One of the challenges business face when going global is finding and hiring the best talent in their new locations. They don’t have the information and experience necessary in the new market to attract and hire the best talent, which risks their chances of success in the new locations.
Also, there are other factors that a business has to consider when hiring employees outside their home country, like taxes and legal compliances in the employee’s country. How do you manage employment contracts, social contributions, and benefits for all the employees in different countries? The answer is simple. You use an Employer of Record!
What is an Employer of Record?
An Employer of Record or an EOR is an organisation that helps companies expand internationally by assuming some of the responsibilities like hiring and managing the employees on behalf of the company.
The organisation takes up all the formal employment tasks, including onboarding processes and compliance documentation.
The main role of an EOR is to allow companies legally and efficiently engage with workers in other countries without having to set up a local legal entity or risk violating employment laws.
With the help of an Employer of Record, you can customise the employment contracts to reflect important considerations for you and your business, including ensuring your intellectual property is fully protected.
A global EOR makes it easy for businesses to;
- Employ foreign workers legally
- Navigate the complex foreign labour laws, tax, and employment compliance considerations
- Hasten hiring and operations by legally bypassing entity establishment
The EOR also supports foreign employees through;
- Human resource services
- Managing tax compliance and processes
- Answering employees’ administrative questions
- Overseeing visa, immigration, and work permits
- Executing payroll
- Processing terminations, rehiring and unemployment
Benefits of Hiring an Employer of Record
Partnering with an EOR offers more than allowing businesses to quickly hire employees and create a presence overseas. The right EOR partner can help the business achieve its goals faster, save time, reduce costs, and easily navigate complex country-specific legal structures while remaining compliant. Some of the benefits of working with an Employer of Record include;
Faster business expansion
Establishing a legal entity in a foreign country is lengthy and tedious. EORs have entities and networks that help clients expedite their global expansion plans and build international teams faster. With the EOR, the business can hire one-off employees abroad for short or long-term projects. The EOR helps the business focus on developing business plans and executing the go-to-market strategies without worrying about establishing an entity.
The main reason businesses prefer working with an Employer of Record when venturing overseas is because it is cheaper. It helps cut costs by reducing compliance errors and the associated penalties while saving the company operations and entity set-up costs.
Transparent and reputable EORs have transparent costs in hiring and compensating employees, so there are never surprises in billing statements helping their clients run a leaner ledger.
Navigating employee compliance in a new country can feel like a minefield for new businesses, and it is easy to fall into compliance errors. EORs are experts in tax, employment, and business regulation laws in specific countries worldwide, making it easier for the organisations they work with to remain compliant without putting in much effort.
Your business will not need to keep up with the ongoing changes in foreign labour laws in the countries they want to hire in when working with an EOR.
EORs are entrusted with various tasks like employee management, payroll processing, and other HR-based activities. Being highly competent organisations, you never have to worry about these tasks, and you’re assured of the tasks being completed quickly and efficiently. The EORs have experience and knowledge within the field. They use tried and proven processes that make them more than capable of delivering precise calculations for compliance and payroll.
The EOR maintains all your confidential data for each of your employees. They have an efficient and reliable system with dedicated personnel data management that makes it easy to update your records as soon as changes happen.
How Does an Employer of Records Work?
The Employer of Record works by reducing the risk of compliance violations for the business. The employer still runs the day-to-day operations of the employees, like meetings, performance reviews, meetings and termination decisions. The EOR focuses their efforts on the administrative burden of managing a foreign workforce.
As the demand for remote workforces increases, the demand for the EOR model has also increased. Companies are interested in working with employees from different countries but are worried about navigating the challenges of remote work and compliance in overseas countries. This is where the EOR comes in.
What are the Responsibilities of an Employer of Record?
Before engaging with an Employer of Record, businesses must understand their responsibilities to grasp what to expect from the EOR and their scope of services.
In most cases, the EOR will perform the following essential tasks for their clients;
- Represent the company as a proxy entity registered as a legitimate employer in the region and control the payroll.
- Ensuring compliance with local labour and tax legislation. They will draft valid agreements and contracts.
- Fill in tax and insurance forms on the employer’s behalf
- Organise and arrange visa-related documents and work permits in case of relocation of an international employee is required.
- Offer consultancy services to the company on the region’s best practices of employee onboarding, contract termination, and severance pay.
When to Use an Employer of Record
There are various instances when a business might benefit from the services of an EOR. Identifying these instances is vital in ensuring you get the best experience with the EOR and the most value for your investment.
When expanding globally
Expanding a business into new countries presents businesses with numerous benefits, including access to new consumers, substantial growth opportunities, additional resources, shared information, and the latest technologies.
Equally, the move comes with substantial risks, including the learning curve of understanding the local labour laws in the new countries. Most businesses have to juggle new requirements and develop robust go-to-market strategies for their products and services.
Advisory EORS can provide key support to the business, shorten the learning curve and help the business focus on the business model while the EOR works on getting the employees and navigating local labour legislation.
When attracting and retaining the world’s top talent
You don’t have to be moving to a new country to be involved in the services of an EOR. If your business is looking to attract and recruit the best talent across the globe, the services of an EOR might come in handy.
With the rise of remote positions, businesses can attract the strongest candidates for various positions without being restricted by borders. An EOR helps make this a reality.
When companies need to hire quickly in a new country
With an Employer of records, a company can hire international talent within days without needing to incorporate locally first. The organisation remains in charge of its hiring process without limiting its options based on employee location.
The company also enjoys additional benefits like reduced recruitment spending due to the lower costs associated with international talent depending on the candidate’s location.
When immigration or visas fail
The process of getting work permits, visas, or other immigration processes can be frustrating. Sometimes too frustrating for the business to deal with. Global EOR services help companies keep or retain skilled candidates even when their immigration or visa applications are denied. With features like Global Parking, companies can hire candidates as remote employees in the country where they reside, and an EOR can help ensure the company remains compliant with all the local laws and tax requirements.
A global EOR helps provide a streamlined solution for managing employee transfers. In a divestiture, transferring employees to a new entity is necessary. This can be complex and time-consuming. EORs can act as the legal employer of the transferring employees, ensuring the process remains simple and compliant for managing payroll, benefits, and other employment-related matters.
How Long Can a Business Use an EOR?
Although EORs are essential in helping a business establish its presence in a new country and overcome other location-related challenges, using an EOR is not a long-term solution to expanding internationally. In many cases, it works long-term for most businesses, but not always.
Most businesses use an EOR as part of an exploratory process to determine whether expanding into a certain region is the right move. Once confirmed, the business might move to a more permanent solution by establishing a legal local entity.
Regarding time, there isn’t a set amount of time to switch from an EOR to a local entity. If the EOR approach works for the business, they can keep the model as long as necessary.
A company’s timeline, goals, and country-specific laws and regulations could affect how long you use an EOR. For instance, in Germany, EOR arrangements can only last up to 18 months. After that, the company needs to develop a more permanent solution. Some countries don’t have a specified time limit but often discourage long-term EOR engagements.
As a company, you should consider the following when determining how long you want to work with an EOR;
- Local time limits
- Employee headcount and individual roles
It goes without saying hiring a capable EOR is vital for the smooth running of the business. Depending on your location, finding the right EOR to work with is crucial to the success of the business’s relationship with the EOR and your expansion venture.
Pay iO is a leading EOR provider with immense experience in the industry. Our global network makes it possible for businesses we partner with to expand to different locations quickly and efficiently. Contact us for more information on our Employer of Record services and how we can start working together.