Everything Companies Need to Know About an Employer of Record

Working across international borders is no simple task. Each region in which your company operates — or wants to operate in — has its own labor and employment regulations. Tracking compliance across markets (not to mention how competitive your compensation packages are, cultural working norms, and more) can quickly become overwhelming for an in-house HR department.

This is often where an employer of record (EOR) enters the picture. These organizations offer HR services with an understanding of local labor laws and regulations, and assume these responsibilities and compliance needs. They take on the contractual role of a company's employer that can provide most of — or even all of — an organization’s human resources functions in one or multiple markets.

That’s the basic idea, but if you’re looking at hiring an EOR, it’s worth understanding the ins-and-outs of this set-up. This guide can help you evaluate whether your company could benefit from hiring one now or in the future.

What Does an Employer of Record Do?

An employer of record is the entity that legally employs workers, assuming the financial and regulatory responsibilities of an employer on behalf of client companies. The client company then focuses on employer responsibilities like performance management and career development.

A global EOR helps companies navigate the complexities of international hiring, including regular employees and independent contractors or freelancers. An employer of record services commonly include: 

• Payroll processing.
• Obtaining and maintaining employee records.
• Recruiting and hiring employees on behalf of a company.
• Employee onboarding paperwork.
• Complying with regulatory labor laws, both federal and local.
• Offering worker's compensation coverage for employees.
• Providing employee benefits, such as health insurance.
• Ensuring compliance with payroll taxes, Social Security and pension plans.
• Managing international employment contracts between employers and their staff.
• Representing employers in potential legal disputes.

Employer of Record vs. Professional Employer Organization

When companies consider outsourcing the majority of their HR responsibilities, there are two main approaches they can take: hiring an EOR or a professional employer organization (PEO). Both EORs and PEOs give companies the ability to outsource certain HR and personnel management tasks, but they have a few key differences.

Using a PEO requires establishing a legal entity in the country in which you are hiring, and the PEO does not assume legal responsibility. In contrast, a global EOR can operate anywhere. They are already established companies permitted to hire and pay workers, which means you don’t have to wait for approvals to start business activities when you hire an EOR.

When To Use an Employer of Record

There are two common cases when which companies use an employer of record:

• When a company is looking to explore global opportunities. During global expansion, a company may find itself in an unfamiliar legal landscape with laws and regulations that they are not well-versed in. A global employer of record can help companies navigate the complex legal and financial implications of hiring international employees.
• When you want to hire international remote workers in a foreign country. An EOR service provider can handle all the legalities of the recruiting and onboarding processes for new international employees.

Benefits of Using an Employer of Record 

An EOR provides expert assistance to companies in various areas. It can help you remove barriers to entry, free up important time, and mitigate risk. 

Eases Global Expansion Efforts

One major advantage of using an employer of record is that it helps to remove global entry barriers. As an EOR is already an established company permitted to hire and pay workers, it can immediately start recruiting and talent acquisition efforts in any country to which you're expanding. This outsourcing helps reduce the complex legal and financial implications of hiring foreign workers in global markets, streamlining the process of setting up operations abroad.

Frees Up Important Time

An employer of record can help small businesses free up important time and resources, especially for companies where HR managers are in charge of multiple projects or departments. When an EOR takes over tasks like payroll processing and benefits management, the in-house HR team can stay focused on activities that actively further their organization's goals, like running mentorship programs or looking for ways to improve revenue per employee.

Mitigates Compliance Risk

With an employer of record, you can entrust your HR responsibilities to an entity well-versed in local regulations. Your EOR is responsible for accurately classifying employees, managing taxes and health insurance, and ensuring compliance with federal and local laws and regulations. This can help avoid potential legal disputes or costly fines due to market inexperience. An EOR can also offer additional services, such as employment contract negotiation and dispute resolution, to help reduce risks associated with employee relations.

Focus Sets Everyone Up for Success

When you use an employer of record to handle the regulatory aspects of HR, it allows your in-house team to focus on the people part of human resources. They can dedicate their time to all the initiatives that make your organization a great place to work, like training, career development, and wellbeing programs. 

These are the programs that move your business forward. Employee wellness initiatives, for example, have been shown to improve employee performance, decrease the number of sick days employees take, and help companies exceed financial targets. They are also a high priority for today’s top talent, with 3 out of 4 HR leaders saying their wellness program is important to employee retention.

If you want to learn more about how you can support employee success with a wellness program, speak with a Wellhub wellbeing specialist today!

References

• Gatzagaetxebarria, J. F. (2022, July 20). Employer of Record in Spain: Making it Easier to Hire Employees in Other Jurisdictions. Retrieved May 3, 2023, from https://www.shrm.org/resourcesandtools/hr-topics/global-hr/pages/spain-employer-of-record.aspx.
• Payne, R. (n.d.). When should you use an employer of record, and which one should you choose? Retrieved May 3, 2023, from https://remote.com/blog/when-to-use-employer-of-record. 
• Sahin, N. (2021). Using An Employer Of Record To Meet The Challenges Of Global Expansion. Retrieved May 3, 2023, from https://techrseries.com/guest-posts/using-an-employer-of-record-to-meet-the-challenges-of-global-expansion.