If you're running a business, you've probably heard the term "EOR" from your mentors and advisors. But what exactly is an employer of record (EOR) and what can EOR services do for your business?
The process of expanding your business is undoubtedly lengthy, complicated, and tedious. You likely spend a lot of time caught up in legal compliance, paperwork, and payroll procedures.
That's where EOR services come into play. An EOR can take the weight of all employment-related tasks off your shoulders and allow you to focus on more important tasks. If you're planning to expand your business, there's no reason to do so without an EOR.
Here's all you need to know about EOR services and how you can hire the most suitable EOR for your business.
What Is an Employer of Record (EOR)?
An EOR is a service or organization that hires and pays employees for another company. Simply put, it legally performs all employment-related tasks on your company's behalf.
When you work with a global EOR, you'll be able to hire remote employees as quickly as possible. Plus, you can bring on EOR remote hires from anywhere in the world without setting up a foreign subsidiary. This also means that you won't have to sponsor visas or relocate employees.
EOR vs. PEO
EORs are often confused with professional employment organizations (PEO). Even though both services deal with employee management and legal liabilities, they have a few notable differences.
For example, PEOs don't function globally. EORs, on the other hand, allow you to hire employees internationally without all the legal complications. PEOs also have some limitations that you won't face with EORs, such as unclear pricing and shared liability.
EOR vs. GEO
You may also be wondering, "Isn't an EOR the same thing as a global employment organization (GEO)?" The main purpose of both services is similar — hiring international employees on your company's behalf and assuming all the legal responsibilities.
But the two do differ in one important way. GEOs can only hire employees from foreign countries. EORs can hire employees from both your country and abroad. So, in a way, EORs can be GEOs, but GEOs can't be EORs.
EOR vs. Staffing Agency
It's also easy to confuse EORs with staffing agencies, but these two differ significantly. A staffing agency is merely a middleman between the company and the potential employees. Staffing agencies have the main purpose of finding candidates that fit the job descriptions of the vacancy. They are also known as recruiting agencies or headhunters. While staffing agencies search for talent, EORs simply hire employees for you.
Employer of Record vs. Common-Law Employer
The main difference between an EOR and a common-law employer is that the latter has control over what the employees' tasks are and how they should do them. Instead, an EOR's job is to simply hire employees on your company's behalf.
Independent Contractors and EORs
Typically, you won't find an EOR that connects you with independent contractors. That's because independent contractors aren't employees, and employers can face legal trouble if they try to treat them like employees.
What Do Employer of Record Services Do?
Though you'll continue to handle the day-to-day management tasks related to your employees, an EOR relieves a lot of the burden of doing so. At the end of the day, an EOR will help you reach the ultimate goal, which is international expansion.
Here's an overview of a few of the tasks that an EOR will handle on your behalf.
One of the main tasks that an EOR will oversee is hiring employees. With the help of employer of record global hiring, you won't have to set up a subsidiary or hire independent contractors if you want to expand your business internationally. That's because an EOR will have legal entities in your countries of interest so you won't need them.
The EOR will also handle the employees' payroll, benefits, taxes, and contracts. That way, you can focus on your daily responsibilities as a business owner or employer.
An EOR will also generate contracts between your company and the employees that are compliant with the local laws of the country of hire. You may be hiring employees from several different countries, which means you'll be dealing with varying employment laws.
In this case, an EOR will generate contracts that comply with each country's legal requirements as well as those of your company. This process includes analyzing the tax laws, minimum wage, termination requirement, and social security and other employee benefits.
Running Background Checks
It's essential that you know everything about a potential employee's legal record and work experience before you hire them. It can take up to 27 weeks to replace a bad hire, which will result in unnecessary losses of money and time.
To prevent bad hires, EORs run background checks on all candidates to ensure that they're right for your company. A good EOR will screen for criminal records as well as red flags to weed out people who may cause you problems.
Filing Employment Taxes
Just like employment laws, tax laws vary by country. Once you expand your business internationally, you'll have to keep track of compliance with many different tax laws. A small mistake in doing this can result in major legal trouble.
An EOR will not only generate your tax documentation but also file them for you. First, this will save you a lot of time, and second, it will ensure flawless compliance and accuracy.
If you don't have experience with international employment, you may not know that international payments are far more complex than local ones. The currency exchange and bank charges can seriously complicate the payroll process.
It's much simpler to let an EOR distribute and process employee payroll instead. The EOR will also handle deductions, payroll taxes, and returns. This procedure further allows your employees to choose their desired payroll method.
The more countries you expand your business to, the more the benefits your company offers will need to vary. EORs work alongside benefit providers to make sure that your international employees receive their rightful benefits, which may include:
- Health insurance
- Unemployment insurance
- Wellness programs
- Remote work modules
- Social security
- Sick leave
- Pension/retirement plans
Whether terminating an employee or simply changing their contract, the process can be complicated. EORs will do these jobs for you while following the appropriate country's termination laws to ensure accuracy and compliance.
Common Scenarios Where an EOR Can Help
If you're wondering about the right time to hire an EOR, here are a few common scenarios in which an EOR will save the day.
Exploring New Markets
When you're searching for a vehicle for exploring new markets in your business, an EOR is the ideal option. An EOR can help you evaluate whether a certain country's market is right for you and ready for your business.
You can also test the market's success by initiating operations without having to invest too much of your time and money in the process. You won't even have to establish a legal entity in that country.
Independent Contractor Non-Compliance
Hiring independent contractors is risky because the structure of their work and relationship with your company could end up being too similar to those of an employee. If you find yourself in that type of situation, your company could be at risk of tax and employment violations or other legal trouble.
If you still prefer to hire independent contractors, an EOR will ensure they're compliant with local requirements for employment and taxes. That way, you can guard against non-compliance penalties.
You can also use an EOR as an entity stop-gap. The entity setup process is long, complex, and often exhausting. When you use an employer of record as an entity stop-gap instead, you can have international employees joining your team in just a few weeks.
Suppose your company has just acquired a new workforce in a different country, but the deal did not include the legal entity. As a result, you don't know how to pay them to ensure compliance. In a case like this, an EOR will pay your employees on your behalf until you develop your own legal entity in that country.
Why Use Employer of Record Companies? The Benefits of EORs
Here are the top employer of record benefits to showcase why your company should hire one for international expansion.
Access the Global Talent Pool for Hiring
The first advantage of working with EORs is that there's no longer any need for local incorporation if you want to access the global market. The first step to hiring international employees is setting up a legal entity with registration and incorporation. Because an EOR will already have a legal entity in that country, you won't have to invest in that commitment. The EOR therefore acts as a medium between your company and the candidate while ensuring compliance with local laws.
An EOR can also help you achieve some of your company's diversity, equity, and inclusion (DEI) goals. Gaining access to and hiring from a global talent pool allows you to open up your organization to many more people from many different backgrounds.
Manage Compliance Risk
Foreign governments usually scrutinize global organizations regarding how they handle visas, work permits, and business activity types. In addition, immigration policies are always in flux. It can be a challenge for your business to remain legally compliant during and even after expansion.
Instead of risking legal trouble and immigration non-compliance, it's better to work with an EOR. This will eliminate the need for business visas and frequent business travel. And in the end, your international employees will be legally permitted to work in the host country.
Local Payroll Oversight
Of course, the payroll process must also agree with the local standards of the country of hire. Remote payroll is very rarely permitted, especially when it comes to long-term work modules. This can severely complicate your company's payroll process.
An EOR will handle the critical details of the payroll process for you, including calculations and statutory deductions, such as health insurance, pensions, and taxes.
Employment-related activities require considerable attention to detail, which can divert focus away from more important tasks. Hiring an EOR is a great way for you and your HR team to save valuable time. It will relieve some of the burden on your accountant as well.
Monitor Regulatory Risks
You'll also minimize regulatory risks by working with an employer of record. An EOR won't just deal with your taxes and payroll, it will also ensure that you stay out of all employment-related legal trouble internationally. This is because EORs will be well-versed with the business laws of the countries you're planning to operate in.
Minimize HR Resources Spent on Hiring and Onboarding
An EOR will relieve your HR team of the need to go through the endless and monotonous process of generating reports. Thankfully, up-to-date records fall under an EOR's field of expertise. They will ensure that all of your employment-related data and records are backed up and maintained efficiently. Plus, they'll provide you with payroll insights whenever you want to check up on your company's progress.
Streamline Onboarding for International Employees
The onboarding process for a new employee can be pretty tedious for your HR team, especially if you're hiring many international employees at once. EORs will complete onboarding tasks so you don't have to. This includes:
- Collecting signatures
- Distributing contracts
- Creating contacts
- Acquiring paperwork
- Adding employees to your company's payroll
Disadvantages of EORs
Although very few, here are the three main disadvantages of working with an EOR to let you know what you're getting into.
Impractical or Illegal When Headcount Becomes Massive in a Country
The most common concern with EORs is that they may not be a suitable option for businesses with larger teams in different countries. That's because most EORs only provide assistance for companies with up to 10 employees in each country.
If you plan to create a bigger team, it may trigger a taxable presence or permanent establishment, forcing you to set up a legal entity in that country.
Handing Over Business Activities to a Third Party
Some companies are also hesitant to hand over control of their host country's payroll processes to EORS. The concept may be alien to some traditional businesses, but overcoming this reluctance can provide them with all of the benefits of EORs listed above.
Detached Local Employment Relationships
Another factor to keep in mind when you work with an EOR is that you'll be opting for an arms-length employment relationship between your company and the international hires. Some companies may be reluctant to go this route, hoping instead for more hands-on and personal relationships with their employees, without a middleman.
How to Select an EOR Platform
Making sure you pick the right employer of record services is essential, but the process can be rather tricky. Here's how you can select the right EOR platform for your business expansion.
Questions to Ask
Here are a few questions you can ask yourself and the EOR representative to make sure they're the right fit for your company:
- Destination country. The first question to ask is whether the EOR operates in your preferred target country. EORs don't necessarily have operations and legal entities in all countries. The ideal EOR should have several years of experience working in the destination country to show they have local expertise.
- Local employment law. Next, ask if they comply with local employment laws internationally. One of the main purposes of working with EORs is to avoid regulatory risks and legal trouble. This is why it's important that the EOR is familiar with the destination country's laws.
- Experience. If they don't have experience with businesses that have similar operations to yours, they may not be able to perfectly tailor a solution to your company.
- Point of contact. Lastly, you should ensure that your company is a priority for the EOR and not just a drop in their ocean. You can help determine the quality of attention you'll receive by asking whether you'll be assigned an online portal or a dedicated point of contact.
What to Do
Here's what to do and what not to do when seeking an EOR.
- Do better research. It's important not to limit yourself to one EOR. Look into multiple firms and do your due diligence to determine which one best suits your company. As they'll be handling sensitive, legal matters, it's important that you work with an EOR you trust.
- Review your options. It's worth noting that there's more than one type of EOR. Employer of record services vary, and you should pick one carefully. You can use EORs to outsource HR tasks and talent management or hire independent contractors. However, most EORs assist with full-time employment and other administrative responsibilities.
- Use EORs for international expansion. It's important to not DIY when it comes to legal matters such as international business expansion. That's why it's better to let an expert EOR handle those tasks to keep you out of legal trouble.
What Not to Do
- Don't forget to ask questions. The questions we mentioned above — and those you develop based on your priorities — will be critical in your process of choosing a trustworthy and efficient EOR that prioritizes your company.
- Don't reinvent the wheel. EORs have expert teams with years of experience in labor laws, withholdings, and compliance. They know exactly who to hire and how to hire them to ensure that your company is operating in accordance with the destination country's laws. These services exist so that your HR team doesn't have to reinvent the wheel and risk non-compliance or poor hires. Letting EORs do what they do best is in the best interest of your business.
EOR Cost, Fees, and Pricing
The pricing of employer of record platforms varies based on the type of services they offer. As an example, you can likely expect to pay somewhere between $200 and $300 per employee per month. Of course, these rates will rise with the complexity of the compliance requirements.
Choosing the highest tier of services offered by an EOR will guarantee that they are financially responsible for any related legal trouble you may face while working with them. This includes all challenges that may surface in the country where the talent for your company is being hired.
You'll find that EOR pricing is generally divided into two different structures: flat fees and percentage-based fees. With flat fees, there's no space for bargaining or compensation, as the rate you pay the EOR is fixed. Flat fees typically start at $299, but it ultimately depends on the EOR and its services.
On the other hand, percentage-based fees require you to pay more only when you think your international employees deserve a raise or promotion. This structure allows both EORs and businesses to exploit international employees by refraining from fair compensation.
Luckily, this structure is no longer an industry standard. Most EORs now offer a flat fee structure, which helps ensure that each party is paid fairly.
Revelo — An EOR for Software Engineers
The search for tech talent is not easy, especially because of the range of requirements for tech businesses. For example, when you're hiring software engineers, it can be difficult to find a candidate that has the right experience, attitude, and availability to fit in with your company.
Revelo can help your business solve these problems. Revelo is a tech talent platform that acts as an EOR but is so much more. Our variety of services sets us apart from all other EORs on the market.
Revelo can perform all the tasks of a typical EOR for your company but can also find, source, and vet tech talent for you. That makes this platform an end-to-end solution, which is a quality you'll rarely find in most EOR services.
The best part about this platform is its speed. You'll be able to make your first hire within 30 days, and with zero risk — you don't have to pay a cent if you terminate a bad hire from Revelo within the first two weeks.
Reach out today to learn more about how we can help your business grow.