An employer of record (EOR) is a third-party entity that exists to legally employ workers for other companies, who often do not operate in the same country. For tax purposes, the best employer of record services will handle compliance, payroll, benefits, onboarding, or terminations for their client companies.
An EOR is a cost-effective way for a company to expand into another country while remaining compliant with local, state, and national tax and payroll regulations, and offering workers the required benefits. With fully remote workforces growing in popularity, an EOR can deliver the effortless HR functionality your company needs.
Here, we'll explain how an EOR works, what advantages you'll gain from one, and how it differs from similar but distinct business partners like PEOs or staffing agencies.
An employer of record (EOR) is an organization that handles the legal employment for other companies, ensuring all payroll, benefits, and taxes comply with any local, state, or national laws. International companies often use them to make sure they can easily provide for their workers across the globe.
An EOR can provide a wide range of functions for its clients' employees. Most EORs will handle payroll, onboarding, tax filing, insurance, time sheets, and terminations.
An EOR usually offers an online portal that allows both the companies and their employees to login over the internet. Given the global nature of an EOR, this is the easiest way to ensure everyone is on the same page.
Within the software portal, employees can pick their annual insurance plans or other benefits, as well as submit their time-off requests. Below, we have created a detailed explanation of each of the core functions of an EOR.
- Payroll: Ensuring all employees and contractors receive their compensation on a weekly, biweekly, or monthly basis. This also includes paid time off (PTO); sick leave; and any required days off that may vary by state or country, such as jury duty requirements or national holidays.
- Tax filing: This factors in all relevant tax laws, filing business taxes, and sending W-2s to employees for their own filings.
- Benefits and insurance: Employee insurance might include life, health, dental, and workers' compensation.
- Onboarding paperwork: This may include employment contracts as well as background checks.
- Time sheets: Some EORs will also collect and process time sheets, so that employees' paychecks reflect their actual hours worked for the pay period.
- Terminations: If workers are laid off or fired, their employer will need a well-oiled process for handling the technical aspects of changing that employee's work status and removing their access permissions — an EOR can provide this.
Any EOR worth its salt will handle all these employment needs while also offering strong online security tools for its own software, including passwords, multi-factor authentication, and role-based access.
Any company that operates across national borders (or plans to expand) will more than regain their investment when utilising an Employer of Record. Here are the six biggest benefits of an EOR:
Save on costs
The main aim of using an EOR is to outsource work that would otherwise be cost-prohibitive should your business handle it all in-house. Paying a full salary for an HR professional and covering their office space in a new country where you only have a few employees simply doesn't make financial sense. Ultimately, saving money is the biggest benefit of an EOR partner.
Speed up onboarding
Getting new employees up to speed can be a big drain on resources, particularly for fast-growing operations. An EOR can address this need. It offers an online portal that holds all the documents any new employee needs, and can guide each user through their new employment agreement as well, answering questions when needed.
Retain talent with great benefits
Once your employees are onboarded, they'll need a reason to stay. Supporting benefits requires custom software to automate PTO requests while keeping all remaining sick days and vacation leave up to date and tracking the next upcoming holiday. An EOR can provide this while also making it easy for an employee to see all their current benefits with a few clicks, from their health insurance plan to their worker's comp benefits.
Offering the right benefits can attract new talent as well: an impressive 92% of 2023 college grads say they want mental health benefits in their workplace, for example.
Gain flexibility with remote work
Offering remote work is an increasingly easy way to stay competitive within your industry. Remote work options are proven to boost productivity, lower employee stress, and retain talent.
Since your EOR partner will offer an online portal to support workers in other countries, you'll be able to integrate them into a fully remote position with ease, opening up one of the largest benefits that today's workers look for in a company — companies that offer remote work flexibility are currently attracting twice as many applicants as those that do not.
Payroll laws and labor regulations can vary widely, even just between states or provinces within the same country. If your company is halfway around the world, small laws can be easy to miss and can easily balloon into serious legal concerns years or even decades down the road.
Have HR support when needed
An EOR partner offers many of the documentation and resources that an HR department needs, starting with core services like payroll, taxes, and benefits. If needed, an EOR can also handle the hiring and termination processes, essentially acting as a virtual HR team that can operate more nimbly than your own company.
Like an Employer of Record (EOR), a Professional Employer Organization (PEO) helps companies with their employee management needs. Unlike an EOR, a PEO is a co-organization, sharing some legal employee risk with the client company. The client company has a closer relationship with a PEO than with an EOR.
A PEO has two big restrictions when compared to an EOR. First, a company can only use a PEO within a country in which it operates as an entity, while an EOR can operate outside the country that its client companies are tied to. Second, a company shares some legal exposure with a PEO that it does not share with an EOR. However, a PEO can be a more affordable option when compared to an EOR's typical costs.
A PEO might be best for your company if you need help managing payroll, taxes, and benefits within the country your company operates. An EOR will be a better choice if your company needs to employ workers in other countries.
An EOR doesn't have the same goal as a staffing agency. A staffing agency aims to recruit and vet potential employees to fill a position at a company, while an EOR aims to onboard and manage employees after they have already filled a position.
A staffing agency's functions can overlap in some ways with those of an EOR. Both EORs and staffing agencies can handle payroll for their client companies' workers, although staffing agencies tend to do this only for temporary workers. However, an EOR is designed to handle a broad range of human resource functions than that of a staffing agency.
Your company should opt for a staffing agency if it needs help finding skilled, trusted employees. However, if you can already handle the hiring process yourself, you won't need a staffing agency. In either case, you will want a EOR if you plan to hire staff who are in a country that's outside the one in which your company is an entity.
Next Steps: Do You Need an EOR?
An EOR will handle the paperwork that a company needs to hire workers across international borders while remaining compliant with all applicable laws. An EOR will handle payroll, taxes, benefits, time sheets, onboarding, and terminations, saving your company time, money, and a lot of hassle.
If your company needs to hire workers in a country outside of the one your company operates within, you need an EOR — a PEO or a staffing agency just won't do the trick.
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