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Understanding the Employer of Record model: Simplifying global expansion

CXC Global8 min read
CXC GlobalNovember 08, 2023
CXC Global

Globalisation of your brand is the next big step for any growing business. In fact, it is at the top of mind for many businesses. In a recent research, 97% of the 100 global businesses surveyed already have plans to expand into new markets by the end of 2023.

After all, expanding and diversifying your market reach can help bring your brand onto the global stage. This would then lead to long-term and sustainable growth for your company.

Of course, this doesn’t come easy. There are hurdles you’ll need to jump over—especially when it comes to the legal and compliance aspects. You’ll have to navigate through a maze of international legal frameworks such as diverse tax codes, labour laws, and industry specifications. You’ll also need to invest in upholding intellectual property rights and ensuring compliance with data privacy.

Add cultural and ethical aspects, language barriers, and the political and economic stability in your target markets, and you have layers upon layers of complexity. 

Thankfully, there is a way to simplify navigation through these legal and compliance challenges—the Employer of Record (EoR) model.

What is an Employer of Record (EOR)?

Definition and role

An Employer of Record acts as the legal employer for your company’s workforce in foreign countries. They help you with ensuring compliance with local labour laws, simplifying payroll and benefits administration, and risk management in international hiring.

Employers of Recordmake it easy to enter new markets—helping you quickly establish your company’s presence without setting up complex legal entities. Their local expertise provides businesses with a competitive edge in accessing global talent and navigating the intricacies of new countries.

Key responsibilities of an Employer of Record

  1. Managing payrolls and employee benefits

EoRs ensure that your employees are paid accurately and on time—including employee benefits like health insurance, retirement plans, and other perks. They’ll also handle all aspects of tax reporting: payroll tax withholding, tax remittance, and filing tax returns.

  1. Supporting HR administration

This includes hiring, onboarding, and offboarding your employees. An EoR can assist with general administrative tasks related to employment, such as record-keeping, reporting, and compliance audits. Managing the offboarding process is also part of their services. They make sure that the employee termination process (exit interviews and final paychecks) adheres to legal requirements.

  1. Handling employment contracts and relations

An EoR has the capability to assist in drafting employment contracts because they can advise on employment terms—ensuring contracts align with local laws and regulations.

  1. Ensuring legal compliance and employment law

EoRs stay informed about the ever-changing employment laws and ensure ongoing legal compliance within your company.

The bottom line is that EoRs will help you mitigate legal and compliance risks related to employment to the best of their abilities. Employers of Record come fully equipped to ensure that your company’s plan for global expansion goes without any legal hiccups.

The advantages of using an Employer of Record model

1. Ensures compliance with international laws

Local labour law adherence

An Employer of Record will guide and support your company to ensure you hire your employees in accordance with local laws in every country or jurisdiction. As the EoR acts as the legal employer, you can rest easy knowing that the legal ins and outs are taken care of.

Additionally, they already have in-depth knowledge of regional regulations, and they continuously monitor any changes to these regulations. This ensures that your business remains compliant. 

Tax compliance in foreign markets

EoRs manage foreign tax compliance—ensuring that the correct taxes are withheld, reported, and remitted. They also assist in identifying potential tax incentives and exemptions, ensuring your tax strategies are optimised across the board. 

2. Streamlines global workforce management

Global HR outsourcing

EoRs offer a range of services that include payroll management, benefits administration, compliance with local labour laws, and assistance with HR tasks such as hiring and onboarding. 

As the legal employer of record for your company’s international employees, they essentially relieve you of many HR-related obligations. It’s a strategic solution for your business, especially if you’re seeking a cost-effective and efficient way to expand globally while actively maintaining a strong HR foundation.

Greatly benefits the administration abroad

EoRs simplify the benefits administration process by actively enrolling your employees in benefit programs, coordinating with local providers, and handling compliance requirements.

They actively ensure that your global workforce has access to competitive and compliant benefit packages. This approach not only enhances your employee satisfaction but also helps your company attract and retain top talent in foreign countries.

3. Implements risk management in international hiring

Their meticulous record-keeping and documentation practices serve as invaluable resources in resolving issues and providing evidence of regulatory compliance. EoRs also offer expert legal consultation and guidance, helping you make informed decisions while actively minimising legal risks. 

4. Results in cost-efficient global expansion

Reduces overheads with a foreign subsidiary alternative

By actively serving as your company’s legal employer for your international workforce, EoRs effectively eliminate the need to establish and manage foreign subsidiaries.

This means your business can avoid the substantial administrative and operational costs linked to subsidiary setup. EoRs streamline these processes for you, reducing overhead expenses and the administrative burden when it comes to expanding your business globally.

Global payroll solutions

EoRs offer a centralised platform for payroll reporting and tax compliance. This simplifies record-keeping and reporting requirements by reducing the administrative burden associated with processing payroll in multiple countries. Essentially, there is no need to establish and maintain separate payroll departments for each country.

Moreover, EoRs often have economies of scale that enable them to negotiate competitive rates with local service providers, such as payroll processors and benefits providers. These help them secure cost-effective services and benefits for your employees, which positively impacts your company’s bottom line.

Employer of Record vs. International Professional Employer Organization (IPEO)

When searching for the means to streamline your global expansion efforts, you may have also come across entities called International PEOs. While at first glance they serve the same functions as an EoR, there are key differences when it comes to the structure of their employment relationship.

Employer relationshipThe EoR becomes the legal employer of your company’s employees. 
You retain control over day-to-day work tasks, while the EoR handles legal compliance and administrative HR functions.
Both you and the PEO share the responsibilities of being the employer.
This joint employment structure means both parties have a say in employment decisions.
Legal employerThe EoR is the sole legal employer. They take on all employment-related responsibilities, including compliance with labour laws and payroll processing.The PEO is a co-employer. They share some legal responsibilities with you as their client company. 
Both you and the PEO actively contribute to compliance and HR functions.
ControlYou, as their client, retain full control over your employees’ day-to-day work tasks, business operations, and strategic decisions.While you maintain control over your company’s operations, PEOs actively share control over employment-related matters (like benefits and HR policies)
Risk and liabilityEoRs actively assume the legal risk and liability associated with employment.
This includes legal compliance, payroll, and benefits administration.
Both you and the PEO share the legal risk and liability related to employment matters.
FlexibilityEoR relationships are typically more flexible,  allowing their clients to select specific services they need to outsource while maintaining control over other aspects of employment.PEO relationships may offer bundled services, which tend to be less flexible but more cost-effective for small to mid-sized businesses.

When should you use one over the other?

Use an EoR when:

  • You require full legal compliance.
  • You want your company to have complete control over employees.
  • You want customised benefits and HR policies.

Use an International PEO when:

  • You are comfortable sharing legal responsibility.
  • You want to opt for efficiency and speed.
  • You prioritise cost-efficiency.
  • You want streamlined HR and compliance services.

Practical steps to implementing the EoR model

Global talent acquisition: Where and how to find them

  1. Use local job boards and websites specific to the country where you’re looking to hire. These platforms often have a broader reach and can attract candidates with the local expertise you’re looking for.
  2. Use global job search engines like Indeed, LinkedIn, or Glassdoor. You can post job openings and actively search for candidates worldwide through these platforms.
  3. Actively use social media platforms and professional networks such as LinkedIn, which have a global reach. You can also participate in relevant groups and forums to connect with potential international candidates.
  4. You can partner with international recruitment agencies that specialise in sourcing talent from specific countries or regions. They have local expertise and can actively help you identify qualified candidates.
  5. Encourage your existing employees to refer international candidates they know or have worked with in the past. Employee referrals can provide you with valuable talents.

Cross-border employment best practices

Observe cultural sensitivity and awareness

Be aware of and sensitive to cultural differences, customs, and traditions in each region. Doing so can help you and your staff understand cultural nuances. Which in turn, helps foster better communication and relationships.

Invest in reliable and effective communication tools and practices

Use various communication tools and channels to actively engage with your remote employees. Regular video conferences, instant messaging, and project management software can help bridge the gap and keep everyone aligned.

Set clear expectations and objectives

Set clear performance expectations and objectives for your employees, regardless of their location. Ensure they understand their roles, responsibilities, and goals.

Use local HR support for compliance and legal expertise

Utilise local HR expertise, whether in-house or through an Employer of Record, to actively address region-specific HR issues.

Also, stay informed about local labour laws and compliance requirements in each region where you have employees. Partner with experts, such as EORs, to ensure adherence to local regulations.

Standardise your HR policies

Develop standardised HR policies that align with and actively address local labour laws and regulations.

Offer personalised training and development opportunities

Offer training and development opportunities that cater to the specific needs and preferences of your employees in different regions. This can include language training, cultural sensitivity training, and skills development.

Implement flexible work arrangements

Implement flexible work arrangements that cater to local preferences and legal requirements, such as remote work or flexible hours.

Leverage performance management tools and processes

Use performance management tools and processes to actively track and evaluate your employees’ performance. Regular feedback and performance reviews can help your remote employees stay aligned and consistently grow.

Promote team building and inclusion

Promote team-building activities and inclusion initiatives that bring employees from different regions together. This can foster a sense of belonging and collaboration—removing the social gap between your employees.

When possible, organise occasional in-person meetings and team gatherings to further strengthen relationships and communication.

Develop crisis and emergency plans

Develop crisis and emergency management plans. You should actively consider regional differences for this, such as natural disasters or political instability.

Promote feedback and open dialogue

Create a culture of open dialogue and encourage your employees to share their concerns and feedback. This way you can actively address any issues that arise.

Invest in the appropriate tools and technology

Invest in technology tools that support remote collaboration. Consider video conferencing tools, project management software, and secure communication platforms.

Streamline your global expansion today

Using an Employer of Record model for your business streamline the process of expanding your business internationally. You will have a much more hassle-free experience when it comes to dealing with the legal and compliance aspects of global talent acquisition and workforce management.

Still can’t find a reliable Employer of Record for your company? We have the expertise and experience when it comes to helping businesses ensure compliance with international workforce management. We’ve got you covered—we’ll do these tedious and time-consuming processes so you can focus on growing and scaling.

Contact us so we can help you hire the best talent from across the globe.

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About CXC

At CXC, we want to help you grow your business with flexible, contingent talent. But we also understand that managing a contingent workforce can be complicated, costly and time-consuming. Through our MSP solution, we can help you to fulfil all of your contingent hiring needs, including temp employees, independent contractors and SOW workers. And if your needs change? No problem. Our flexible solution is designed to scale up and down to match our clients’ requirements.

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