An EOR is a company that legally acts as the employer of a worker in the name of another business. It typically manages payroll, taxes, benefits, and other administrative or legal responsibilities. Unlike a staffing agency, these organizations serve as third-party employers that assume their client company's legal and administrative duties so that they can focus on their core operations.
An EOR typically drafts employment agreements, manages payroll and benefits administration, oversees taxes, performs background checks, and handles other back-office duties. On the other hand, the client company maintains control over the day-to-day management of the employees, which includes assigning tasks and supervising their work.
Hiring an EOR can be particularly useful for companies that need to staff up quickly for a short-term project or want to hire workers in a different state or a new county. It allows them to avoid the complexities of establishing a legal entity in their location of choice and ensure compliance with local labor laws.
How does an EOR work?
The primary role of an EOR as a legal employer relies on its existing legal presence in various regions to effectively manage employment-related tasks. These local entities, which can be either the EOR's own subsidiaries or affiliated partners, help guarantee compliance with local labor laws, tax regulations, employment standards, and more. They enable the EOR to seamlessly handle human resources functions in the name of their clients, allowing them to hire and manage employees in different locations without having to set up their own legal infrastructure in each area—which can be costly and bureaucratic.
Setting up an EOR varies by locality due to differing legal and regulatory requirements. In the United States, for example, these service providers must comply with federal and state employment laws regarding tax withholding and workers' compensation. Each jurisdiction has unique employment regulations, so EORs must tailor their services accordingly to make sure their clients can avoid any inconveniences caused by non-compliance.
Typical EOR services
As more organizations worldwide adopt remote work models and permeate new markets, EOR HR is meant to help mitigate the administrative burden of hiring and onboarding global talent. Global EORs offer a comprehensive solution that includes numerous services designed to cover all aspects of employment management—beyond simply paying international employees. A few examples are:
- Tax compliance: Most companies dabbling in global employment are unfamiliar with the local tax laws pertaining to their international employees in different countries. An EOR takes care of withholding and remitting local taxes and filing necessary tax documents.
- Benefits administration: EORs also manage employee benefits in compliance with local employment laws. They manage their clients’ global workforce health insurance, retirement plans, and other in-kind benefits.
- Employment contracts: When businesses hire employees, EORs draft, review, and manage employment agreements. This ensures that their clients and workforce are protected under clear and legally sound terms.
- Onboarding and offboarding: EOR companies handle the administrative tasks of hiring and terminating employees. They help maintain smooth transitions and adherence to local legal requirements.
- HR support: An EOR provides guidance on local labor laws and employee relations. They also assist in dispute resolution, cultivating a harmonious work environment where all conflicts are addressed effectively—which is key to retaining top talent.
- Workforce management tools: Some EORs provide access to HR software or platforms, which facilitate communication, document management, time tracking, and other administrative tasks.
Benefits of hiring with an EOR
Partnering with a global employer of record offers several advantages for businesses looking into international expansion. EORs act as a bridge that eliminates the challenges of establishing a local entity in each new location. This approach empowers organizations of all shapes and sizes to reap the full benefits of tapping into an international talent pool without having much else to worry about.
Some of the main advantages of leveraging a global EOR are:
- Reduced time to market: EORs help bypass the lengthy process of creating a subsidiary in a new location, allowing clients to quickly break into new markets.
- Lower upfront costs: Working with an EOR in global hiring helps companies avoid the capital required to establish a physical presence in each location. In other words, they help minimize costs per hire, allowing their clients to save significantly on talent acquisition.
- Reduced legal and compliance risks: EORs help maintain adherence to local employment laws and regulations, minimizing the risk of penalties or non-compliance issues for their clients.
- Streamlined onboarding process: An EOR handles all administrative tasks required in international hiring. This expedites the onboarding of independent contractors by eliminating the need for the client company to navigate complex local regulations and procedures.
- Scalable workforce management: EORs also offer support as businesses evolve. Their services enable their clients to scale their workforce up or down according to their needs.
EOR vs. PEO
While EORs and professional employer organizations (PEOs) facilitate employment, they have different legal relationships with employees. An EOR acts as the sole legal employer and assumes full responsibility for payroll taxes, benefits, compliance, etc. These services are particularly useful for companies venturing into new markets where they lack a local presence.
In contrast, a PEO operates as a co-employer alongside the client company. In this case, the client company remains the primary employer while the PEO handles HR functions. This option is better suited for businesses seeking to outsource administrative tasks and gain access to group benefits plans without losing employer control over their workforce. PEO services are often used within a single country.
Global employer of record (GEOR) vs. EOR
The main difference between a GEOR and a traditional EOR is the extent of their operations. A traditional EOR typically operates within a single country or a limited number of regions, focusing on local employment compliance. Conversely, a GEOR is a specialized type of EOR equipped to manage employment across multiple countries and provide a unified global payroll and benefits management solution.
Companies use GEORs to simplify international expansion and tap into global talent markets compliantly. This reduces liabilities, prevents misclassification, mitigates legal risks, and streamlines administrative processes at a global scale. Much like traditional EORs, the GEOR becomes the legal employer in each country. They manage all regulatory and compliance issues, while the client company retains control over the employees' day-to-day activities.
How to choose the right EOR
To choose the right EOR, companies should have a deep understanding of their unique operational support and compliance needs. Once they have a clear picture of what they would require from an international employment partner, they should thoroughly assess several factors. Doing so will help guarantee efficient workforce management across locations with minimal problems in the future.
Here are some aspects to consider:
- Service scope: Client companies must make sure their EOR prospects offer comprehensive services covering all relevant employment aspects.
- Geographic coverage: Verify that the EOR operates in all the regions where your company intends to hire employees and has experience with local laws and regulations.
- Customer support: Companies must evaluate the quality and availability of their options’ customer support to ensure responsive customer service.
- Cost structure: Businesses hiring an EOR must understand their pricing model. The model must fit within the company's budget while providing good value.
- Reputation and references: Research is a crucial part of EOR evaluation. Businesses can significantly benefit from reviewing client testimonials and reviews to gauge client satisfaction and reliability.
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