Understanding Employer of Record Services
What is an Employer of Record? An Employer of Record (EOR) is a third-party organization that takes on the legal responsibilities of employing staff in different countries.
If a business is interested in remote onboarding internationally, they’d need to set up a legal entity with the government and endure the fees and time frames attached.
Instead, businesses use EORs to more quickly expand internationally while remaining safeguarded against the complexities and liabilities of employment laws and practices.
While EORs have been around for a while, they’ve recently surged in popularity with the rise of remote work. In fact, the global Employer of Record market size is projected to reach $6.6 billion by 2028.
So how does an Employer of Record work? Here’s the rundown:
- They attract and keep international talent – An EOR provider takes on international hiring to craft compelling and compliant employment packages for the employees you seek. Their focus on employee satisfaction and well-being also encourages loyalty—meaning once you secure an international employee, you have the best chance of keeping them.
- They interface with authorities – The bureaucracy surrounding legal entities can be a drain on your internal resources. EORs circumvent the red tape and get you authorized to employ as quickly and inexpensively as possible.
- They make sure you stay compliant – Staying on the right side of the law when it comes to hiring internationally is not a one-and-done job. With tax and labor regulations constantly evolving, an EOR provider keeps your business compliant and out of trouble.
The Benefits of EOR Solutions
What exactly can companies gain from adopting an EOR solution?
- Better candidates – You’ll have a better shot at landing talent because an EOR knows how to connect your job to desired candidates. They have the intelligence on employee compensation and benefits, market trends, competitive contract terms, and the local nuances that compile an attractive deal.
- Peace of mind – An EOR takes the guesswork out of global labor laws so you can rest assured your business is operating under the best practices of every different country. Whether it’s a complex global payroll requirement or an unfamiliar 30-page tax document, your EOR has you covered.
- Time and money savings – With the air-tight system of an EOR, you dodge leaky payroll systems, reduce the need for specialized in-house teams, and avoid costly legal fees (or even fines) for the foreign country you’re hiring in.
- Happy employees – EORs uphold your duties to your staff to a T. That means accurate and on-time payment and delivery of employee benefits, addressing concerns promptly, and ensuring clarity and contentment toward their role—all of which make an international employee happy for the long haul.
The Risks of EOR Solutions
As any responsible global employer does, you want to be aware of both the benefits and the potential risks. Some are inherent to employing abroad, and others can be avoided by partnering with a competent EOR solution.
Inherent risks that you won’t want to overlook include:
- Insufficient flexibility – Under many countries’ regulations, the EOR model may impose tenure limits, employee contract obligations, and restrictions on the tasks a seconded worker can perform. That can negatively impact your workforce’s overall utilization.
- Operational limitations – Operating through an EOR can impose restrictions on business operations and affect project management, resource allocation, and employee communication. The outcome could strike a blow toward your agility as a team.
Moving forward with a less experienced EOR also poses Employer of Record risks. Two of the most pressing concerns include:
- Data protection and legal disputes – You’re putting a lot of trust into a third party to manage sensitive employee data. Be certain that your EOR has robust data protection measures in place. Otherwise, you may end up at risk of data breaches or regulatory non-compliance.
- Poor employee management – Some EORs boast rapid setup times, but end up rushing employee onboarding to a fault. That leaves the door open to the risk of leaving out crucial details. They may also neglect other key HR tasks that can erode trust and deter future candidates.
Weigh the Employer of Record pros and cons while selecting your EOR. Partner with an EOR you trust to uphold your organization’s reputation and legal stature abroad.
How to Determine if EOR Services Are Best For You?
Determining whether an Employer of Record is appropriate for your business requires a detailed evaluation of your company’s needs and goals. You’ll also want to assess your capacity for managing international workforce complexities.
Here are a few aspects to consider:
- Business objectives – Align EOR services with your broader business goals and assess how they can support (or potentially limit) your international expansion strategies.
- Risk tolerance – Evaluate your company’s capacity for risk toward the potential legal, operational, and data security challenges that can come with EOR partnerships.
- Cost-benefit analysis – Conduct a thorough cost-benefit analysis, weighing the financial implications of EOR fees against the potential savings and advantages offered.
Reflecting on these factors should shed some light on whether the advantages of employing an EOR outweigh the potential risks.
