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What is an Employer of Record? Definition, Benefits, Vendor Screening Tips

What is an Employer of Record? Definition, Benefits, Vendor Screening Tips

Establishing a business entity overseas is a powerful opportunity for business owners. It gives you access to new markets, broadens the talent pool, and lowers the costs of project development. To ensure that bureaucracy hoops don’t hold you back from exploring the potential of foreign markets and talent, it’s time to think about hiring an employer of record (EOR). 

In this post, we’ll take a closer look at what the EOR concept means and the benefits of partnering with an employer of record. 

What Is an Employer of Record?

Simply put, an employer of record is a company that takes responsibility for financial and legal procedures needed to create and run an office abroad. An EOR firm handles payroll, the administration of employee benefits, as well as tax documentation. 

When it comes to project-related work, the EOR company doesn’t intervene in workflows, offering business owners full management freedom. 

Responsibilities of an Employer of Record

To understand the importance of EOR for companies ready to open global headquarters, let’s take a closer look at the responsibilities an employer of record carries. 

In most cases, EOR organization perform the following critical tasks: 

  • Represent a company as a proxy entity registered as a legitimate employer in the region and controlling payroll. 
  • Ensure compliance with local labor and tax legislation (e.g. drafting valid contracts and agreements). 
  • Fill in tax and insurance forms on the employer’s behalf (W-2, I-9, and other documents). 
  • Arrange visa-related documents and work permits in case the relocation of an international employee is necessary. 
  • Offer consultant services to the company regarding the best practices of employee onboarding, severance pay, or contract termination in the region. 

EOR vs Staffing Agencies: the Difference

Since the differences between staffing agencies and EOR firms may seem subtle to some, it is common for business owners to confuse these concepts. 

Take a look at the table below to learn how the concepts are different. 

Employer of RecordStaffing agency
FocusHandles documentation, payroll, and tax paperwork submission. An employer of record is responsible for personnel vetting, benefits administration, and contract termination. Handles recruitment, supplies the workforce for seasonal activities or contract projects. The main goal of a staffing agency is to scout talent for long-term or short-term projects. 
BenefitsHiring an employer of record gives business owners confidence in compliance with the hiring formalities abroad. 

Onboarding an EOR helps: 

  • Transfer the responsibility for documentation errors
  • Save business owners time and money from having to deal with payroll management, benefits administration, etc. 
  • Maintain full freedom in establishing the company’s value, corporate culture, and oversee processes. 
Hiring a staffing agency reduces the amount of time needed to close a job opening and helps find the best talent available on the local market. 
Responsibilities
  • Ensuring workplace safety and documentation compliance 
  • Accepting responsibility for legal and financial decisions 
  • Handling employee termination
  • Representing the main office as a registered entity abroad
  • Finding ways to close job openings in the fastest way possible 
  • Screening and interviewing talent
  • Onboarding and managing teammates within the company

5 Benefits of Hiring an Employer of Record

Collaborating with EOR vendors is a commonplace practice for global companies. Reaching out to a company that can become an intermediary between a business located in a different country and the local government helps business owners mitigate risks, reduce management costs, and improve team efficiency. 

Let’s take a closer look at the main benefits of hiring an employer of record:

1. Remove global market entry barriers

Although building teams abroad has a ton of benefits (affordable workforce, larger talent pool, workplace diversity), a lot of business owners are wary of looking for talent abroad because of the challenges that come along with registering a business entity abroad. 

In countries with a high level of bureaucracy (Ukraine, Argentina, India), waiting for the embassy’s approval to start business activities abroad can take months. All this time, business owners are in an undefined state, unsure whether they should keep trying to break in or focus on hiring talent at home and give up on a global office. 

How EOR helps: an employer of record is an officially registered company that has an approved right to hire and pay employees. Thus, hiring an EOR vendor allows business owners to start looking for talent abroad and working on projects right away, without trying to cut the red tape. 

2. Comply with local laws

The cases of expensive lawsuits caused by not knowing local trade and labor laws are common among international businesses. For example, European companies oblige employers to give female teammates a 14-week maternity leave. Since there are no such requirements in the United States, an American business owner can get himself in a legal pickle because they weren’t aware of the nuances of EU legislation. 

How EOR helps: to avoid such situations and manage teams in a legally-compliant way, business owners rely on employers of record. EOR agencies have a firm grasp of labor and business legislations and will make sure all the processes within the company are compliant. If a breach of law occurs, the business owner does not have to take responsibility — the employer of record will be the liable one. 

3. Save time

Keeping track of paperwork, administering benefits, running payroll, and terminating employee contracts takes a lot of time. Trying to juggle dozens of management tasks on their own, business owners end up not spending enough time on the company’s core activities — improving the product, building strategies, and fostering meaningful connections with clients or partners. 

How EOR helps: having a reliable vendor who takes care of tax payments, employee payroll, and other formalities saves company managers a ton of productive time. 

By collaborating with an EOR, business owners can improve their skills in areas they are passionate about and skilled in rather than spending hours researching international laws and procedures. 

4. Mitigate risks

Hiring an employer of records is a way for business owners to shift the burden of responsibility off the organization and onto a vendor. Since the employer of record is the one featured in the official documentation, drafting agreements, and paying taxes, the organization will be the one to take the fall should something go wrong. 

Thus, by hiring an ERO, a business owner doesn’t have to worry about the consequences of accidental tax documentation negligence or non-compliance with local labor laws. 

5. Reduce the costs of setting up a global office

A lot of costs are associated with opening an office abroad. From the expenses related to establishing a subsidiary to hiring legal and financial assistants, building a team abroad from scratch ends up costing company owners an arm and a leg. 

How EOR can help: hiring an employer of record allows business owners to save up on hiring financial, HR, and legal consulting companies. The high flexibility of EOR agencies gives room for exploring new markets and closing global offices in case the collaboration is not as efficient as the company manager originally expected without having to worry about upkeep and HQ termination costs. 

Hiring an Employer Of Record Is Essential For Full-Time International Teams

The need for onboarding an EOR company isn’t clear for many business owners. “Why would I hire an employer of record in a different country when I can go by hiring contractors?” is a common train of thought. 

However, what most company managers don’t pay attention to is that, in most countries, there are legal penalties for not drawing the line between contractors and full-time employers. 

In the US, the fines are strict – up to 20% of all paid wages, as well as all FICA taxes both for employers and employees. The severity of penalties varies from country to country. 

Unfortunately, the range of tasks and intensity of supervision on a manager’s behalf are limited for a contractor. 

Let’s take a look at the main difference between contractors and full-time team members:

ContractorFull-time employee
Time trackingNo work hours trackingCan track productive time
TrainingNo workplace trainingCan get a training period from a company
Work scheduleUp to 4 months a yearRegular
Involvement with a teamLittle, high independenceConstant connection with peers
Access to employment perksNoYes
Hardware and toolsUsing his own hardware and softwareCan get hardware and tools from the company

Differences between a contractor and a full-time employee (US)

If a manager wants to create an efficient workplace, the need to train, invest in hardware, and monitor the team’s productivity is clear. To create a high-performing team, it’s definitely better to stick to full-time professionals instead of contractors. 

However, once you choose to onboard hires permanently, you’ll have to handle the paperwork and fully comply with local laws – to not worry about keeping track of legal updates or tax paperwork deadlines. so many company managers hire employers of record. 

How to Choose EOR Vendors: 6 Things to Pay Attention To

If you are considering hiring an employer of record, it’s important to take some time to screen and compare vendors. Since the organization you choose will represent your company and handle your payroll, it’s important to choose a reliable service provider. 

Here are the 7 things business owners should look for in their future employee of record: 

1. Experience in managing companies in a chosen region

The understanding of the labor market, laws, and regulations is one of the key reasons for hiring an employer of record. That’s why business owners want to make sure that a vendor they end up choosing has years of experience managing businesses in the region. 

Ideally, you want to hire an EOR who knows how to manage a team that matches your niche (e.g. tech startup owners should hire an employer of record experienced in running tech teams). Also, make sure that the vendor you choose is knowledgeable in international labor laws. 

2. Reputation

Since the employer of record represents your company in the region, it is important to find a reputable vendor. Here are a few things a business owner should check for when shortlisting EOR service providers:

  • Activity time — the more experience in running a business the vendor has, the higher the agency’s reputation typically is. 
  • Client base — the more respectable companies rely on the vendor in a particular country, the more confidence in the company’s expertise and reliability you have. 
  • Document compliance and tax records — make sure the company follows local labor and tax legislations before entrusting your business to a vendor. 

3. Technology

As a manager of a growth-oriented company, you want to look for a scalable vendor. That’s why it’s important to pay attention to which technology the company uses to administer payroll and keep track of documentation. 

Prefer vendors who use large-scale tools over those who use SME-oriented software or handle documentation manually. Other than that, make sure the technology used by the EOR provider is easy to integrate with the tools your in-house team uses. This way, business owners can create cohesive best practices that are easy to follow both for international and domestic offices. 

4. Employee benefits handling

Since the EOR provider is typically in charge of handling employee benefits, it’s a good idea to choose a vendor who can offer a wide benefits pack. This way, a business owner can build a comfortable environment for the global office. 

Here are the benefits an EOR vendor should be able to offer:

  • Employee insurance
  • Free training and onboarding
  • Employee performance improvement programs
  • Vacation and sick day policies
  • Financial advisory services. 

5. Communication

When choosing an employer of record, make sure the way the organization collaborates with clients is comfortable to you and other stakeholders. 

For example, depending on the company, you could stay in touch using messengers and task manager tools or a designated consultant could be assigned to manage the cooperation. 

There’s no way to say which servicing strategy is the best — however, you should choose which fits the needs of your team better and find a vendor who’s easy to collaborate with. 

6. Intellectual property protection

Before choosing an EOR vendor, make sure a firm you are considering has well-defined protocols for protecting intellectual property. Check if your agreement describes the procedures the company will use to protect sensitive data and your company’s working practices.  

It is better to avoid collaborating with firms that subcontract their work – it puts business owners at a higher risk of confidentiality breaches. Other than that, a business owner should make sure that an EOR has a way to back up all data in case it is stored on local servers. 

Bridge: Reputable Employer of Record

To hire an experienced and reliable employer of record, reach out to Bridge. We collaborate with a team of skilled managers, legal consultants, and talent managers to help tech businesses assemble and manage teams abroad. 

Here’s what we offer to company owners: 

  • A centralized platform for tracking and managing talent, keeping track of team performance, supervising payroll and documentation. 
  • Full handling of corporate finances, office expenses, and tax paperwork. 
  • Reliable support in hiring talent as a registered entity (currently, Bridge supports teams in Ukraine, Argentina, and Mexico). 
  • Scalable tech teams to fit your project’s needs. 
  • Consultation and real-time assistance in team or legal management. 
  • Assuming full responsibility for legal or financial liabilities. 

Every business manager we work with gets firsthand access and full control over financial decisions and documentation made on the EOR’s behalf. All the documents are uploaded to and stored in our custom, scalable global office management system. 

The teams we assemble are not only skilled but cost-efficient as well. To find out how the cost of a team hired with Bridge compares to that of a domestic tech department, use this salary calculator

To get a free consultation and discuss EOR services with Bridge — leave us a message!

 

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