What Employer of Record?

How Does An Employer Of Record Work?

An EOR allows businesses to hire international employees without needing to establish a legal entity themselves, or having to familiarize themselves with the laws and regulations in a new employee’s country.

While the EOR acts as the legal employer on paper in the country where the employee resides, the company maintains control over the day-to-day operations of their workforce. This includes defining an employee's tasks and responsibilities, maintaining the relationship with the employee, and monitoring performance.

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What Are The Alternatives To Using An EOR?

The traditional alternative to an EOR is setting up an entity in any new market you want to enter as a business. This keeps your business compliant when hiring in new regions, and can make sense if you plan to hire a large number of employees in that country. However, establishing a legal entity comes with significant costs and can take a long time, potentially delaying your global expansion goals.

Another alternative is to hire contractors to complete projects in a new region instead of hiring full-time employees. However, this can come with misclassification risk if you treat these workers the same as full-time employees. Many Employer Of Record services also offer contractor management solutions to compliantly hire contractors in the countries where they operate.

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What Are The Advantages of Using An EOR?

There are many benefits to using Employer of Record services, including:

• Less costs: By using an EOR, businesses can avoid the steep set-up and operation costs associated with new legal entities. This makes it an especially attractive solution for businesses that don’t have the resources at their disposal to launch in new markets. With a comprehensive EOR provider, you also don’t have to pay the extra costs that come with benefits administration, setting up local payroll, or ensuring compliance with local laws, as this is included in their fees. 
• ‍Saving time: It can take 4-6 months to set up new legal entities. In comparison, you can onboard new employees with an EOR within a day, in any new market. Businesses can also spend less time on routine HR and legal tasks as part of their day to day operations, such as researching employment laws and benefits in a country or administering payroll.
• ‍Access to broader talent pools: With the rise of remote work, increased competition for scarce skills and talent shortages in local markets, it’s important for businesses to rethink their hiring approach to get access to world-class talent. Good EOR providers have wide country coverage as part of their services, allowing you to access global talent pools. 
• ‍Less compliance risk: Expanding your business to a new market means you need to be familiar with that country’s employment laws to stay compliant. This can get complex if you don’t have access to experts in local labor laws, which can open you up to fines or penalties in that region. An EOR such as Playroll have teams of experts on hand to ensure you remain compliant when hiring employees in any country, will set up contracts correctly for any new employee, and help you avoid misclassification risk.

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What’s The Difference Between Traditional Employers And an Employer Of Record?

What will change when you employ new team members through an Employer of Record? Here’s a more detailed breakdown of the differences between an EOR and the traditional employment model:

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What Does Employer Of Record Services Include?

Most EOR providers offer similar core products, but can differ widely in additional services they offer – and what comes at an extra cost. A comprehensive EOR provider such as Playroll offers the following services:

• Timely payroll In for employees they are responsible for.
• Ensure compliance with local employment laws, and that the correct amount of local and international tax is withheld. This reduces client risk and liability.
• Administer localized, competitive employee benefits to attract and retain talent and ensure that staff receive the perks and coverage outlined in their employment agreements.
• Support the recruitment process by leveraging trusted partner networks.
• Make sure new hires are seamlessly onboarded in time for their start date.
• Manage the offboarding process for employees that you no longer want to employ through the EOR.
• Ensure employment contracts are compliantly set up and protect your IP and invention rights.

Using an EOR allows organizations to focus on their business, while handing over financial, admin and legal complexities to the EOR provider.

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What’s The Difference Between An Employer of Record And A Professional Employer Organization (PEO)?

In short, an Employer Of Record assumes all compliance and legal responsibility of employees. You can therefore hire employees without having to establish a new legal entity, by leveraging the EOR’s infrastructure of entities instead. In addition, an EOR helps manage HR responsibilities such as benefits administration and payroll.

In contrast, a Professional Employer Organization (PEO) has a co-employment arrangement with a company, sharing compliance liabilities – you can’t use a PEO without establishing your own entity first. They are suitable for companies that only want HR and workforce management support.

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