Understanding the Pros and Cons of Employer of Record

What is an Employer of Record?

Employer of Record refers to a third-party company that hires employees legally for another organization. The company takes on the responsibility and employment tasks for the employee.

Organizations engage with Employer of Record to legally and efficiently hire employees and workers from different countries or states. It enables organizations to engage with workers overseas without a physical setup and without violating the local employment laws.

Employer of Record is a service provided by Professional Employer Organizations. The Employer of Record eventually assumes the responsibility of a traditional employer.

How can Employers of Record help Businesses?

One of the major roles played by an Employer of Record agency is to carry out legal and regulatory requirements. The agency takes on responsibilities like immigration, employment, and payrolls.

Employer of Record only registers itself as the employer, although it does not supervise, manage or train the employee for the job. The original employer or organization maintains the relationship with the employee.

What functions does an EOR service carry out?

Here are a few major functions carried out by EOR to help businesses:

• Arrangement of visas and work permits for employees to avoid delays and refusals.
• Offering a registered and local entity as proof for compliant payrolls.
• Adhering to all host countries’ employer laws, contracts, and worker protection acts.
• Acts as a host country interface between the employee and government authorities.

Difference between an EOR and GEO

An EOR as mentioned is the Employer of Record and a GEO is the Global Employment Organization. A GEO utilizes EORs from different countries for employment.

A GEO mainly deals with hiring organizations. An EOR on the other hand is responsible for the employee’s onboarding and payroll.

GEOs overlook the functions played out by an EOR, employee, and the hiring organization. It is responsible to confirm that the participation by all parties is ethical and compliant.

While there remains a single GEO structure, there can be many EORs hiring employees locally from many host countries.

Difference between an EOR and PEO

PEO stands for Professional Employment Organization. It is another third-party service similar to GEO, but more comprehensive than an EOR.

PEOs are common in countries like the USA, where each state or region has its own set of laws for employment. Hence, smaller organizations associate with PEOs for assistance and to help meet compliance.

PEOs do not handle complete legalities like GEOs and EORs. Although it provides local payrolls, registrations, and compliance steps.

Here are the major Pros and Cons of Employer of Record:

Employer of Record services enables businesses to reach distanced borders. It plays an important role in hiring people from all backgrounds.

The Covid-19 pandemic has been a difficult time for businesses and their employees. EOR could help open up opportunities for employees all over the globe.

Pros of Employer of Record:

• No Requirements for Local Incorporations

When organizations associate with the Employer of Record, they do not need to set up a local entity. The Employer of Record helps organizations avoid the steps for incorporations and registrations.

Organizations may still justify spending time and money by building offices and entities in host countries. Here, GEOs and EORs provide a better alternative to save time and cost.

• Compliant with Immigration Policies

MNCs have to comply with many country regulations to run their businesses. Countries may have constant changes in the policies and rules.

Hence to avoid compliance challenges and immigration violations, organizations hire Employer of Record to mediate between the employee and the hiring company.

Here, Employer of Record enables legal permits to work in host countries. It eliminates problems in remote payrolls, overuse of business and work visas as well as multiple entries in countries.

• Payrolls in Host Country

Organizations often conduct projects limited to a certain time. Here, they hire local experts to run the projects and hire them using local and registered entities.

The most important feature of running the payroll in the host country is the calculations. The payment is calculated based on the tax, pension, and insurance deductions according to the local authorities.

Employer of Record agencies play an important role here and handle the critical details to ensure fair and accurate payment.

• Employee Insurance

Employer of Record is responsible for the payment of the employees. It also helps employees with their taxes, benefits, and insurances.

Here the employee is insured by the company, receives worker compensation, and other employee benefits. This creates a sense of security and makes the employee feel like an asset for the company.

• Business Expansions

Employer of Record opens up opportunities for organizations and employees to expand their horizons. Organizations are instantly able to hire employees globally and welcome diversity in the business.

Employer of Record is very helpful for companies dwelling in international markets. It also helps MNCs hire experienced workforce from the local grounds.

• Offering an Ideal Work Environment

Employer of Record offers a beneficial environment for work. The environment caters to the local employees they hire in the host country.

This definitely motivates the employees and also makes the business process easier to work with. EORs are well aware of the candidates hired and can manage them at a local level for integration.

• No Added Taxes

Hiring through a trusted Employer of Record includes the taxes and payments required for the services. There are no hidden costs or tax brackets to dupe in more money.

Each country has its sets of rules and regulations, an Employer of Record is well aware of and operates the business accordingly.

• No Co-Employment or Profit-sharing Arrangements

An Employer of Record works as an agent between the hiring company and the employee. EORs portray no hidden agendas and keep the relations between the parties to the point and simple.

EORs hire talents and candidates for organizations and their projects. Although they are the full legal employer, they mostly handle compliances and regulation requirements.

Cons of Employer of Record:

• Cannot be Suitable for Running an Organization

If a company is thinking of outsourcing its entire workforce from a host country, it is unethical and a bit complicated for Employer of Record to work with. Right now, EOR is more of a medium to hire employees faster.

• Employer Control

In some countries, employers may have to hand over their authority to the Employer of Record agencies for administrative purposes. Sometimes to comply with the rules they may also have to relinquish their rights as employers to the EOR.

Although EOR is a newer concept, there are rules and regulations being developed to work around the concept and help organizations with their goal.