What is an Employer of Record and What are the Benefits of Using an EOR Service?

Many companies seek ways to enter into the global market as a tool for providing and showcasing their innovative solutions to the world. One way by which this is done is through an EOR. What does EOR mean? EOR stands for an employer of record, which is an organization that takes care of some HR activities like legal obligations that relate to employees’ payroll, employment, and retainment, immigration, etc on behalf of a company/business. This definition implies that an EOR is only licensed to act as the third-party employer for the company and not exhibit any form of supervisory role on the company’s workforce. This is especially true of companies who have a business to conduct in other countries across the world. Although an employer of record is responsible for some HR functions, they do not carry out daily activities within the company nor take over the roles of the business employer/manager.

Thus, instead of being at the forefront of seeking and recruiting new employees, the EOR handles it amongst other undertakings. An Employer of Record services is largely for companies and business owners who want growth by global expansion or want to tap into the international talent market. This implies that EOR meaning is simply the legal employer of the company’s employed personnel. The rest of this article explains how and when EOR services can be used, their roles, and how they can benefit your business.

What does an Employer of Record do and how it Works?

The EOR partners with its client to take on its employment duties. A contract is entered into and an agreement is made. The EOR assumes the role of the employer, however, the company still had control over the running of day-to-day business operations. Employee roles and duties are still assigned by the company. The company is also still responsible to cater to and provide the employees’ pay accordingly. The EOR is not liable for safety or health guidelines as the case may be, especially with the recent occurrence of the pandemic. The company is responsible for that.

Companies that often take on the EOR solution are small and medium-scale businesses that are looking to advance into the international market. The EOR thus becomes a means to facilitate easy market entry by hiring employees or independent contractors, depending on their needs. Companies and organizations go for the third-party employer option because of the numerous gains that come with employing its services and the wide range of roles in which EOR plays in an organization. In this section, we will be providing you with the duties and perks of an employer of record and how these duties and advantages roll out.

Elimination of a need for foreign subsidiary

One major benefit of using an Employer of record services is that to hire employees, your company does not need to go through the tough process of establishing and registering a new subsidiary. This is because EORs are legal entities, established in such countries with the capacity and expertise to carry out employer duties on your behalf. An employer of record company has already undergone all registration and licensing process that you need to undergo. Thus, with EOR already established system in the new location, you can hire talents and start your business within days, as opposed to setting up a local entity which may take a long time.

Legal Compliance

Running company operations in a foreign country may be treading new waters and as such, knowledge of the required rules and how to comply is necessary. Employers of record companies have the requisite knowledge of such rules and regulations as well as the regulatory bodies involved. As such, employing the services of an EOR is a means of ensuring that your organization stays compliant and is at lesser risk of violating stipulated regulations. An employer of record helps you stay completely up-to-date and adherent with all legal obligations.

Reduced Cost of Operation

With an employer of record, it is easier to access and operate in the new market because of the reduced cost of operation. EORs provide cost-effective solutions that afford companies the ability to save time as well as other resources (human and financial) that go into expanding business, establishing a local subsidiary, recruiting new employees, onboarding them, and proper administering and managing of their payroll.

Risk Mitigation

As the EOR serves as the legal employer, there are fewer risks involved. One major is that of the misclassification of workers. Operating in a foreign market is understanding how the market works. It is important to understand how employees and independent contractors are classified and sorting their payroll as such. With an EOR, you can be sure to evade this risk as their services are tailored to meet your needs. Another risk is that of non-compliance. It may be difficult to navigate through a new market, you may end up not complying with the numerous laws, especially when it comes to issues such as tax as insurance which may result in litigations and fines. An employer of record solution limits your chances of falling into these mistakes.

Employee Management

The EOR takes care of matters relating to employees. This involves hiring and onboarding new hires. The EOR also handles work permits and visas on behalf of the employees to hasten the onboarding process. Preparing employee timesheets, managing employment contracts, as well as the termination of employment, are part of their roles. EORs also conduct the necessary background checks on the new employees. All these are done on behalf of the employer company.

Tax and Payroll Administration

Payroll is prepared by the employer of record companies in such a way that is compliant with the laws and regulations of the new location. The EOR also takes care of tax deductions from employees’ pay and appropriates its payment to the right authorities. Employers of record (EORs) are furnished with adequate knowledge of the payroll system of such country as well as the necessary up-to-date technology to manage it.

Compensation and Benefits

For employees in foreign countries, the benefits and compensations to be paid to them have to be by the requirements of the labor laws of such countries. Paid leave, insurance, pension, vacations, sick leave, maternity and paternity leave, and so on are part of the various benefits that have to be taken care of. These will be handled by the employer of record as required by the provisions of the government.

Differences between an Agent of Record and Employer of Record

An agent of record is a term in insurance that is used to refer to either an individual or a legal entity with the authority to represent an insured person or entity with an insurer. An employer of record is used to refer to third-party organizations that have been outsourced HR tasks by a company.

While both of them enter into contractual agreements with their clients, the agent of record, also known as a broker of record, acts on behalf of the policyholder. It takes care of issues such as maintenance of the insurance as well as other problems that may arise with the policy. To change an agent of record, another document that has the name of the new agent has to be signed by the policyholder. In the case of an employer of record, this is not needed.

When do you need an EOR service?

Companies operating globally or those with global expansion plans usually find it difficult to understand foreign policies and regulations, staying up-to-date with changes in the market and government, managing foreign workers, etc. Lacking special elements like foreign subsidiaries, local experts/talents with vast legal and financial knowledge, extensive time for expansion, etc in the foreign location will cause you a lot of stress and resources. Thus, banking on the services and solutions of an employer of record is a prominent and important step company going global must take. Companies with foreign plans and activities must engage the services of an EOR as soon as they commence activities. Employer of record must be included in the company’s plan from the onset. Employing EOR services will help in quick integration with the new market, speedily and safe hiring of talents without an established entity, ensure complete compliance within the company, etc.

Benefits of EOR Solution to your Business

There are several employers of record solutions that are so beneficial to your business. In this section, we will be discussing some of these perks which include:

Growth and expansion

These are quite important goals for any business. The EOR solution is a go-to if you want to expand your business on a global scale. It will facilitate growth as you do not have to go through the long process do setting up a legal entity just because you want to hire employees internationally.

The shortened process will help you get your employees hired and settled in no time. With an employer of record, your business does not have to remain in one location. It can be in multiple places at the same time, be it states or countries. This will in turn foster your business growth.

Innovation and Diversity

The world is fast-moving and innovative solutions are a key factor to business growth. With the diversity that comes by the virtue of having talented individuals in your workforce, different ideas will result in innovation that will promote the growth of your business.

Conservation of Resources

With an EOR solution, you will be sure to conserve a lot of time and other resources that ought to be expended on research, searching for talent as well as setting up a subsidiary. This option will also provide you with ample room to veer your resources towards other ventures such as the day-to-day running of your business and other responsibilities on your plate.

Conclusion

In this guide, we have carefully described an employer of record and we’ve outlined various roles and benefits of the employment organization solution. An employer of record is a solution that is provided by a global PEO in ensuring the proper management and execution of employees’ hiring and payroll. To clarify some employers’ and employees’ doubts, there is nothing like an employee of record; there is only an employer of record which has been perfectly described in this guide. WeHireGlobally is a global PEO that provides employer of record solutions across the world. With our existing services in over 150 countries across the globe, companies can connect with the right pool of talents and take their businesses to the next level. At WeHireGlobally, we will take the burden of HR-related tasks off you in the most compliant way, while you focus on other pertinent tasks.