Understanding Employers of Record: Simplifying the Basics and Highlighting the Benefits

Over the past few years, we have all seen that more people tend to work remotely, and more collaborations are happening online, which has changed not only the working situation but also the hiring process.

Nowadays, most of the world’s top companies see global hiring as a business opportunity that enables them to gain valuable insights into new markets.

Moreover, international hiring also helps employers to find the right talents more easily while saving time and energy. However, it’s not risk-free, so it is better to work with an “Employer of Record” known as EOR.

An employer of record helps companies to hire employees around the world and run an office abroad. In this article, we are going to explain everything you need to know about employers of record, including the basic information and the associated benefits. 

What Is An Employer of Record?

An employer of record is a company responsible for the financial and legal processes necessary to create an onboard office. This company takes care of tax documentation, the administration of employee benefits, and payroll for foreign employees.

In simple words, an employer of record helps you legally and efficiently hire top talents, no matter where they live.

Note that the EOR will be the individual’s employer on paper, but your employees will work for you and your business just like other team members.

How to Select the Right Employer of Record

Before doing anything, you need to know that the right employer of record can manage all global hiring factors such as onboarding, local taxes, payroll approvals, and more – all in one place.

However, it’s not the only factor that helps you work with the best EOR; security, IP protection, data protection, etc, are also among the items that you need to consider when choosing the right employer of record.

1- Their reputation

You must first consider their reputation because the EOR will represent your company in the region.

It is better to start by checking their activity time and remember that a higher level of experience often corresponds to a stronger reputation. 

2- Communication 

Another important factor to consider when choosing an employer of record is the way to communicate with their clients, it is better that you feel comfortable with how they behave with you and other stakeholders. 

Note that the way you will communicate with the EOR depends on the company, for example, you can keep in touch using messengers or a consultant can be assigned to manage the collaboration. 

However, you need to know that there is no way to say which communication method is the best, but you should choose the one that best fits your needs.

3- Expert in managing companies in a specific area 

As mentioned before, one of the main reasons to work with an employer of record is the understanding of the laws, regulations, and labor market. Therefore, you need to choose an EOR who is an expert in managing companies in different regions.

4- The technology they use

Another important factor to pay attention to is the technology the company uses to keep track of documentation and administer payroll software.

It is better to work with vendors who use large-scale tools instead of those who use SME-oriented software and track documentation manually. 

Overall, you must ensure the technology that the EOR uses is easy to combine with the tools your team is using. 

5- The way they protect sensitive data

As you know, protecting sensitive data is among the most essential parts of hiring foreign employees; therefore, you need to ensure the EOR you are working with has straightforward protocols for protecting sensitive data. 

Remember to check your accordance to see if it describes each process the company will use to protect your company’s working practices and important data.

Finally, avoid working with firms that subcontract their work because it puts managers at a higher risk of confidentiality breaches.

6- How they handle employee benefits 

We said that the employer of record is responsible for taking care of employee benefits, so it is better to select a vendor who offers a broad benefit pack, which helps employers create a better workplace for the global office. 

Not that the benefits an employer of record should offer include employee insurance, financial advisory services, free training, vacation and sick days off, and more.

What Are the Responsibilities of An Employer of Record?

The employer of record has different responsibilities, which we will fully cover in the section below.

• An EOR is in charge of arranging work permits and visa-related documents if the relocation of a foreign employee is essential.

• They represent your company as a registered entity and legitimate employer in a specific area.

• They are responsible for offering the best consultant services to the company, such as employee onboarding and benefits, severance pay, contract termination, etc.

• Another task of an employer of record is to fill in insurance and tax forms on the employer’s behalf. 

• They must ensure compliance with local labor and tax legislation.

How Much Does Hiring An Employer of Record Cost?

Hiring an employer of record has two types, which are flat rates and percentages. 

• Percentage rates 

They get their money from your employees’ salaries, and this structure is suitable for small workforces. Keep in mind that keeping top employees with raises and promotions is going to cost you more in the long term.

It is good to know that percentage rates used to be known as the industry standard, but more companies now tend to use flat rates because it is a more affordable structure. 

• Flat rates 

In this structure, you will only pay for the service per employee, and an EOR costs something between $250 to $500 per employee, which depends on the requirements of each worker. 

If you think that the flat rate structure is more expensive than the percentage rates, you need to know that it is going to cost you less in the future.

Benefits of Using An Employer of Record

1. It helps expand your workforce potential

When you want to expand your workforce into a new country, an employer of record simplifies the hiring process and enables you to build a strong local workforce.

Moreover, working with an EOR exempts you from establishing an entity in the aim country, you can start hiring new employees without waiting for government approval.

2- Avoids global market entry barriers

We are all aware of the benefits of building a team abroad, such as a greater talent pool and affordable workplace; however, some business owners are worried about the possible challenges of establishing an entity in another country.

The waiting time for embassy’s approval to start business activities and hire employees can take months, which is not what exactly companies are looking for!

That is why using an employer of record helps managers because the company in the aim country can greatly simplify this process.

3- Reducing extra costs

Working with an employer of record helps businesses complete the hiring tasks more easily and with less effort, which leads to reducing extra costs and saving more time and money.

While an EOR is working on simplifying such processes, employees can use their time to learn new skills, attend continuing education, develop new internal policies, and brainstorm efficiency measures to decrease future costs.

4- Ensuring on-time payroll processes

One of the most important parts of building an abroad office is to ensure the payroll process is on-time. Note that this will affect your reputation in the area as a business owner.

Hiring an employer of record helps you pay employees the right amount of money, administer benefits, enable you to take the correct deductions from their payments, and you can ensure your employees will get paid on time.

5- Reduces possible risks

As you know, choosing and hiring employees in another country may have undeniable risks, and working with an employer of record reduces possible risks. 

The EOR is the one featured in agreements, paying taxes, and official documentation, so the company will be the one responsible for everything that may go wrong.

Therefore, when you hire an employer of record, you don’t need to worry about the consequences of anything with local labor laws.

6- Save time and energy

As you may know, the hiring process, such as onboarding new employees can be a challenging and time-consuming procedure.

When you work with an EOR company, they will manage all the tasks related to hiring employees abroad, which means you can save more time and energy and focus on developing your business. 

7- Provides up-to-date records 

An employer of record keeps all the sensitive data for each of your employees by using a reliable system with committed workers to better manage data, which makes it easy to update your records. 

FAQs

1- What is the definition of PEO?

PEO means “Professional Employer Organization.” They help small and midsized businesses better manage specific hiring tasks through co-employment. 

2- Is it possible to hire international employees without an EOR?

Yes, you can hire foreign employees yourself; however, you must establish legal entities in the aim country when hiring full-time workers. 

3- Can I use an employer of record for independent contractors?

Yes, you can use EOR services to onboard and pay independent contractors. It is good to know that remote employer of record services help you hire employees worldwide. 

Conclusion

It doesn’t matter if you are an employer who offers contract staffing or a business owner looking to hire top talents abroad; you must ensure employees are paid accurately, employment issues are perfectly taken care of, and employees are correctly classified to create a perfect workplace.

Therefore, an employer of record can effectively help you safely hire the right candidates worldwide.

Finally, to have the best experience of using an EOR, you need to be aware of the possible risks of working with such a company. Therefore, it is better to be clear on which countries are in or out of scope, be clear about the requirements you need for the EOR you work with, and ensure you clearly determine what roles are in or out of scope for employers of record.