What is an Employer of Record (EOR)?
Employer of Record (EOR)
An employer of record (EOR) is an entity that legally employs workers on behalf of another business. An EOR takes full responsibility for all aspects of employment including compliance, payroll, taxes, and benefits.
Employers of record can be located within the same country as the business it employs workers for or in another country with different employment laws.
What does an EOR do?
The tasks that an EOR takes on vary from service to service and location to location. Here are a few tasks that a typical EOR handles:
Compliance with local employment laws
An EOR will guide and support a business to ensure employees are hired in accordance with local laws in every country or jurisdiction and provide them with compliant employment contracts. As the EOR is the employer, the business can rest easy knowing that the legal ins and outs are taken care of.
Onboarding new team members
Once a business has found a new hire the EOR will onboard them, managing the employment agreement and setting up all the necessary processes necessary for the new team member to start at the company.
Running payroll internationally
Payroll and local taxes for both the employee and the employer will be fully managed by the EOR. The business's team members will be paid by and receive payslips from the EOR.
Managing compensation and benefits
EORs often offer a variety of benefits but these vary from service to service. Benefits can include health insurance, time-off policies, parental leave, etc.
Processing contract terminations
When an employee’s contract is terminated, the EOR will handle all the necessary details.
What's an example of an EOR?
An EOR based in Spain, for example, can hire employees locally on behalf of a company based in the United States. The employees would work locally in Spain for the company in the United States, with the legal responsibilities of employment lying with the EOR in Spain.
How does an EOR differ from a PEO?
With an EOR employees are not ‘co-employed’ like they are with a Professional Employer Organization (PEO). Typically, a PEO manages some HR functions like payroll, taxes, and benefits. Businesses that work with a PEO sign a co-employment agreement. The National Association of Professional Employer Organizations defines co-employment as a situation in which:
“Both the PEO and the client company will be responsible for certain obligations of employment, while both parties might share responsibility for other obligations and be “an” employer, but neither party is “the” employer for all purposes.”
Under this arrangement, the company and the PEO both contractually share the employer responsibilities.
The disadvantage of co-employment
Because the employee risk is split between the client company and the PEO, neither party is fully responsible. This sharing of risk and employee responsibilities can be challenging and, in some cases, has led to legal exposure, such as in the Stephanie Perez vs. Dermatology Group, PC, vs. ADP case, in which the employee sued the company and their PEOs for claims discrimination. It was the legal and compliance challenges of the PEO model led to the creation of employer of record services as an alternative.
The advantage of EORs over PEOs
While both services are employment solutions, that’s where the similarity ends. Unlike a PEO an EOR goes further than “general” HR outsourcing by taking on the risk of hiring employees overseas while the client company focuses on its day-to-day operations.
How does an EOR differ from a staffing agency?
A staffing agency acts as an intermediary between talent and the hiring company. Their main goal is to support the client company in hiring the right candidate that matches the role they’re trying to fill.
Some staffing agencies offer additional services such as:
- Advertising the role on job boards.
- Running background checks.
- Reviewing applicants and filtering for role-fit.
- Filing paperwork.
On the other hand, an employer of record service only kicks in once an employee has completed the recruitment process. EOR services don’t participate in the talent search and vetting process.
Is it easier to open an entity in another country or use an EOR?
This depends entirely on the circumstances of the company. Companies that open their own legal entity in a different country tend to be planning to hire a significant number of employees in that country. This is due to the fact that opening a legal entity means the company is responsible for their entire presence in the country, and will have to hire legal and accounting professionals to comply with employment laws, run payroll, administer benefits, and carry out many other tasks specific to that country’s rules and regulations.
If a business's expansion plans in a country are uncertain or projected to be limited in scope, it can be far easier, more cost effective, and less complicated to use the services of an EOR. Check out our guide on opening your own subsidiary vs. partnering with an employer of record.
What are some advantages of using an EOR?
1. People operations compliance
An EOR can help save time and money in the hiring process by handling all of the paperwork and red tape associated with hiring an employee, which can be a major time-saver. From running payroll in local currencies to onboarding, the services vary from provider to provider, so busienss owners need to check that a prospective EOR offers everything that they need before committing.
2. Compliance with local employment laws
An EOR can also help with local regulatory compliance, with local experts handling all aspects of employment within the bounds of the local jurisdiction.
3. Flexibility in staffing
An EOR can increase a company’s flexibility when it comes to staffing. Businesses can use EOR services to hire international contractors on a temporary or project basis. This can be particularly beneficial for startup companies.
4. Cost savings
The cost of using an EOR is far less than the cost of setting up an entity in a particular country. A global employment service, like Oyster, can save even more by enabling you to build teams globally—just imagine the cost of setting up entities in several countries worldwide.
Paying team members in different countries can also prove to be more cost efficient, as what’s considered a decent salary by a worker in a certain country or city could be far lower than the expectation of workers local to your operations.
5. Faster expansion
The ease with which the right EOR can enable business's to onboard team members, and the enormous pool of talent global hiring opens, means that teams can expand faster.
6. A more diverse talent pool
It’s no secret that a diverse workforce is a better workforce, and building a global team will naturally make your business more diverse, adding a range of team members with different cultures and perspectives.
In summary, there are many advantages to using an EOR, and you should carefully weigh all the pros and cons before making a decision.
Which countries are EORs present in?
EORs are present in most countries around the world. Find out more in our country-specific guides:
- EORs in Brazil
- EORs in Canada
- EORs in the Philippines
- EORs in Portugal
- EORs in Spain
- EORs in the UK
- EORs in India
- EORs in France
- EORs and hiring in Germany
- EORs in the US
How to choose the right employer of record?
With so many EOR solutions available it can be tricky to now where to begin your search. Here are a few things to consider:
1. Are they present in the right countries?
If there are prospective team members in one or two countries the business should check in each location that there are EORs present that you feel happy to work with. If prospective team members are located in several countries you would either need to find multiple EORs, which would cause a lot of administrative work, or you can look to the services of a global employment platform, like Oyster.
At Oyster we own or partner with local entities in over 180 countries worldwide to save you the headache of finding multiple individual services. We also handle high value employment functions, like benefits, onboarding, and off-boarding, all through our easy to use global employment platform.
2. What support being offered?
Cross-border employment can be complicated. Businesses that choose this option will want want to partner with an EOR that provides adequate support for your needs.
It's a good check out the support materials the EOR has on their website and whether it will be easy to self-serve. Why not kick off your search by speaking to a member of the team at Oyster to explore our solution further?
3. Does the EOR have a platform and what features does it include?
It’s important to try before you buy. Many EORs don’t have a software platform, but Oyster has a comprehensive, easy-to-use platform that you can demo before you commit.
How much does an EOR typically cost?
Costs of EORs vary depending on a number of factors including location, services offered, and number of employees. Many EORs charge on a per-employee basis. Check out our pricing page to learn more about the cost of hiring globally.
Can you onboard contractors through an EOR?
Yes! EORs can usually help companies onboard contractors in many countries around the world. Find out more about working with international contractors using Oyster.
What are the alternatives to an EOR?
Some alternatives to using EORs for international hiring include:
Opening a foreign entity
If a business opens its own entity in the country or countries in which it wants to hire, it can handle all the aspects of employment that an EOR would handle. The compliance burden of this approach makes it appeal mainly to larger companies that are looking to take on a large number of staff in a particular location.
Helping an international employee obtain a visa
Many countries have visa programs that enable employers to sponsor employees to work legally for them. However, these visas are often time-limited and following this process for each employee would be burdensome.
Is Oyster an EOR?
At Oyster, we provide global workforce management consultancy services through our global employment platform worldwide. As part of our Team Member service, Oyster is the legal employer of our customers' Team Members.
In countries where Oyster does not have a direct entity, we typically use trusted Employer of Record Vendors to manage Team Members who are employed there. In these cases, the vendor is the legal employer. Get in touch with Oyster today and one of our expert advisors will be happy to discuss your specific needs and requirements.
Disclaimer: This article and all information in it is provided for general informational purposes only. It does not, and is not intended to, constitute legal or tax advice. You should consult with a qualified legal or tax professional for advice regarding any legal or tax matter and prior to acting (or refraining from acting) on the basis of any information provided on this website.
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