The organizations are inclined to boundary expansion in international spheres. They engaged in the growth by accessing more comprehensive customers, achievement, broadening their mission, and acquiring the other companies. Nevertheless, these goals would not be unapproachable thanks to the employer of record services.
Employer of record, also known as EOR, helps the client companies’ onboarding process in a global market without taking a risk or cost of establishing an entity in another country.
Here is the guideline that this article includes:
Table of Contents
What Is an EOR?
An Employer of Record regulates the relationship between the client company and the employee as a “third party” also called EOR, applies HR services. EOR helps the employers retain, hire, payroll issues, insurance, visa applications, and other types of applications and paperwork about their employees when the employees attempt the company from another country. The EOR can handle employee issues, which are some examples of the followings;
- Terminating employees
- Tax Payroll
- Handling unemployment
- Paper Tasks
- Employment Tasks
- Offering and administering benefits
The client companies want to ensure a good HR service and payment regulations and all other services to the employees but do not become old fashioned. So, the process will be held by EOR’s.
History of the EOR
The use of EOR has increased when global mobility has expanded and become needed. Furthermore, the improvement of technology, most needed, has arisen in the world. People supply new markets, and international employees can help them.
These improvements are increased because of the demand for local employment. The companies need a single source to give all employment, HR, and other services. So, the EOR is an inevitable innovation for the companies who look for expansion. The EOR ensures them effectively and efficiently.
Using EOR offers the client companies not dealing with employment issues like payroll, paperwork, etc. That’s because the client companies save their hours and focus on their expansion and improvement.
When the client uses EOR, their employees become EOR’s employees as well. This establishment makes it easy to handle employee issues by EOR without any interruption. Hiring international employees would not be complicated or trouble to the employers because they already have such a department to fix these HR issues.
How Does an EOR Work?
An EOR assumes costly and challenging work of launching entities around the world on behalf of client companies. Besides, they ensure all payroll, HR services, tax issues, contract requirements, and any other benefits or issues that the client companies need. Moreover, EOR’s have the local infrastructure for recruitment and payment of employees.
The client companies do not need to have an entity in another country they are working with, EOR’s can offer to companies who want to expand into global markets.
Why Should Companies Use an EOR?
The reason why the client companies should use the EOR has three essential benefits;
- Saving time and costs
- Improves legal consistency for national and international zones
- Decreasing risk because the tasks are mostly handled on behalf of companies by EOR’s
The crucial benefit of using an EOR is the client company can save their time effectively and efficiently.
When the client companies hire an EOR, they become a “partner” anymore. They start to share their responsibilities in an employee task side.
The effects of cost structure are HR services, payroll, and other compensations over the EOR so they can find minimum costs for the client companies. Therefore, nationally or internationally, charges will be reduced.
Reconstruction of the client companies costs helps to increase saving time and money. These savings create a chance to expand the companies worldwide and achieve them in a strategic way in the long term.
An employer of record is not just an HR service, but they can also ensure the client companies, new employees, spontaneously, because they have the right to hire. These services help the client companies rapid growth and expansion.
Even if the EOR’s work with staffing agencies obtaining to find employees, the EOR will handle any other tasks. The reasons why staffing agencies do not deal with other things are that they are generally not capable of human resources or payroll issues, or accounting. The staffing agencies lack knowledge about different topics. So, EOR’s will ensure these deficiencies.
EOR and Their Obligations
The client companies, who are using EOR service, have control over the business operations, and they undertake the responsibilities of safety and security, also legal compliance.
Nevertheless, EOR’s also take the responsibilities and liabilities issues about employment tasks, like payroll, benefits of employees, taxes, etc.
Moreover, the client companies have an experienced group scope to the paperwork and complex employment tasks matters. The EOR will care of compliance, regulatory, and tax issues on behalf of client companies.
Difference Between Employer of Record (EOR) and Professional Employer Organization (PEO)
Even if PEO and EOR seem like similar services, they have differences. Also, the companies are inclined to choose the wrong service provider to apply to their companies. PEO’s and EOR’s serve totally different aspects.
The main difference between PEO and EOR which are followings;
- Compliance Management of Regulations
- Business registration
Comparison of PEO and EOR Within Client Company
EOR’s can hire the employees, apply their payroll issues, and take responsibility for other employment issues. However, PEO’s take responsibility for all client companies and ensure human resource services.
When the client companies work with a PEO, the company has the employment contracts. Nonetheless, EOR’s have the right to sign and contract with employees on behalf of client companies. This difference is a significant matter because when the client companies do not separate this distinction and choose the wrong service, that can be a problem in terms of legal issues. After all, the liabilities are differently distributed, either PEO’s or EOR’s.
PEO’s are the co-employers of clients who are taking the responsibilities with. However, the EOR’s become legal employers of the employees, and the EOR cares about the liabilities. Besides, EOR’s will solve all disputes and tasks that consist of employment contracts.
PEO’s do not deal with employees’ complicated situations like onboarding in different countries or legal issues. These disputes need to be solved according to regional regulatory ways, but PEO’s are not qualified and do not ensure these services.
The reason for having a contractual relationship with the employees, the EOR’s are eligible to maintain regulatory issues, benefits, and compliance of employees. When the client companies’ workload decreases, thanks to the outsourcing of EOR and EOR’s are better than PEO’s in that sense.
The client companies need to pay PEO’s for insurance more than the payment of EOR. That is why employees will be regulated under the EOR’s policies. EOR’s have better services, and they handle all insurance to the employees.
PEO’s do not have registration in any country or state, but EOR’s do. So, when the client companies have a business in another state or country and work with EOR, they do not need to go deeper into these regulatory issues because EOR’ will handle them on their behalf. Nevertheless, PEO’s do not have these capabilities, so that can be a legal requirement.
In a short word, the client companies should determine what they actually need for their employees, whether PEO service which is useful for small or mid-sized companies or EOR’s who offer services to the much bigger companies. Otherwise, they can have problems in terms of state or federal levels.
When Should You Use an EOR?
Global expansion is a more crucial aspect for organizations. They can handle it with the help of EOR. There are some points that the companies need to know how EOR’s provide them expansion globally.
- Exploring the new markets
- Protecting against in compliance of independent contractors
- Dealing with all complicated paperwork
- Easing the acquisition
Other Benefits of Working with an EOR
When client companies hire an EOR, they do not need to think about employees’ administration, like payroll, compensation, etc. EOR will deal with the issues, which ensures plenty of benefits consist of cost savings to the client companies.
Additionally, EOR provides quick onboarding service to companies, so the company can be competitive and have a chance to extend immediately.
EOR’s offer better opportunities to work with various providers to client companies because they have the right of contracting and other tasks on behalf of client companies. These establishments allow them to be quick, finding and applying flexible solutions.
EOR’s have a broad task force to ensure the client companies. Their services are customized and much more flexible compared to the other services. Hiring EOR makes them legal partners so that they will be under liabilities; because of that, they will ensure correct and legally non-problematic service not to undertake illegality. EOR’s dedicated experts, which means the client companies can trust consistently receive the same quality service.
Thanks to EOR, the client companies do not need to ve local incorporation because the EOR’s already provide that service to them. So they do not need to take care of those responsibilities and liabilities. Also, because of the changing laws and rules, the client companies can miss the changes, but the EOR’s have the staff who are scoping to follow these changes, and they can get and apply the changes quickly. In addition, EOR’s help enrolls international workers in the companies because they can get permits and conduct the process quicker than those who actually could not know the targeting countries.
EOR’s have appropriate solutions for complicated payroll, tax, and employment issues. The client companies can get confused about all the paperwork, and they cannot get enrolled in the new countries’ procedures. The most effective way to deploy employees in another country will be using an EOR.
How Should Be Chosen an EOR?
EOR needs to have some critical points for providing their services. The crucial point of ensuring the service has knowledge about the extent of companies in the targeting countries. The client company can learn this knowledge by researching how long the EOR has been in that country and whether EOR’s have a direct entity or local partnerships. Also, there are some questions that the client company can look for;
- Whether the entity which is in the targeting country is permanent
- Whether the EOR’s workers have enough local knowledge that is needed
- Whether the employment contract is applicable and appropriate to the client companies’
- The client company need an EOR or any other service
Limitations to Using EOR
In spite of the fact that using EOR has the most benefits, there are also limitations to using an EOR of the companies.
If there are more than ten employees in one country, the EOR cannot be useful for that company.
Some companies do not want a local EOR as a legal employer or a partner with them, even if it is a useful or administrative issue. The company can be seen as a new and non-adaptable concept, and they have traditional business ideas.
The employment contract is among EOR and employees, so the client companies do not have independent decision-making about their rights.
To conclude, the EOR service makes it easy to enroll payment, taxation, and any other employment issues, also paperwork to the client companies. The technology necessitated the business world to use some entities for expanding international areas. The EOR plays a significant role in the client companies achievements. However, there are some critical points that the companies should be careful about, like some limitations. Mostly, using an EOR gives companies a chance to reach their achievements.
*This document should not be assumed as a legal advice. These informations may always change, please contact with our team of attorneys to confirm.