What is an Employer of Record?

Everything You Need to Know About EoR

Picture this: you’ve been trying to fill an important remote role for months. You’ve read hundreds of CVs, conducted interviews for weeks, and, finally, found the perfect candidate. There’s one problem: they’re in a country your company doesn’t (yet) operate in, and you’re not sure how to go about hiring them. 

Here’s another scenario: you’re considering expanding your company into a new market. However, you’re not sure yet how well your products will perform there, and you’d like to test the waters with one or two employees before going to the trouble (and expense) of incorporating in a new country.

No matter the circumstances, hiring a new employee always involves a lot of paperwork, legal compliance checks, and complex payroll procedures. And if you’re hiring abroad, this is even further compounded. 

Thankfully, there is a solution: use an employer of record to hire employees on your behalf.

What is an employer of record?

An employer of record (EOR) is a company that hires an employee on behalf of another organisation. They handle traditional employment tasks such as payroll, tax, and the drafting of contracts. For tax purposes, an EOR is your employees’ legal employer.

Some companies might hire an employer of record to engage employees within their own country, which can save them time and money on HR tasks. 

However, the most common use case for EORs is when a company wants to hire someone outside of their own market and doesn’t have an entity or subsidiary in the country where the candidate is based. Employers of record help companies to comply with the law in the country where their employees live. 

Although an employer of record is an employee’s legal employer, the client company still manages the employee on a day-to-day basis and handles things like performance reviews and decisions about promotions, compensation and termination. 

What does an employer of record do?

An employer of record takes on all of the administrative, legal, and financial duties associated with hiring employees. Common employer of record services include:

  • Hiring employees on behalf of client companies
  • Making arrangements for visas and work permits 
  • Generating contracts to comply with local employment law
  • Providing a registered local entity to employ staff
  • Running background checks on potential employees
  • Handling payroll and benefits for employees 
  • Registering and filing employment taxes 
  • HR onboarding for new hires

5 benefits of working with an employer of record

Here are 5 of the biggest advantages of hiring employees through an employer of record:

1. Saved time and resources

Partnering with an employer of record allows you to outsource HR and payroll tasks to a third party, so you don’t have to do them in house. This can be a particularly cost-effective option for small businesses or new organizations that don’t yet have a strong HR function, that are growing quickly and need efficient processes in place.

2. No need to incorporate locally

If you want to expand your business to a new country, you would normally have to set up a legal entity there. But this can be both time-consuming and expensive, and isn’t always an option for small companies. 

Even for larger organisations, it might not be worth the time and expense, especially if you just want to hire a few remote employees in a particular country.

When you work with an employer of record, your international employees are legally employed by a pre-existing company in the country they work in — which means you can avoid the financial and administrative burdens of incorporating in multiple countries (and focus on growing your business instead).

3. Ensured compliance when hiring overseas

When you hire someone overseas, setting up a legal entity is only part of the problem. You also need to ensure that your contracts and policies are in line with local employment law and that you’ve properly declared your employees to the relevant tax authorities. 

You can avoid these administrative headaches by outsourcing these tasks to an employer of record. The EOR will handle all the legal requirements for you, guaranteeing you a legally compliant employment process.

4. Smoother immigration processes

There are many situations in which you might need to hire someone in a country they don’t currently live in. For example, you may want to send an existing employee abroad for a short period to achieve a specific task. Alternatively, you may decide to support an employee who plans on emigrating by allowing them to keep their job. Or, you might find a great candidate for an onsite job in your home country, who’s willing to relocate. 

In all of these cases, you need to be sure your employee will have the right to work in the country they’re moving to. And depending on the origin and host countries, acquiring visas and work permits can be a complex and lengthy process. Immigration policies also change frequently, and keeping up with them in every country you might want to do business in would be almost impossible.

Again, an EOR can take the load off for you by handling visa and work permit applications for your employees. That way, you can concentrate on ensuring the success of your business expansion — and your employees can focus on getting to know their new home. 

5. Helps you prepare for the Future of Work

In the two years since the beginning of the pandemic, we’ve seen a huge increase in ‘remote-first’ companies, who don’t consider location when hiring new employees. Many other companies are now operating under hybrid work policies, which means that employees only need to be physically on site for part of their working hours, and some employees may be fully remote. 

And this perk is becoming an essential part of what candidates look for in a job: 23% of people said in a recent survey that they’d accept a 10% pay cut if they could work 100% remotely. It’s logical to assume that the ability to work from anywhere in the world will continue to be an important part of many companies’ employer value propositions in the future. 

However, even if you’d like to let your team work from anywhere in the world, you need to think about how you’ll achieve this legally. By hiring an EOR to manage your payroll and HR processes, you’ll be able to confidently offer this option to new recruits — and your existing employees too.

EOR vs. PEO vs. GEO: what’s the difference?

PEOs (professional employment organisations) and GEOs (global employment organisations) are different types of organisations that help client companies to hire employees or provide services such as payroll processing. While PEOs and GEOs are sometimes confused with EORs, there are some important differences between them.

What is a PEO?

A PEO is a company that provides co-employment services. This means that if you use a PEO, both your company and the PEO will share the management of employees and the legal liabilities associated with employing people. The PEO might offer services such as payroll processing and HR support. This type of company is often used in the US, where employment laws and regulations can differ from state to state. 

However, a big difference between a PEO and an EOR is that both the PEO and the client company need to have a registered legal entity in the country where the employers are located. This means that using a PEO isn’t a good option for companies wanting to hire abroad without incorporating in a new country.

What is a GEO?

A GEO is a global organisation that provides a solution for hiring employees abroad. They may have a wide network of legal entities in many countries around the world, which they use to hire employees on behalf of client companies. While you could use an EOR to hire employees in your own country, a GEO is different in that it’s specifically set up to hire people overseas.

Using an EOR for contingent workers

When we talk about EORs, we mostly talk about making permanent, full-time hires. However, you can also use an EOR to engage contingent workers or temporary employees around the world — and in your own country too. 

The rules for engaging contingent workers are often less stringent than those for permanent workers. However, you still need to make sure that you’re complying with local law when you take someone on. Engaging an independent contractor through an EOR can help you to stay compliant, and make managing international payroll easier too.

Get seamless global payroll management with CXC

CXC EMEA offers a comprehensive range of specialised EoR services to help streamline your international expansion plans. We take full responsibility for ensuring compliance with local laws and best practices, through outsourced legal, tax, and HR infrastructure. With an EOR through CXC, it’s never been easier to hire internationally.

If you are looking for a EoR contact us today!