Key Takeaways
1. An Employer of Record (EOR) is an international HR company that becomes the legal employer for a client company’s workforce.
2. Employer of Record companies are also often referred to as Global Professional Employer Organizations (‘Global PEOs’).
3. An Employer of Record is responsible for hiring employees on compliant local contracts, payroll processing, ensuring that all necessary withholding and deductions are made, and meeting the compliance obligations of employers.
4. Employer of Record solutions are a more cost-effective and faster global expansion tool than setting up a separate company or subsidiary in each country of hire.
When it comes to hiring a global team, many companies are starting to choose Employer of Record (EOR) solutions over the traditional method of setting up an overseas subsidiary.
Here we explain how EOR solutions work, and look at the pros and cons of this hiring solution compared to other popular options.
What Is the Definition of an Employer of Record (EOR)?
An Employer of Record (EOR) is an international HR company that assumes legal responsibility for a client company’s workforce, handling all employer-related duties and obligations on behalf of that company. With an EOR, your company (the ‘client company’) delegates human resources responsibilities, including hiring, onboarding, payroll processing, and withholding income taxes while you retain control over your daily operations.
The concept has its origins in Employee Leasing and Professional Employer Organizations (PEOs). These companies began in the late 1960s in the United States as a way of enabling better access to employee benefits like health insurance and retirement plans for employees of small businesses.
We discuss the differences between EORs and PEOs in more detail below.
What Is a Global Employer of Record (EOR)?
Employer of Record companies may operate locally only, or they may have regional or global reach. For example, in California, some Employers of Record are local companies specifically empowered to pay home care workers under state law.
A Global Employer of Record enables companies to lawfully employ individuals across international boundaries without the need to establish a local presence or potentially infringe upon the employment laws of various countries or states. The EOR acts as your international human resources department, well-versed in the intricate labor regulations and payroll requirements of the diverse locations where your employees are situated, from China to South Africa.
Global Employer of Record companies are also known as Global Employer Organizations.
What does an Employer of Record (EOR) do?
Ultimately, an Employer of Record enables companies to lawfully and effectively engage with talent in the global marketplace, eliminating the need to establish a foreign entity or risk violating local employment regulations.
The global EOR covers the legal and regulatory aspects of immigration, employment, payroll, and benefits for your geographically dispersed workforce. While the global EOR assumes the role of the official, registered employer for the supported employee, you retain control over day-to-day management responsibilities such as determining compensation, defining job roles, overseeing projects, and managing performance.
Core services offered by a global EOR include:
- Drafting and maintaining employment contracts that comply with local regulations.
- Handling all aspects of payroll and tax deductions.
- Ensuring timely payment of supported employees.
- Providing comprehensive employee benefits.
- Ensuring compliance with termination and offboarding procedures.
- Offering ongoing guidance and support regarding local labor laws and regulations.
When are the benefits of using an Employer of Record (EOR)?
An employer of record (EOR) is a valuable ally when managing a geographically dispersed workforce and navigating global markets. A global EOR offers businesses the following advantages:
Exploring New Markets: If your company has ambitions for global expansion and wants to venture into a new market without committing to establishing a local entity, an EOR enables you to test a new country’s waters compliantly. Through an EOR, you can swiftly assemble a team in new international markets, open up fresh revenue streams, and tap into a different customer base.
Attracting and Retaining Top Talent: Working from anywhere is a highly sought-after perk in today’s competitive labour market. The competition for top talent remains fierce, and many companies embrace remote work options. Moreover, hiring without geographic limitations widens your talent pool and allows you to pinpoint individuals with precisely the skillsets you require. A global EOR facilitates hiring from anywhere and attracting exceptional talent. Furthermore, when employees need relocation, a global EOR helps you retain your top-tier talent without establishing a local entity.
Hiring Employees During Entity Setup: Although establishing a local entity permits you to hire local talent and expand into new international markets, it demands a significant investment of time, resources, and expertise in the host country’s legal landscape. An EOR can serve as an interim solution by providing support in hiring and valuable insights into entity establishment while you finalize the necessary requirements.
Avoiding Contractor Misclassification: As an alternative to hiring international employees or setting up a local entity in another country, some companies opt to engage contractors, considering them a cost-effective means of hiring remote international talent. However, as a company grows, it becomes increasingly susceptible to misclassifying contractors as employees, exposing itself to compliance risks. A global EOR offers an efficient way to engage contractors as employees, mitigating compliance concerns.
How Much Does an Employer of Record (EOR) Cost?
The overall cost associated with an Employer of Record (EOR) will vary based on several factors such as the number of employees you hire through the EOR, the range of services you select, and the EOR’s fee structure. EORs generally employ one of the following pricing models:
- A fixed monthly fee for each employee.
- A percentage of the payroll plus any relevant taxes.
Be mindful that these pricing models might include additional administrative fees, onboarding charges, or other expenses for supplementary services. It’s crucial to be aware of any potential hidden fees. Thoroughly review your contract to fully comprehend the complete costs involved in your EOR partnership.
How to Select an Employer of Record (EOR)?
When selecting an Employer of Record (EOR) partner, consider:
- Transparent Pricing: Choose a provider with clear, upfront pricing to effectively manage your workforce budget.
- Accurate Employer Burden Calculations: Ensure they accurately calculate payroll, including health insurance, social security, and paid time off, relevant to each market.
- Global Coverage: Verify their expertise in your target markets to avoid non-compliance and extra costs.
- Responsiveness and Support: Select a partner offering prompt support and a dedicated account manager for smooth operations.
- Independent Third-Party Validation: Look for industry recognition and validation from reputable sources for quality assurance.
EOR vs PEO: What’s the Difference?
In an international setting, the terms Global Employer of Record and Global Professional Employer Organization (PEO) are usually used interchangeably. So there is no difference.
However, in some countries, like the United States, Professional Employer Organization is a term regulated under the law specifically to refer to a co-employer. In the United States, a PEO generally would not become the legal employer of staff under their own Employer Identification Number (EIN). Instead, they would simply support the client company in fulfilling that function, including withholding and submitting employee taxes.
Employer of Record solutions can also be distinguished from:
Contract staffing: While this term is sometimes used as a synonym for PEO, it is usually considered a distinct form of HR solution. In contract staffing, the third-party company employs a workforce that it leases out to clients, often temporarily. By contrast, the workforce is often exclusive to one client in an Employer of Record solution.
Umbrella company: An umbrella company provides compliant payment solutions for self-employed workers. This is a particularly popular payment model in the UK. While an umbrella company pays workers, those workers are not on the umbrella company’s payroll. This is the crucial difference with an Employer of Record solution.
Read more: What is an Umbrella Company and How Does it Ease Global Expansion?
Is Horizons an Employer of Record (EOR)?
Horizons is a global Employer of Record that enables businesses to hire in 180+ countries without setting up subsidiaries or entities. Employees get streamlined payroll in local currencies with a single monthly bill and as an employer, you can accelerate international hiring to just 24 hours while we take care of compliance, including employment taxes and social security. Plus, you save up to 60-80% on hiring costs with our efficient EOR solution.
Contact Horizons to find out how our Employer of Record solution can hire and onboard your international team in as little as 24 hours.
Frequently asked questions
Employer of Record services are usually charged either as a percentage of the total cost of the employee to the enterprise, or on a set per month basis.
International EOR services usually start from USD$200 per month.
In general, yes. In some countries, such as Germany, there are restrictions on how long an employee may be engaged by an EOR before they have to move onto the payroll of the client company.
Note also that there is a ‘co-employment’ or ‘joint employment’ risk, where both an EOR and a client company may be found to be the employer for certain purposes.
An Employer of Record is the legal employer of a workforce. By contrast, an Agent of Record is an individual or entity that represents an insured person or entity with the insurer.
Any industry could potentially benefit from the use of EOR solutions.
Originally, EOR services were popular in the US for administrative, temporary and janitorial and cleaning staff, but they are now popular across all industries.
