An Employer of Record is an organization that legally employs workers on behalf of another company. Essentially, the EOR becomes the official employer for tax, insurance, and compliance purposes while the worker performs tasks for the client company. This partnership allows businesses to expand their operations into new regions without setting up a legal entity in that country.
How does the EOR model work?
When a company partners with an EOR, the latter takes on the responsibility of hiring, payroll, benefits administration, tax compliance, and ensuring adherence to local labor laws. This includes:
- Official employment for global and remote teams
- Drafting employment contracts that comply with local laws
- Background checks for new hires
- Processing international payrolls and compensations
- Tax documentation and proper filing based on local laws
- Employee benefits and intellectual property protection
- Recruitment
- Onboarding
- Legal compliance
- Risk management
- Contract terminations
How it works
EORs create a presence in various countries either through local entities or by hiring subcontractors. They partner with benefit providers to offer health insurance, pensions, and more. Businesses can hire from countries where the EOR operates. The EOR manages all employment-related tasks, while businesses handle daily work assignments and scheduling.
Benefits of using an EOR
- Faster and cost-effective international hiring
- Avoid legal complications and penalties
- Access to a broader talent pool
- Reduced HR workload
- Enhanced data security
- Better and localized employee benefits
- Easier talent integration post-mergers
- Quick market entry
- Flexibility – companies can test new markets with a smaller team before deciding to establish a larger presence.
EOR vs PEO: Clearing the confusion
People often confuse EOR with Professional Employer Organizations (PEO). While both provide HR and payroll services, there are notable differences. A PEO co-employs workers with client companies, sharing employment responsibilities. In contrast, an EOR becomes the primary employer, shouldering all employment-related responsibilities and liabilities.
EOR vs GEO
Global Employer of Record (GEO) is essentially another term for EOR. When hiring internationally, the term ‘GEO’ often comes into play.
Independent Contractors
Typically, EORs specialize in facilitating full-time and part-time employment. Hiring independent contractors doesn’t usually require an EOR, as there are fewer regulatory obligations involved.
When should you consider an EOR?
Here are some typical situations when cooperation with an EOR might be a cost-efficient solution for your business needs.
Pilot programs. Before fully investing in a new market, companies can use an EOR to hire a small team for pilot projects.
Short-term projects. For projects with a definitive end date, an EOR can be a more viable solution than setting up a full business entity.
Remote workforce expansion. As remote work becomes more prevalent, EORs allow companies to hire talent from anywhere without legal constraints.
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The Employer of Record model offers a strategic solution for businesses looking to tap into global talent pools without the administrative and legal burdens that come with international hiring. As companies continue to expand their boundaries in search of growth and talent, EORs will play an increasingly vital role in shaping the future of global employment.
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