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Originally Posted On: https://www.globalexpansion.com/blog/definitive-guide-employer-of-record
It is hard to escape the grand statements about the world getting smaller; we live in a global village, and speed-up has conquered distance. It’s hard because they are true. And, in no space are these sayings more true than business and commerce. The advantages of a global economy are well documented and include promoting cultural exchange and open-mindedness, increased capital flow, and access to new markets, to name a few.
Many businesses are taking advantage of the global talent pool and have expanded the search for top candidates outside of their home countries. In order to legally bring on highly-skilled workers from anywhere in the world, these businesses would traditionally need to set up an entity or subsidiary in the country of the new hire. Utilizing an Employer of Record (EOR), however, is the smarter, simpler, and speedier route.
In 2020, 32% of finance executives engaged with a global EOR. Another 90% believe that a trusted global EOR performs better than a typical company in handling global payroll, tax obligations, and the complex legalities of global hiring.
For companies taking advantage of the global talent pool to diversify, avoid immigration and visa issues, broaden perspectives and opportunities, and expand into new markets, it is worth enlisting Employer of Record services. Here we take a deep dive into the many benefits of securing Employer of Record services.
What is an Employer of Record (EOR)?
An Employer of Record is a third-party company that handles another company’s global human resources and compliance tasks. On paper, it serves as the registered employer of an organization’s international team. The original employer, however, is still responsible for the day-to-day management of its global team.
An EOR will help businesses increase organizational productivity through a global workforce. By accessing this limitless international pool of talent, organizations have access to a wider range of skill sets and backgrounds. By mobilizing your workforce, your employees can take advantage of the freedom that comes with working remotely. You will also be able to take advantage of an international employee’s cultural knowledge of the new markets in which you are expanding.
While some businesses will choose to take on these responsibilities independently, working with a third party to support your ongoing HR efforts is highly beneficial. Without an EOR, your HR team would need to be experts in the foreign labor laws of the countries you hire in. This can take a significant amount of time and resources to set up the proper legal entities required to hire abroad, not to mention the necessity to fully understand labor laws and regulations to establish and maintain compliance.
How Does an EOR Work?
An EOR has many functions and responsibilities, which can be customized to fit your business needs.
1. Compliance Monitoring and Oversight
An EOR ensures your company abides by corporate regulations, tax policies, and sales reporting. Non-compliance often results in fines and penalties, damaged reputation, and delays in expansion.
2. Payroll and Tax Management
Expanding to a different country means paying employees and taxes according to local laws and regulations. An EOR ensures your company compensates workers properly, provides government-mandated and country-specific benefits, and computes taxes and tax deductions. Failure to manage these tasks could lead to human errors, penalties, and business closure.
3. Human Resources Administration
An EOR provides HR professionals with a range of administrative tasks, such as onboarding local talent, arranging employee benefits, drafting locally compliant employment contracts, and administering paid leave deductions. With its original employer’s green light, an EOR also legally terminates employees.
4. Consultative Services
An EOR offers consulting services to the company to guide in global expansion, including entity setup, employee classification, compensation, benefits, compliance, and more. Their international network of expert advisors can help assist you and your team with a seamless and efficient onboarding process of your employees.
When to Use an EOR
Business expansion requires time, effort, and patience. An EOR can take these responsibilities off your plate so you can focus more on bigger business decisions. Here are more reasons why hiring an EOR is beneficial for your business.
1. When you want to Expand your Business Globally
Expanding your business into new countries offers access to new consumers, new growth opportunities, additional resources, the latest technologies and increased shared information. This can help your business develop robust go-to-market strategies for your products and services.
2. When you want to Attract and Retain the World’s Top Talent
An EOR allows the opportunity to offer competitive benefits packages and in-country remote positions that are more attractive to top candidates. You will be able to hire the strongest candidates who match the skill sets you are looking for, without being restrained by borders.
3. When you Need to Hire Quickly in a New Country
An employer of record solution allows a company to hire international recruits within days and without the need to first incorporate locally. This puts you in charge of your hiring process without having to limit your options based on where employees will be located. Also, due to the lower costs associated with international labor pools, fiscal objectives are easier to achieve.
4. When Immigration or Visas Fail
Global EOR services eliminate the need for enduring the complicated and often frustrating work permit, visa or immigration processes. Utilizing a Global EOR ensures that a company does not have to lose out on skilled candidates because immigration or visa applications were denied or because an applicant lost the H1B lottery. The company can hire a candidate, as a remote employee, in the country they reside, with an employer of record solution – also known as Global Parking.
Advantages of an Employer of Record
When you partner with an EOR, you are getting more than a quick hire. You are getting a partner that can help you achieve your business goals faster, reduce costs, save time, and navigate the complexities of compliance.
The benefits of partnering with an EOR are many:
1. Faster Business Expansion
Establishing a legal entity yourself can be a time-consuming and complex process. An EOR has entities and networks that help its clients expedite global expansion plans and the execution of hiring international teams. This allows you to focus on developing business plans and executing go-to-market strategies.
An Employer of Record service helps reduce costs by reducing compliance errors and the associated penalties, while saving the company operations and entity setup costs. Additionally, an EOR provides you with transparent costs in hiring and compensating employees.
3. Compliance Guidance
EOR providers are experts in tax and employment law, and business regulations in specific countries around the globe so that you remain in compliance. You will not need to keep up with the ongoing changes to foreign labor laws in the countries you want to hire in.
4. Streamlined and Precise Operations
An EOR offers services and/or a platform that streamlines and automates core global HR functions, saving hours of ongoing admin and reducing human error.
How to Choose an Employer of Record
When choosing an EOR partner, you will want to feel confident that you can compliantly hire and pay your global workforce. The right EOR partner will have the knowledge and expertise in payroll, benefits, and local labor laws in the country you want to hire in. The list below outlines several important steps to consider when selecting an EOR partner.
1. Assess Their Service Quality
Choosing the right EOR is not just about selecting the company that can accurately manage employee benefits and compensation. It is also about having a partner that is responsive and attentive to you and your team. Support is crucial when working in unfamiliar territory, so ensure you are working with a company that offers premium customer service.
2. Determine if the EOR has a Proven Track Record
It is important to choose an EOR partner who has a strong background in successfully onboarding international employees. Make sure that the EOR not only has expertise in the countries you want to hire in, but also transparent pricing.
Websites like G2 and Capterra provide unbiased reviews of EOR companies and are worthy of adding to your research process.
3. Determine the Plans and Pricing
Some EORs have fixed fees for each employee, while others may charge a flat rate on the worker’s salary. It is important to consider which option best suits your business’s budget and development stage. Having a partner that can work within your budget on termination fees, taxes, setup, and any other additional costs can prevent your business from incurring major losses.
4. Know the EOR’s Data Security Parameters
The EOR you work with handles important employee information such as salaries, addresses, bank details, and government-issued ID information. Therefore, hire one that follows international data privacy laws and regulations.
For added protection, consider using a data privacy management software to automate data management processes, restrict access to confidential information, and improve data reporting.
Partnering with Global Expansion
Global Expansion is a global EOR that offers people-first EOR solutions tailored to any company’s needs. We work hard to establish your international presence so you can focus on bigger, more long-term business goals.
Global Expansion empowers you to compliantly hire and pay your global workforce with confidence. With GX, you can grow your international team quickly, without the need for a permanent establishment. We also offer a wide range of HR tech integrations that will set your business up for success.
Get in touch with us to hire and onboard anyone in the world with ease.