What is an employer of record (EOR)? How to employ international staff with an EOR

With globalization and the shift to remote work, global hiring is ever more common. Accessing global talent is a big advantage for all businesses. Allowing current employees to move abroad is also key for retaining your workforce.

But hiring remote staff from abroad comes with challenges—specifically, legal complexities.

An Employer of Record offers a solution to these complexities. They simplify the international onboarding process.

In this article, we’ll cover what exactly an Employer of Record does and if it’s worth partnering with one.

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What is an employer of record?

An Employer of Record is the official employer of an employee. They are a third-party organization used by businesses hiring international employees.

The Employer of Record services market was valued at $4450.5 million USD in 2022. It’s predicted to reach $6604.4 million USD by 2029.

This is because:

• It’s never been easier to expand into international markets
• Human resource services are generally low cost
• Local incorporation is seldom required
• Employers of Record guarantee local compliance with immigration, tax and payroll requirements¹

The Employer of Record is legally responsible for following local employment laws.

For example, some of the tasks your Employer of Record will handle are:

• Tax filing
• International payroll
• Creation and maintenance of employment contracts
• Onboarding
• Termination of contracts
• Workers’ benefits and compensation, such as health insurance and pension funds

Having an Employer of Record makes international compliance a simple process. But your business will still be responsible for managing employee performance.

Pros and cons of using employer of record services

Let’s now look at the pros and cons of using a global Employer of Record.

Pros:

• Prevents compliance issues. The main advantage of using an Employer of Record is in preventing compliance issues. Non-compliance can cost you in heavy fines and penalties. An Employer of Record prevents these unnecessary costs. They have local expertise across many countries. This provides you with current information on local employment laws, preventing issues. And even if you run into compliance issues, your Employer of Record is the one who is legally responsible

• Keeps workers happy. Every country comes with different employment laws. This means that employee rights, benefits and compensation vary. An Employer of Record stays on top of these different laws. They ensure that you meet your international employees’ expectations. Providing country-specific benefits increases the chances of having a productive global workforce. This benefits your business in the long-run

• Free up your time. Your company may have employees in many different countries. Keeping up with local employment laws requires time and resources. By handing this process over to an Employer of Record, your business can focus on its core products. This can allow your business to become more efficient and competitive

• Save on the costs of global offices. The cost of setting up offices abroad can be significant. Local HR, legal and financial assistants, as well as overhead costs can add up. An Employer of Record allows you to avoid this costly process. Instead, you get direct legal access to your global employees with far fewer costs

• Access from the global talent pool and grow your business. Now more than ever, businesses are benefiting from a global talent pool of remote workers. Accessing this global labor market could be the key for growing your business. If you’re intimidated by global hiring, an Employer of Record could be your solution

Cons:

• Employer of Record services fees. An Employer of Record usually charges either a monthly fee or a percentage per employee. You’ll need to calculate the cost of Employer of Record services, to see how it will affect your profit margin. You should then compare this to the cost of handling international compliance yourself. If the costs outweigh the benefits, an Employer of Record might not be the way to go

• Risk of joint-employment. The contract between you and your Employer of Record specifies them as the employer. But this doesn't mean that a given country will recognize this. What counts as an employer can differ from one country to the next. In some cases, both your business and Employer of Record may count as joint-employers. This can expose your business to the legal risks of non-compliance. This is not a con of using an Employer of Record, but is an important factor to keep in mind

• An Employer of Record is only a legal employer. In some countries, certain activities need your business to be locally incorporated. For example, certain government subsidies are only for locally incorporated businesses. This means your company will need a presence in the country, which an Employer of Record can’t provide. If you plan to do more abroad than onboarding, an Employer of Record might not be the best option

Should your business use an employer of record?

The global labor market is full of talent that could benefit your business. But navigating global onboarding is a challenging task.

Foreign employment laws can be complex because:

• Each country has different laws
• Laws themselves can be complex and unclearly defined
• Laws can be practiced differently in reality to how they are stated in the code

Violations of these laws can be very costly in lawsuits for your business.

On top of this, setting up foreign offices and seeking local expertise is cost and time intensive.

So if your business is only looking to hire foreign employees, using an Employer of Record can make sense.

But, if you want to do more than only hire employees, then setting up your own local entity might pay off in the long-run.

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All sources checked July 27, 2023.