Understanding Employer Of Record (EOR): What Is It And What Are The Benefits?

Employer of record (EOR)

Employers who operate in the global market have to deal with the fact that the laws regulating employment are not the same in every country. It is time consuming to understand all the details of such possibly complicated regulations and it is also money costly if one goes wrong. In order to save time and prevent compliance issues, employers may turn to a third party Employer of Record (EOR) who can handle payroll, benefits, HR and more.

What Is An Employer Of Record?

An employer of record is a third party that is charged with the legal responsibility of employing another organization’s workforce. It can be within the same country as the business it is hiring workers for, or in a different country that has different employment laws.

The EOR manages the employment-related matters such as the payment of employees’ wages and meeting legal requirements while the client business organization retains the managerial authority over the employees and their tasks. This structure enables the employers to grow their businesses but at the same time they do not have to be overwhelmed by the management and legal issues that may come up as a result of business expansion to another region.

What Employer Of Record Services Included?

An employer of record may take on the task of any of the following things: 

Running payroll and paying employees

EOR is responsible for the calculation of wages and deduction of taxes and for making the proper and timely payments to the employees. Some of the responsibilities in the company include enrolling in direct deposit, preparing paychecks, and responding to queries or concerns from employees about payroll.

Filing and paying employment-related taxes

The EOR is legally liable for computing, reporting, and making tax deductions and payments from the employees and employers’ side. This includes the income tax, federal insurance contributions act or FICA which comprises of social security and Medicare taxes as well as any other state and federal taxes that may apply. They also want to be in tune with the current tax legislation that governs every business entity.

Administering benefits

Employee benefits are often under the responsibility of the EOR and can be health insurance, retirement plans, paid vacations, and bonuses. These tasks include enrollment/disenrollment of all benefit plans, managing benefit plan changes, terminations and all interactions with benefit providers, addressing all employee benefit inquiries.

Managing workers’ compensation claims

Employment-related injuries or sickness is another area where the EOR is taxed with handling workers’ compensation issues. This includes liaising with insurance companies and managing or assisting in the claims process as well as monitoring that the affected employees are given adequate medical attention and reimbursement as per the laws of the state.

Managing unemployment claims

In situations where an employee is terminated and has to seek unemployment benefits, it is the EOR who handles the matters regarding responses and appeals in the case of a claim. They give support and appear in court sessions that involve unemployment benefits to ensure that the latter gets it right.

Supporting regulatory compliance

To this effect, the EOR is responsible for guaranteeing that all employment related activities are in conformity with the state, regional and federal laws. This in as far as compliance with legal requirements such as labor relations Acts, health and safety measures, Equal Employment opportunity legislation and any other legal provision that applies in the circumstances. They ensure that they are conversant with the new laws and when these laws change, their polices and practices reflect such changes.

Therefore, it is quite clear that outsourcing these responsibilities to an EOR does not imply that an employer lacks control over employees. The employers are still responsible for daily processes and working activities as well as the tasks assigned to workers and their performance evaluation.

When Should You Consider Employer Of Record Service?

Employers of record services are especially beneficial in the global landscape. EORs can be useful to employers as a source of professional knowledge if they want to: 

• Expanding to Foreign Locations: EORs simplify compliance and administrative tasks when companies expand abroad.
• International Mergers and Acquisitions: EORs assist in integrating and managing the workforce of acquired companies across borders.
• Remote Workers in Different Countries: EORs manage payroll, taxes, and compliance for employees working remotely worldwide.
• Global Operations: EORs offer centralized HR solutions for companies operating in multiple countries.
• HR and Administrative Support: EORs provide expertise in managing payroll, benefits, and compliance internationally.

Employer Of Record Benefits

Seeking new workers and building new locations in other countries may be difficult. Risk assessment is something that employers will have to consider every so often. If you ask  “Is the risk worth the reward?” the answer is yes with the help of an EOR. There are several reasons why an employer will require an EOR. 

• Venture into New Markets
  Since there are numerous bureaucratic procedures for registering a business in another country, the process may be very time-consuming. A registered EOR in the destination country can also help facilitate the hiring and onboarding process by handling the process on the client’s behalf, which would allow for work to start sooner rather than if the client tried to register as an EOR themselves.
• Mitigate Risks
  EORs may offer deeper expertise into the specific regulations of an area to their clients so that their clients will not need to know all of the laws. And if there is an accident related to the violation of compliance requirements, the EOR is responsible, not the client.
• Streamline Administrative Tasks
  Having to perform the administrative work related to having employees like paying their salaries or taxes as well as filing the necessary papers at the tax and social secure agencies takes time and resources that can be better allocated for something else. Through outsourcing these tasks to an EOR, employers also get the chance to focus on more important activities such as defining relationships with clients and other partners, improving products, and planning for growth, among others.
• Reduce Costs
  Streamlining bureaucratic procedures, minimizing the legal risks of regulatory non-compliance and off-shoring tedious operations can, at least in theory, translate into cost-efficiency. On many occasions, the cost of employing an EOR is actually lower than the cost of establishing an entity within a foreign jurisdiction and undertaking the various activities associated with hiring new staff – visa processing, workplace regulations, payroll tax, and payments.

EOR vs PEO: What Is The Difference?

Companies that lack the capability to deal with people will go for an external HR solution that is provided by a PEO. A PEO is also a third-party company that will assist in payroll and tax processes, benefits, hiring and onboarding, regulations, human resources, risks, and so many other services.

There are certain distinctions between the two.

As provided for in the services agreement entered between the parties as is applicable by law or regulation.

There are PEOs that do have restrictions on international travel and expatriation.

Some Unfavorable Potentials Of The EOR

Strong perks can be beneficial for the company as it helps to attract and retain employees. The potential drawback is that organizations that use the EOR model might not find this to be a competitive advantage as much as the PEO model. The EOR normally provides what they receive while a PEO has more options but will discuss with the employer which of the options is the best for the employee.

EOR Vs Staffing Agencies

Businesses may opt to hire a staffing agency if they wish to extend their employees, seek assistance for permanent or temporary projects, or if the business is planning to recruit additional employees for contract or part-time roles. Employees hired through this method are referred to as leased employees since the staffing agency is required to provide the staff with the payroll, taxes, benefits, and so forth. The staffing agency provides the staff as long as the assignment is going on. Once the job is complete, the staffing agency takes the employee back.

This form of arrangement may be suitable for companies that seek to expand their workforce at a low cost and may not be suitable for companies that seek to reduce the bureaucratic and legal hassles of employing workers. Therefore when it comes to this kind of scenario, an EOR might be better suited than a staffing agency.

How To Select The EOR That Is Best For You

Here are some of the qualities an EOR should have when an employer is considering such an option for its staffing needs: 

• Experience in the regions where the client has staff.
• Having the capability to be aware of local employment laws and regulations.
• Other similar and comparable companies for a client base.
• Software systems that can support a large number of users and are platform or tool-independent.
• Communication channels that reflect the stakeholder’s preferred ways.
• Privacy policy standards to mitigate risks for personal data.

How FastLane Group Can Help?

Are you thinking of streamlining your international expansion and minimizing compliance risks? Partner with FastLane’s Employer of Record services and our expertise in global employment solutions ensures your business can focus on growth while we handle the administrative burdens. Contact us today to learn how we can support your global workforce needs.