What Is EOR?
Employer of Records (EOR) refers to a third-party company that handles the recruitment responsibilities on behalf of your company.
These third-party entities help your organization by outsourcing various tasks, including human resource management and employee payroll. An employer of records is the legal employer of the employees of an organization, and the employees are monitored by their clients.
EOR outsourcing is perfect for small companies with limited HR capabilities but wants to recruit international workers while complying with international labour regulations. This article explores the pros and cons of EOR in-depth; let’s dive in!
Responsibilities of an EOR
An EOR may take on almost all the major activities of your organization, but these are the main responsibilities associated with an employer of record.
As the employer of staff, the EOR is registered with the tax authorities. In this case, the EOR must withhold certain taxes from employee payments. The EOR tax responsibilities also include submitting the required amount to the authorities regularly and answering any additional queries of said authority.
With the legal jurisdiction in mind, an EOR is the payroll provider for all the employees they recruit. The payroll includes the following:
- Deductions when needed
- Reimbursement of expenses
- Leave entitlements
Payroll methods and the cycle of the EOR always follow legal obligations, local customs, and company policies.
EOR registers with and allows employees access to mandatory benefits such as medical funds, health insurance, and pension. An EOR will do this to comply with the requirements.
But in some cases, the EOR offers social contributions to offer additional benefits aside from the compulsory legal requirements.
An EOR can offer three different types of employee contracts:
- Indefinite Contracts
- Casual Contracts
- Fixed-Term Employment Contracts
Any of these compliant contracts can recruit an employee temporarily or as a full-time employee.
Re-Hire or Termination
The EOR can terminate or rehire an employee previously terminated based on a request from a client company. They can perform both these actions within legal jurisdictions.
Why Your Organization Should Use an EOR
When you have a business that needs outsourcing, you will need proper management to handle the team you acquire. And to do so, EOR is the best solution.
Your business might be small, and you may not have enough internal resources and an expansion team to execute operations on your behalf while dealing with all the legal implications of outsourcing. That is when EOR comes in.
International employment laws are highly complicated, and it’s best to let an experienced individual or team handle the task when you’re a small startup. EOR is the best way to utilize global employment while complying with all the requirements.
Benefits of EOR You Should Consider
Here are the top 10 ways EOR provides benefits to businesses that you should consider.
1. Employee Accountability Is Reduced
Employer of Records monitors the well-being of each of their recruits, among other things. These monitoring responsibilities include insurance coverage and payroll processing.
When the EOR takes care of employee welfare in compliance with government and workplace healthcare safety laws, employee accountability is reduced for the client organization.
2. Enables Compliance Monitoring
An EOR always stays updated on mandatory labor laws and local legislation to ensure their payroll process complies with the set rules. They find an ideal middle ground for laws between different countries and relieve the task of compliance maintenance for the client company.
3. A Great Way To Save Resources
Even without us pointing it out, you can guess how much time EOR can save by taking over several responsibilities on behalf of the organization.
EOR also saves plenty of resources, especially money for you, since all EORs charge based on their work hours, and the fee is fixed for every hour.
4. Helps Avoid Unnecessary Local Incorporation
If you don’t want to hire a third-party company, you will have to take the help of local incorporations. But this requires professional accounting and legal assistance over different matters, which can consume a lot of time and resources.
When you hire an EOR, all you have to do is sign a contract after negotiation, and you’re good to go! The EOR provider will handle the compliance and everything relevant.
5. Easier International Expansion
When you’re seeking to recruit professionals for longer terms across multiple nations, EOR can make the entire process much more convenient. There are international Employer of Records solutions that can help you recruit in multiple countries.
While it saves costs for establishing international subsidiaries, it also cuts down the time window for employee onboarding.
6. Payroll & Social Contributions
Payroll and health insurance rules are highly complicated and subject to frequent changes. Since all EORs are masters of compliance, they understand all applicable requirements and can design the rulebook in a way that treats all options fairly.
7. Offers Competitive Benefits Packages
Small and medium businesses struggle to access benefits packages that can seem lucrative to employees. EOR can deploy these additional benefits on behalf of the client company to make the client more competitive in recruitment.
No More Risks Of Employee Misclassification
When an organization reaches out to each individual as an independent contractor, it can create legal issues in the future if any legal institution considers the nature of engagement as employment. This can have serious legal risks and ramifications in the future.
Any employees recruited by an EOR are strictly classified as employees, and it removes all the risks associated with employee misclassification.
8. Affordable HR & Compliance Access
EOR has been a great choice for organizations for in-home support services in the United States for quite a long time. An EOR solution is always affordable so that any small startup business can easily leverage the benefits of acquiring a contingent workforce without worrying about legal liabilities.
Potential Disadvantages of EOR
Here we explore the cons of EOR.
1. Potential Time Limits
The legal requirements of some countries don’t allow employees to be permitted who have been employed through an EOR. In these situations, the employees either work on a time limit on a time-exclusive contract or have to work with an international EOR to establish a local entity for hiring employees.
2. Client Company Has Limited Power
Though the employees work under the direct supervision of the client company, it’s up to the EOR to perform all legal and formal activities. It means that the HR department will have to cooperate and wait for confirmation of the EOR every step of the way.
This can cause frequent delays in order implementation. Though this can be balanced by a clause in the contract that will require the EOR to act per the wish of the client company, it’s a disadvantage that is still concerning.
3. Local Incorporation Is A Must In Some Cases
Though you may look for international hiring to get the competitive edge, there are times when you have no choice but to seek local incorporation. This can either be trying to enter supply under the local contract or applying to the government to establish a local subsidiary.
In this case, you must establish your business locally rather than pursue an EOR solution.
To Wrap It All Up
Employer of Records is a wonderful choice when you’re looking to reduce the HR responsibilities of your HR department or to take care of HR-related functions in case you don’t have one.
Despite the downsides, EOR outsourcing service providers are a great way to stay competitive in the recruitment market with agile Human Resource Functions and legal expertise.
The standard cost of every full-time employee through an Employer of Record can cost around $200-$500.
Employer of Record service companies always operates within the legal jurisdictions of the respective countries they are operating in and are completely legal.
An Agent of Record is a legal entity that represents an insured person. An Employer of Record represents their client company that outsourced their HR activities to the EOR.
Almost all industries are eligible to use Employer of Record if the need arises.