AoR Consolidation vs. Specialisation: Understanding the difference

Agent of record (AoR): A valuable tool for compliance

Working with an agent of record (AoR) can help you to compliantly hire independent contractors without the administrative headache that usually involves. And, as we recently discussed, AoRs are particularly valuable for companies in North America because of the complex regulations concerning independent contractors and the companies that engage them.

These rules are different in every country and state — and they’re constantly evolving. That means that companies hiring independent contractors in North America have their work cut out to ensure they’re compliant. 

In this second part of our blog series on AoR services in North America, we’ll discuss two approaches to working with AoRs: AoR consolidation and AoR specialisation.

Understanding AoR consolidation

AoR consolidation is when a business uses just one agent of record to engage all of its independent contractors. These contractors might be engaged in different regions, states or countries, and may work across different specialisations. 

This approach can be useful to large companies with complex contingent worker programmes because it helps to standardise and streamline processes across your organisation. However, you’ll need to make sure that the AoR you engage has the knowledge and experience necessary to compliantly hire contractors in every region you work in. 

Key characteristics of AoR consolidation

• Centralisation: With a consolidated AoR solution, all of your contractors are engaged through one company, no matter where they’re based. That means you’ll have just one point of contact for your entire contractor workforce.
• Simplification: AoR consolidation can also result in streamlined processes and a reduced administrative burden since you’ll only need to deal with one AoR partner. 
• Economies of scale: Consolidated AoR providers can typically provide you with a better price per contractor engaged than smaller, specialised providers. This means AoR consolidation can be a more cost-effective solution. 
• Standardisation: AoR consolidation leads to standardised processes and policies across your organisation. This makes it easier to manage your contingent workforce and ensure compliance with local and national regulations. 

The pros of AoR consolidation 

Here are some of the advantages of AoR consolidation: 

1. Streamlined communication: When you use a consolidated AoR service to handle your whole contractor workforce, you’ll only have one point of contact for all of your questions and concerns. This makes for much easier communication than chasing after multiple middlemen, which is often the case in organisations with decentralised programmes. 
2. Increased efficiency: Working with just one provider can also make your contractor engagement processes more efficient because they’re standardised across your organisation. This can save a lot of time for your internal team since they won’t have to deal with different providers whenever they want to engage a new contractor.
3. Cost savings: In the long run, consolidated AoR is usually much more cost-efficient than working with specialised providers. This is because AoRs are able to offer lower rates per contractor if you have more contractors on their books. It’s also worth considering the time and resources you’ll save through not having to onboard, manage and communicate with multiple different providers. 

The cons of AoR consolidation

Of course, there are also certain downsides to this approach. Here are some of the main ones: 

1. Lack of customisation: When you work with just one AoR provider, you won’t be able to customise your solution as much as you would by building it yourself through multiple providers. This can be a disadvantage if you have very different needs in different geographical areas, for example.
2. Limited industry knowledge: Generalist AoR providers typically don’t have the extremely in-depth knowledge of a particular industry or region that you’d find with a specialist provider. This isn’t necessarily an issue, but it’s something you should be aware of if you’re hiring niche roles or in highly regulated industries.

Understanding AoR specialisation 

AoR specialisation, on the other hand, is when a company uses several AoRs to meet their different needs. For example, they might use one AoR to manage each industry, line of employment or location. Companies might also use a specialised AoR service to outsource just one element of their contractor engagement programme while managing everything else in-house. 

Specialised AoR providers are typically very knowledgeable in one particular area or focused on one geographic region. Although the costs of engaging a specialised AoR can be higher per contractor, the in-depth expertise you get access to means this solution can result in a significant ROI. 

Key characteristics of AoR specialisation

• Expertise: Specialised AoR providers have in-depth knowledge of particular industries, lines of employment or geographic regions. This means that the advice they give and the strategies they deliver may be more tailored and relevant to your situation. 
• Customisation: Using specialised AoR providers makes it easier to customise your solution according to your specific needs. For example, you may need more extensive support in one geographic region or only need to outsource certain parts of your procurement process.
• Flexibility: Working with multiple AoRs for different functions allows you to be more flexible in your operations. This means you can be more adaptable to changes in the market or other external factors that impact your business. 

The pros of AoR specialisation 

Here are some of the benefits that AoR specialisation could offer to your business: 

1. Tailored expertise: The whole point of working with specialised AoR providers is that they’re very knowledgeable about the industry, line of business or region they work in. That means they can offer custom advice and guidance that’s directly relevant to your situation. 
2. Industry-specific knowledge: Some companies choose to work with AoR providers who are specialised in their particular industry. This can be a big advantage from a compliance perspective since some industries are highly regulated and require specific knowledge.
3. More cost-effective in some circumstances: While a consolidated solution might be more cost-effective in the long run, the upfront costs involved are usually higher. If you only need a temporary solution or just need to outsource a certain part of your engagement process, using a specialised provider might be the better option.

The cons of AoR specialisation

Here are some of the downsides to be aware of: 

1. Higher costs: Working with multiple specialised AoRs to meet your different needs is usually more expensive than working with a single generalist provider. For large companies, streamlining and standardising your processes can also save you a lot in admin costs. 
2. Potential for fragmentation: When different parts of your business are managed by different AoRs, there’s no consistency in your engagements, contracts or processes. This could lead to confusion and even perceptions of unfairness among contractors. This approach can also lead to a lack of visibility over your workforce since no one person has an overview of all of your engagements. 
3. Dependency on niche expertise: Working with highly specialised AoR providers makes you dependent on their expertise, with no one inside your organisation fully understanding the rules that govern your relationship with independent contractors. While this may not be a problem now, it could become one if you choose to leave the AoR down the line. 

Making the right choice for your business 

Understanding the differences between AoR consolidation and specialisation is crucial for businesses navigating the complexities of independent contractor engagements in North America. 

As we’ve discussed, AoR consolidation can bring benefits like streamlined communication, increased efficiency and cost savings through centralisation and standardisation. But AoR specialisation comes with tailored advice, industry-specific knowledge and a highly customisable service. 

Ultimately, the choice between AoR consolidation and specialisation comes down to your company’s specific needs, objectives and preferences. To choose the right approach, you should conduct a thorough assessment of the two options, considering various factors that impact your business. 

Want to learn more about making the right choice for your organisation? Read our full guide. 

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