strong enough, they will ensure you are informed of the options and empowered to make the right choice for you. This may not be the choice that you originally set out to achieve.

Prices

Of course, pricing and rates are essential to consider when deciding. After assessing every item above and making sure the EOR you are planning to hire is reputable, covers the countries you are expanding to, and offers everything you need, their service needs to fit your budget. Discuss plans and fees for employees and decide if this is the right move according to your expansion plans.

Taking your business abroad can be a costly ordeal, whether you choose EoR, Global PEO, or one of the many other routes.

Taking the wrong path and exposing your Parent Company and its Officers to civil and criminal charges is that stage too far.

When it comes to your company, your ambitions, and your opportunities, everything needs to be considered in order to avoid unnecessary risks.

Conclusion

Taking your business abroad is an essential element of many corporates’ growth strategy but can also be a dangerous endeavour for the ill-prepared.

Employer of Record companies is one solution that can provide the help you need when hiring people in different countries.  Just make sure that you work with one that covers the full span of options open to you and always, always monitors for Permanent Establishment.

In an increasingly global world, with technology providing so many work possibilities, it is worth taking a look at what other markets can offer you when it comes to employment. Never be afraid to try. Just ensure that you choose a partner with the knowledge to put you first and ensure you remain compliant.