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An Employer of Record (EOR) is a service that legally hires people for your business. It means you can grow your team or enter new markets without worrying about complex employment laws. In this guide, we'll show you how an EOR can make your business operations smoother and help you follow the rules, wherever your team is in the world.

Learn what to look for in an EOR service and how it can benefit your company. We’ll give you straightforward advice on choosing the right EOR partner, making it easier for you to focus on growing your business.

What is an Employer of Record?

An Employer of Record (EOR) simplifies how you hire and manage staff by acting as the legal employer. Here's what this means for your business:

  • Assumes Legal Responsibilities: The EOR handles all legal aspects of employment, from contracts to benefits and leave policies to compliance with labor laws.
  • Manages HR Tasks: This includes:
    • Payroll and tax filings
    • Benefits administration
    • Time off administration
    • Employee onboarding and offboarding
  • Allows You to Focus: While the EOR takes care of the back-end tasks, your company retains full control over the daily tasks and decision-making for your team.

By offloading these responsibilities to an EOR, your business can concentrate on growth and operations without the complexity of direct employment.

What is a Global Employer of Record?

A global employer of record provides similar services to a standard EOR but on an international scale, managing employment tasks in multiple countries around the world. This is especially beneficial for companies looking to hire internationally.

A global EOR has expertise in the legal and compliance requirements of different countries, which is crucial for multinational operations. Most EORs operate internationally.

What Does an Employer of Record Do?

An EOR acts as an employer in a jurisdiction where you would like to hire employees but don’t have an entity yourself.

For example, if you are a UK-based company looking to hire employees in the United States, but do not have any physical presence in the United States, then an employer of record is how you can make that happen.

Unlike a professional employer organization (PEO), the employee that you hire to provide services will actually be working for the EOR on paper, which is crucially important for international employment purposes.

Employer of record services include:

  • Employee onboarding
  • Background checks
  • Payroll processing
  • Employment contracts 
  • Compensation benchmarking
  • Payroll taxes
  • Employee benefits
  • Termination of employees and offboarding.
Download our 2024 Workplace Trends Report to stay ahead in a transforming HR landscape. Get insights from leaders on trends that will define your strategies in AI, talent dynamics, and DEI.

Download our 2024 Workplace Trends Report to stay ahead in a transforming HR landscape. Get insights from leaders on trends that will define your strategies in AI, talent dynamics, and DEI.

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The Difference Between an EOR and a PEO 

The difference between an EOR and PEO mainly lies in the scope of services and the nature of the employment relationship they establish.

  • Employment relationship: The EOR becomes the legal employer of the client's employees whereas employees are co-employed by both the PEO and the client company.
  • Scope of service: EOR services are often geared towards assisting companies with international operations, facilitating employment in countries where the client does not have a legal entity. PEO providers are generally more focused on domestic HR solutions within the client’s home country, although some PEOs also offer international services.

How Does an Employer of Record Work?

Think of an employer of record as a sort of outsourced HR in that they handle many of the traditional tasks in the employment relationship and also act as the legal employer. The employee works for you but is contracted under the EOR. You have the direct relationship and manage the day to day as well as provide feedback, performance management and development paths.

An Employer of Record handles all of the administrative tasks of the employment relationship such as payroll, employee benefits, etc. but is also legally responsible for the employees, including termination as required.

Benefits of Using an Employer of Record

EOR services are in place to make hiring easier. No longer does a company looking to expand need to lose sleep over its liabilities in each jurisdiction it wishes to hire.

Employer of record benefits include:

  • Reduce compliance risks: Organizations don’t have to worry about local labor laws, tax laws, or other regulatory challenges.
  • Efficient international expansion: For businesses looking to expand internationally, an EOR can facilitate quicker entry into new markets. Since the EOR handles legal and HR compliance, companies can employ workers in new countries without the need to set up a legal entity there.
  • Reduced administrative burden: Handling payroll, taxes, benefits, and other HR tasks can be time-consuming. An EOR takes over these responsibilities, allowing companies to focus on their core business activities.
  • Cost savings: Setting up legal entities in multiple countries can be expensive. Using an EOR eliminates the need for this, potentially leading to significant cost savings.
  • Flexibility in hiring: Companies can use an EOR to hire employees or contractors in locations where they do not have a physical office, providing greater flexibility in building a global team. It also gives employers a chance to test a market before building out a full team. When, if, it makes sense to set up an entity in that country, most EOR’s include a buy-out clause that allows you to transfer the employee directly to your organization.

Instead of looking to dispatch your existing team members all over the map, use a local entity to help get the job done. 

They understand how to work best with international employees and will provide you with the working knowledge that you would not have access to otherwise. 

Key Considerations When Using an EOR

Not all organizations use an EOR to tap into global talent, instead deciding to manage the process in-house.

Reasons some organizations choose not to use an employer of record include:

  • Cost considerations: For some businesses, especially larger corporations with established HR departments, the cost of using an EOR might outweigh the benefits. These companies may find it more cost-effective to handle employment tasks in-house.
  • Control and autonomy: Some companies prefer to maintain full control over their payroll, benefits, and HR policies to ensure they align closely with their corporate culture and objectives.
  • Complex or unique employment needs: Some businesses may have complex or highly specialized employment needs that an EOR cannot adequately address. This can include specific industry regulations, union negotiations, or bespoke employee benefit plans.
  • Desire for direct employer-employee relationship: Maintaining a direct relationship with employees can be crucial for some organizations, particularly in building company culture, loyalty, and direct communication. If you do use an EOR and you want the employee to feel like a member of the team, you treat them as such, even if they are technically employed by the EOR.

When to Consider an Employer of Record

Leveraging an Employer of Record (EOR) becomes a strategic advantage in managing a diverse workforce and venturing into new markets globally. Here’s how an EOR can be instrumental for your business:

  • Facilitate Global Expansion: Dreaming of taking your business global without the hassle of setting up local entities? An EOR empowers you to swiftly enter new markets, enabling you to hire internationally and tap into new customer bases without the long-term commitment of establishing a local presence.
  • Boost Talent Acquisition and Retention: In today’s job market, the flexibility to work from anywhere is not just a perk; it’s a game-changer. By removing geographical barriers, an EOR allows you to hire from a remote talent pool, ensuring you find the perfect fit for your needs. Furthermore, it simplifies the process of retaining employees who relocate, ensuring your top talent stays with you, entity boundaries notwithstanding. Confirm with your EOR if they have a recruiting function, or partner, that can help you hire in the new location.
  • Support During Entity Setup: Navigating the complexities of international expansion? An EOR can bridge the gap, offering immediate hiring solutions and insights into local legal requirements while you focus on establishing your entity.
  • Prevent Contractor Misclassification Risks: Opting for contractors can seem like an easy fix for growing your international team. Yet, this approach carries the risk of misclassification, leading to legal and compliance issues. A global EOR can transition contractors to employee status seamlessly, safeguarding your business against potential compliance pitfalls.

The Difference Between an EOR and a Staffing Agency 

The difference between an Employer of Record (EOR) and a staffing agency lies in their primary functions and the nature of the services they offer.

  • Primary function: An EOR's primary function is to legally employ individuals on behalf of another company whereas a staffing agency's main role is to recruit and supply employees or temporary workers to client companies.
  • Employment Relationship: Staffing agencies typically employ temporary workers or contractors and then 'lease' them to client companies whereas EOR is a full-time employer.

Which countries support EORs?

Employers of record are prevalent worldwide. However, they typically won’t operate in countries with:

  • Strict labor laws
  • Political or economic instability
  • Limited market demand
  • Regulatory restrictions
  • Complex bureaucracy
  • Sanctions or trade embargoes.

If you're interested in hiring employees within a specific country, our roundups of the best EOR services in Canada and the best UK EOR services might be a good place to start.

EOR Cost 

In terms of pricing structure, EORs commonly use one of the following models:

  • Percentage of employee salary
  • Flat fee per employee.

EOR Risks

Despite the benefits and popularity, there are some risks when using EORS. For example.

  • Compliance risks (if the EOR doesn't do its job properly)
  • Financial risks e.g. hidden costs like service fees
  • Operational risks e.g. business continuity or poor customer support model
  • Data security

EOR Alternatives 

Instead of using an EOR, organizations might want to:

  • Set up a local entity
  • Hire freelancers
  • Form a joint venture or partnership
  • Outsource a business process.

How to Choose an Employer of Record Partner

Selecting the right EOR partner is crucial for the seamless expansion and management of your global workforce. Here are essential factors to guide your decision:

  • Transparent Pricing: Opt for an EOR that offers straightforward pricing without hidden fees, ensuring budget predictability for your distributed team. Some EOR’s have a pricing calculator on their website you can use to determine the cost of hiring in different location
  • Accurate Employer Burden Calculations: Seek a partner well-versed in the nuances of employer burden costs, including social contributions like health insurance, social security, and paid leave. These costs vary by market, and a reliable EOR will provide precise cost assessments.
  • Global Market Expertise: Your chosen EOR should have extensive knowledge and operational capacity in the countries where you're hiring. Expertise in local labor laws is critical to avoid costly compliance missteps and ensure efficient market entry.
  • Prompt Responsiveness and Support: Accessibility is key. A responsive EOR will offer dedicated account management to swiftly address your and your team's needs, facilitating smooth onboarding and ongoing support across time zones and languages.
  • Independent Third-Party Validation: Trustworthiness can be gauged by recognition from industry analysts. Look for EORs that are highly rated by unbiased reports, which evaluate factors like industry expertise, scalability, solution range, and customer service.

6 Steps to finding your perfect match EOR

Finding the perfect EOR partner is more than just a checklist; it's about aligning their services with your business goals.

Karen Weeks, Global Chief People Officer & Advisor, says the key to finding the right partner is to interview them like you would an HR team member.

Understand how their values align with yours, ask them to share success stories but also how they handle client concerns. Share key practices and expectations of your internal team and see how that compares with their HR practices, like payroll timelines and onboarding processes.   I have had great experiences with EORs and struggled with other partnerships, it the wins and frustrations often came down to misalignment on the above.

Karen weeks, Global chief people officer & advisor
  1. Define Your Needs: Start by outlining what you expect from an EOR - whether it's expanding into specific markets, managing certain aspects of HR compliance, or supporting a remote workforce. Knowing your priorities helps narrow down potential partners.
  2. Request Detailed Proposals: Reach out to a shortlist of EOR providers with a request for proposal (RFP) that includes your specific requirements. Compare their responses, focusing on services offered, pricing structure, and market expertise.
  3. Check References and Reviews: Speak with current and past clients of the EOR providers to get firsthand insights into their service quality, responsiveness, and reliability. Online reviews and testimonials can also offer valuable perspectives. Check with your HR network to see if anyone has worked with them to get a backdoor reference.
  4. Evaluate Communication and Support: Engage in direct conversations with potential EOR partners to assess their responsiveness and the quality of their communication. This interaction is a good indicator of the level of support you can expect. Understand the timeline for payroll changes and any other employee impacted decisions so they have a good experience with you and the EOR
  5. Review Contracts Carefully: Before making a final decision, thoroughly review the contract terms with each EOR. Pay special attention to service level agreements (SLAs), termination clauses, and any hidden fees.
  6. Consider Long-Term Scalability: Choose an EOR partner who can grow with your business. Their ability to support additional markets, offer more services, allow for direct hiring if that is an option in the future if you set up a local entity and adapt to changing regulations is crucial for a long-term partnership.

Navigating Future EOR Partnerships

In closing, I'll boil down this advice to three essential tips for working with an EOR.

  • Strategic Partnership: Choosing an EOR partner is a strategic move that aligns with your business goals and simplifies global expansion, allowing you to focus on core activities.
  • Compliance and Flexibility: An effective EOR ensures you meet local employment laws and remain adaptable, minimizing legal risks as you enter new markets.
  • Future-Proof Growth: A robust EOR partnership equips your business for scalable, agile growth, ready to adapt to the evolving global workforce and market demands.

By the way, if you're looking to really nail your EOR decision and step up your management game, why not join our People Managing People community? It's a friendly spot where you can chat with experts and pick up some handy tips for managing your team.

By Finn Bartram

Finn is an editor at People Managing People. He's passionate about growing organizations where people are empowered to continuously improve and genuinely enjoy coming to work. If not at his desk, you can find him playing sports or enjoying the great outdoors.