Employer of Record Definition

An Employer of Record (EOR) serves as a “go-between” for the employee and the client company. Specifically when the latter expands to a new country without an existing footprint.

 

In order to explain the Employer of Record meaning, it is best to turn to a relatable example.

Think about jobs you’ve been hired for in the past…

After the initial excitement of accepting the offer, it’s time to get down to business…

  1. You begin completing the necessary employment paperwork and processes.
  2. You will need to get paid.
  3. Applicable taxes will need to be deducted.
  4. You will likely need employee benefits, such as health insurance
  5. And all necessary work permits must be verified and recorded by the employer.

This piece of the employee onboarding process is typically managed by Human Resources. But in many cases, companies choose to outsource this function to a third party.

Why or when would a company use Employer of Record services?

An EOR is often used for global expansion when a company plans to conduct business activity in a new country without a physical entity.

The process of registering a local business entity can be expensive and arduous. The company may need to move swiftly in order to meet the needs of a project or new business venture. Or they only require a short term solution.

Thus, a global Employer of Record can be an efficient way to hire workers in that country. The EOR will have a legal entity to manage local payroll, employment tasks and immigration. The EOR will also appear as the legal employer for your remote employees in the host country.

How does an EOR differ from a Global Employment Organisation?

The use of EORs is typically one component of a larger Global Employment Outsourcing (GEO) strategy. A GEO is a service that helps companies of any size mobilise a workforce in a foreign country. The GEO will have full compliance with country and local labour laws, taxes and work permits. Additionally, they may use an EOR to manage the payroll functions for the workforce.

The GEO functions as a single point of contact for the company that is using an EOR through the GEO service. An EOR could also be an interim solution while they establish a local entity and operations.

What are the benefits of using an Employer of Record?

An EOR is attractive when expanding overseas without an existing footprint. The EOR will have a legal responsibility to manage your payroll processing, tax and immigration  in the host country. An Employer of Record can also help you hire international talent, perform background checks, oversee benefits and perform various administrative tasks.

Companies can ramp up operations faster than incorporating a foreign entity in the country without running any compliance risks.

Using an EOR is also a convenient and cost-effective option for smaller companies. Especially firms without the corporate infrastructure to manage local payroll, tax and immigration.

What are the limitations of working with an Employer of Record company ?

The legal employment relationship will exist between the employee and the EOR. But the EOR has no dealings with the employee around daily work responsibilities. This direction comes from the original employer. Thus, the lines of responsibility can become somewhat “blurred” when using an EOR.

Additionally, as the employment relationship is technically between the employee and the EOR, the original employer essentially gives up control over the payroll process.

This might cause confusion if the company’s pays employees bi-weekly and the host country dictates monthly payment.

In this instance, the international employee is paid through the EOR according to the host country’s laws, and NOT the company’s payroll process.

How do I choose an Employer of Record provider?

Most Employer of Record companies offer similar services but it’s important to work with a provider that you feel the most comfortable with. Don’t rush into the selection process and make sure to ask these questions below before making a decision.

  1. Do they have operations in the destination country? Not every Employer of Record has experience working in every country. The ideal scenario is to for the EOR to have substantial experience working in-country with local expertise.
  2. Are they internationally compliant with local employment law? the major upside to using an EOR is mitigating the risk of violating local payroll, tax and immigration laws. In-depth knowledge of such legislation is critical when selecting a provider.
  3. Do they have experience with similar business owners in your industry? If they understand the business, they can tailor a solution to fit the needs of the company.
  4. Will you be assigned a single point of contact or an online portal? When managing people, you don’t want to be treated as a number, with little human interaction.
  5. Is the Employer of Record service part of their core business? If the EOR is an ancillary part of their business, it will not be a core focus. This can impact performance and employee morale.

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Dani Khan CEO at blogsfit.com. Have 3 years of experience in the websites field. Dani Khan is the premier and most trustworthy informer for technology, telecom, business, auto news, games review in World.
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