Third-party organizations are called Employers of Record when they hire and pay employees on behalf of another business and handle all formal employment matters. A company can use an Employer of Records to recruit workers overseas without having to create a local entity or risk violating local employment laws by engaging them. Third-party Employers of Record are referred to by several terms, including local employers, local partners, local EORs, and back-office staffing. A third-party local employee-employer intermediary is an Employer of Record who acts as the employer’s primary point of contact.
Companies often use EORs for global expansion when they wish to have business activities in a new country without establishing a physical presence. The registration process for a business entity can be intricate and troublesome. In the event of an urgent project or new business venture, the company may need to act quickly. Or they may just need a short-term solution. Therefore, having a Global Employer of Record is a convenient way to hire workers in that country. The global employer of record will have a local legal entity to handle payroll, employment tasks, and immigration. The eor service will also appear as your legal employer for your remote employees around the globe.
The EOR is responsible for ensuring compliance with the requirements of immigration, employment, and payroll law, but does not perform any of the other functions. The EOR is essentially the registered employer for the employee but does not have any managerial or supervisory role. All decisions regarding compensation, position duties, and project planning must be decided by the original employer. The employer of record services assumes responsibility for traditional employment tasks and liabilities when an employee does work at another company. This organization serves as the employee’s employer for tax purposes.
Benefits of employer of record services:
- Fast way to scale your workforce: Scaling your workforce globally is most efficiently accomplished by utilizing an established Employer of Record platform. In the time it would take to establish a branch or subsidiary in a country that you already have candidates in mind, those candidates could accept other offers. A records employer is equipped to handle all of this and more in a fraction of the time by utilizing pre-established business entities and a team of local experts. Occasionally, an enterprise might consider engaging staff as independent contractors rather than hiring them directly. This is a risky move. If the tax or employment authorities, or courts, deem that employee status is the correct interpretation, then the enterprise could face sanctions. Reduced risk of misclassification exists since EOR employees are bona fide employees.
- Effective use of cost: Using an Employer of Record platform allows organizations to save thousands in costs that would otherwise be incurred by setting up a local subsidiary. But these costs are only the tip of the iceberg. Especially for smaller businesses trying out new markets with only a few employees, these services offer unparalleled flexibility and cost-efficiency. With the Employer of Record model, employers have an existing template to adopt and implement, reducing implementation and upkeep costs and reducing lead times. In the case of hiring through an employer of record services, taxes will already be incorporated into the price you pay. By automating this process, you will save hours spent submitting tax reports to every country your business operates in, as well as eliminate fines and penalties associated with missed or incorrectly filed tax reports.
- Their expertise can help you: You can take advantage of an employer of a record service company as a compliant, safe option. No longer are you burdened with handling international employment regulations, so you won’t be subject to fines, penalties, lost licenses, and business sanctions for non-compliance. Using a global employer of record will eliminate your regulatory concerns, as they will provide the expert guidance and assistance you need. The requirements for health insurance, pensions, and payroll contributions are complex, and laws governing them frequently change. Some tax issues, like how foreign employees are treated under option agreements, are particularly complex. Compliance experts, like EORs, understand all legal requirements and are liable if they do not comply.
- Give you time to focus on core business: Businesses benefit from Employer of Record services by having peace of mind. This is an ultimate benefit, one that is indispensable and quite beneficial to your bottom line. Organizations that utilize a global EOR can also focus on core business functions and provide market-leading products and services because of the partnership’s full-service model. It is possible to employ individuals around the world without having to establish local subsidiaries. This reduces the cost of establishing multiple international subsidiaries and allows new employees to be on boarded within days of joining the company.
- Provide fruitful work environment: The company will provide a more favorable work environment, which will be more suited to the local people it will recruit. When hiring employees, they will follow your needs and wishes, but they will also make the process as easy as possible for the employees. They know how to handle both the cultural aspects of the people they hire as well as how to effectively handle integration on the local level, as each EOR is used to working with candidates in their area. Benefits administration is handled by EOR by local laws in the country of operations, including mothers’ leave, vacation pay, medical insurance, etc. According to local laws, workers’ compensation will be provided by the employer of record in the event of a worksite accident. Having full control over the working relationship between your employees ensures that the employer of record does not affect your business decisions.
From the very first day of an employee’s contract to his or her final day, the employer of record takes care of the administrative tasks associated with hiring. Employers providing these services benefit international employees via employer of record solution since they are assured their wages will be paid on time, that their taxes will be withheld appropriately, and that everything is done according to local regulations and laws.