Are you considering hiring employees or contractors who live and operate in a foreign country? Then, it’s likely you’ll need an Employer of Record (EOR) to help you navigate the bureaucracy and facilitate the process. Keep reading for a comprehensive guide on EORs.
What is an EOR?
Here’s the deal: you own a business. You want to hire employees or contractors in another country. Well, an EOR is an organization that helps you do just that!
The EOR takes on the role of the legal employer to the foreign employees and so will assume legal responsibilities related to the employment, which includes the management of contracts, compensation, benefits, etc. Most importantly, because employment regulations vary from country to country, it can be difficult and time-consuming to stay abreast of changes and ensure your operations are in compliance—an EOR eliminates that headache by taking on compliance responsibilities related to your foreign employees and contractors.
Why would my business need an EOR?
Hiring a global workforce comes with a host of challenges. Aside from the need to stay compliant across regions, employees from various countries will require additional systems, integrations, and processes in order to manage payroll, administer benefits, track time and attendance, etc. Rather than worrying about setting up numerous systems, you can simply hand these tasks over to EOR, who will take these responsibilities off your hands.
What exactly are the key responsibilities of an EOR?
The scope of service for an EOR will vary based on the specific company you hire, your needs, and the agreement you make. Here are some key tasks you can discuss with your EOR:
Recruitment and onboarding: certain EORs will take on the role of identifying suitable candidates across countries and recruiting them, as well as taking over the onboarding process.
Employment contracts: an EOR will create and manage employment documentation. This may include offer letters, employment contracts, and termination paperwork. They’ll also ensure paperwork is in compliance with local labor regulations.
Payroll management: the EOR will be responsible for processing payroll for foreign employees and contractors; this includes wage and salary calculations, tax withholdings, and the management of any other deductions or garnishments.
Tax compliance: The EOR will be registered with tax authorities as the employer of the foreign employees and contractors. An EOR will manage tax-related matters for foreign employees; this includes withholdings, deductions, and tax contributions to the appropriate local agencies. It is the responsibility of the EOR to ensure tax obligations are met in accordance with local regulations.
Local labor law compliance: Local labor laws are vast, especially when navigating multiple languages across regions. An EOR with experts in each locale’s ever-changing laws can help your business stay compliant and avoid penalty fees.
Time and attendance tracking: If your organization tracks employee time and job site attendance, an EOR can facilitate the paperwork and ensure workers are properly compensated. It can also ensure you’re not paying employees who haven’t submitted required timesheet documentation, taking that time-intensive administrative task off your plate.
Human Resources (HR) support: An EOR provides a local contact to manage HR responsibilities your business may need, from hiring and termination to payroll, taxes, and benefits. And, they’ll do so with a far greater knowledge of local employer regulations and legal requirements than you may have access to currently.
Benefits administration: When you need a capable partner to administer benefits and answer worker questions, an EOR can serve as a knowledgeable extension of your team. They’re able to both manage enrollment and subsequent questions thereafter.
Compliance documentation: It’s not enough to be compliant, your organization must have the proper documentation to prove it. An EOR serves as your primary point of contact, collecting and submitting the necessary paperwork and transferring documentation to you to codify compliance.
Payroll reporting: Payroll reporting can be complex and requires periodic local and federal reporting. Payroll reporting also must deliver accurate financial reporting to workers based on pay periods worked that then funnels up to your organization. An EOR can streamline the payroll reporting process for your international workers.
Not all EORs take on all tasks listed above, so you must identify your company’s needs and discuss the key responsibilities your organization needs before signing on.
What is outside scope for EORs?
While EORs are the go-to contact for HR administration and hold the legal relationship with the employee, the day-to-day work is in your court. Your EOR won’t manage workload, gate-keep assignments, or track deadlines. Additionally, EORs will not help with marketing, sales, or product distribution as those are functions your organization is responsible for covering. EORs are trusted HR partners, not outposts of your business.
What are the different types of EORs?
EORs vary based on how their own organizations operate within each country but typically are a wholly-owned entity EOR, partner-dependent EOR, or some combination of the two. Owned EORs incorporate themselves within the countries they provide services, becoming an officially registered local business concern. Other EORs subcontract to in-country partners, positioning themselves more as an intermediary to their own clients. The final type of EORs use a combined approach, sub-contracting in some countries and incorporating in others. Before signing on the dotted line, be clear about which type of EOR you’re dealing with so you understand how the EOR you’re considering operates within each country.
Alternatives to using an EOR
If you’re in the market for an EOR, the term “professional employer organization” or PEO might sound familiar. In this arrangement, the PEO offers local HR advice or coordination, but your company remains the legal employer of your in-country talent. In this scenario, your organization will be responsible for complying with local laws, regulations, and knowing how to stay compliant. Staffing agencies can help you recruit international talent, but their job ends the moment they hand the candidate over to you for employment. In lieu of hiring an EOR, your company can also establish a local entity in your target location, work with contractors, or form a legal partnership with another business that can also manage your international talent needs.
Is an EOR the same as a PEO?
While you may hear EOR and PEO used interchangeably, they are not the same thing. When working with a PEO, your organization remains the legal employer in all matters. And while a PEO can help you get more competitive prices on benefits like insurance and pensions, you’ll still need your own HR staff. PEOs are more of a complement to your HR team than a replacement. Also, be watchful for companies known as “domestic PEOs.” These operate as PEOs but have a more limited geographic scope, typically confined to in-country administration or even the United States only. These partners likely won’t have the capacity to help you should you choose to expand globally or have global talent in-country to help with HR administration.
Opening a foreign entity versus using an EOR
An EOR can be vastly more affordable than paying the salary, office space, and business registration fees needed to open a local office. Opening a foreign entity requires you to not only hire staff in-region but they must also understand legal requirements for businesses, including for taxes, compliance, and worker rights. Beyond that, you’ll need to acquire, onboard, manage, and retain your talent, plus dedicate the time needed to do it professionally–and in accordance with local laws. Worker rights vary by country, including for hiring, notice, and termination timelines, holidays, medical leaves, and remote work. Opening a foreign entity requires your in-house team to manage and pay for all of this unless you partner with someone like an EOR.
An EOR is an organization that helps organizations manage the HR, payroll, and other administrative tasks associated with hiring international talent. It further assumes the legal relationship with your worker, managing related compliance tasks. Working with an EOR can be faster, simpler, and more cost-effective for businesses looking to hire international talent versus opening a foreign entity themselves. There are different types of EORs, as well as other options, should businesses choose not to use one. This includes hiring a professional employer organization, known as a PEO. However, PEOs serve as a supporting complement to your own HR staff but won’t replace them. Hiring international talent without an EOR requires your organization to choose whether to work with contractors, create a foreign entity in the country, or form a partnership with another organization that will manage your in-country talent needs. However you choose to go, there are many routes to hiring the international talent your business needs to reach its goals.