Distributed working is a new concept. Until recently, workers always moved to take a new job at a physical location, perhaps a town where the employer had operations. And as such, the labor laws of that jurisdiction governed employment. Simple, right?
Even as employers expanded operations into foreign countries, opened offices for local workers, they hired managers to supervise compliance with local labor laws. And authorities (if needed) could investigate to ensure employers were compliant.
These days, employers don’t have to incorporate in far flung countries or even in the state next door to leverage a distributed workforce. Employees don’t have to leave their hometowns to get that next great job.
But how can local authorities tasked with ensuring compliance, safety, and taxation do their jobs when there is no local office to investigate? Or when that “office” is a private home? Or more precisely millions of private homes? Governments everywhere are struggling with these challenges, which have multiplied as remote work becomes increasingly the norm.
Companies looking at hiring remote employees, and doing so compliantly, are faced with a wide range of options. For most, setting up a legal entity in each individual country will be too costly and time consuming. Alas, there are alternatives, but understanding the difference has been a challenge in and of itself.
If you google “remote work,” you may have been confronted with a plethora of terms: PEO, EOR, GEO, GPEO, AOR—looks like alphabet soup. To make things more confusing, the industry seems to use some terms inaccurately and others interchangeably. To help clear things up, let’s look at some basic definitions of these terms.
For the purposes of this article, a “customer” is a business who is looking for assistance with hiring workers in multiple jurisdictions and a “team member” is a worker in one jurisdiction who wants to provide services to the “customer,” who is located in a different jurisdiction, this may be an employee, a contractor, or consultant.
PEO is a legal term that describes an organization that co-employs its customer’s employees.
A PEO helps manage the administrative burden of employing in multiple states, and typically provides access to other services like retirement accounts, enhanced health insurance, and other benefits at competitive rates.
The most important part of the PEO construct is that both the PEO and the customer (company) employ the team members, which means:
1. The customer must be established in every jurisdiction in which it is using a PEO; and
2. The customer is still the legal employer of the team member and can be held liable for all team member employment and compliance requirements.
An EOR is a descriptive term, not a legal term. It describes a business that provides administrative assistance to customers (companies) looking to benefit from the work of team members. An EOR does this by formally employing a team member while that team member provides services to the customer.
An EOR could be a PEO, but doesn’t necessarily have to be. It can also be an employment agency (a company that provides temporary workers), an umbrella agency (a company that manages contractor tax withholdings and payments), a consultancy (a company whose employees provide services to another company), or any number of other organizations.
EORs typically operate through a direct, indirect, or hybrid model.
What’s important to note here is that this descriptive name is applied to companies who help other companies compliantly hire and pay workers. Legally, an EOR may be organized differently in different countries. All EORs compliantly hire, contract, pay, support, and separate employees based on local laws and norms. They reduce the employment liability and expansion costs of businesses looking to leverage distributed work.
A global employer organization (GEO) or global PEO (GPEO) is a descriptive term, not a legal term, that is used to describe an EOR which employs team members who live in jurisdictions outside of those in which customer (company) is incorporated.
Notably, it is not a PEO despite the fact that PEO is often referenced in marketing materials for these vendors. As you just learned, a PEO is a co-employer of team members, along with the customer, and employer status and liability is shared. GEOs are the sole employer of the team member, and the customer does not share that status, those duties, nor the liability.
An agent or AOR is a legal term which describes an individual (or company) that is authorized to act on behalf of another. What does that mean? In the distributed working space, an AOR is often used to manage contractors. The AOR forwards invoices, accepts and makes payments on behalf of a contractor and the business to whom that contractor is providing services. This is a business arrangement, not an employment relationship.
Now that we’ve gone over the differences between some of the terms, you’re probably asking yourself this question: If EORs and GEOs aren’t legal constructs, does that mean using them to hire remote employees isn’t legal?
Rest assured, using an EOR or a GEO is perfectly legal. The fact that these are not legal words simply means that legislation and regulation have been slow to change and right now EORs are operating in between legal constructs until legislation catches up.
Since there is no single globally-recognized legal model that reflects the services provided by an EOR, the legal construct within which an EOR operates may change from country to country. The same EOR may be deemed an employment agency in some places, while in other places, it is a consultancy, and still others, it is a payroller.
Regardless of how the EOR is organized in a particular country, an EOR provides compliant indefinite employment with protections that are equal to or greater than those provided by a local employer with a traditional office down the street. An EOR acts as the formal employer of the team member, and is responsible for all employment, tax, and compliance liabilities. This frees customers (companies) up to limit their employment liability and incorporation costs associated with expansion.
Oyster operates as a hybrid EOR. What that means is we operate in most countries as a distributed HR consulting company and we formally employ team members (employees and contractors) around the world to provide services for our customers who are looking to expand and diversify their teams. We are responsible for all aspects of those team members’ employment, including registrations, payroll, insurance, pensions, employment contracts, remote work agreements, bonuses, vacations, separations, and severance; in short, the whole employee lifecycle. We help companies bridge the gap, and we do it compliantly in just minutes. To find out more, visit www.oysterhr.com.
Disclaimer: This blog 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.
Oyster is a distributed HR platform designed to enable visionary HR leaders to find, hire, pay, manage, develop and take care of a thriving distributed workforce. It lets growing companies give valued international team members the experience they deserve, without the usual headaches or the expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll as well as great local benefits and perks.