Employer of Record – Talent500 Blog

EOR 101: Everything you need to know about Employers of Record

Posted on October 21, 2022 by temp

Global expansion is the logical goal for all businesses, whether it is for entering new markets, hiring global talent, or simply expansion. However, hiring across borders is no mean feat; it requires a deep understanding of local labor laws, the local taxation framework and other legal and regulatory compliance. In terms of the timelines, this can take anywhere between 3-9 months.

An Employer of Record, or EOR, is a mechanism to easily add employees in new international markets without having to incur the expense and risk of creating a corporation abroad. An EOR is a third-party organization that serves as the legal employer for a company’s foreign employees. The EOR undertakes the management of all workforce-related aspects – from hiring & payrolls to taxation, employee benefits, and legal compliances.

Functions of an EOR

By entering into employment contracts with your international employees on your behalf, EORs enable you to hire across multiple countries without having to set up a legal entity. While acting on behalf of the employer, some functions undertaken by the EOR include:

Ensuring compliance with all employment and labor laws: Every country has its own set of laws governing employment. Well versed with the legal regime of the country, the EOR ensures due compliance with all employment laws.
Management of payrolls: The EOR undertakes the process of negotiating compensation, and pays the employees through its local bank account. It is the responsibility of the EOR to ensure the application of the correct taxation framework in accordance with the country’s laws.
Management of perks and benefits: Being in the same geographical location, the EOR has a much better grasp of the perks and benefits, and ensures that your workforce has access to the benefits that are most valuable to them.
Connect with the local ecosystem: An EOR gives you direct access to the right resources within a specific geography – the right recruiting partners, legal and financial consultants, or even the workspace.

When speaking of functions of EORs, we often also hear another term – PEO. While they do have their similarities, they also have key differences.

PEO vs EOR

Professional Employer Organization – PEO

A Professional Employer Organization (PEO) offers a comprehensive range of HR services, including payroll processing, foreign transactions, tax preparations, employee incentives, employee benefits, and compliance management. To manage their employees, PEOs collaborate with a nearby business that is a registered organization. The PEO’s name will appear on the employee’s payment invoice and any HR communication materials.

Employer Of Record – EOR

An Employer of Record is a third party organization that specializes in handling all the legal and operational requirements of building a global workforce for its client companies, like management of payroll and taxation, employee benefits, and other such administrative and legal obligations.

While a worldwide EOR offers services comparable to those of a PEO, it also assumes all of the workers’ legal obligations. As a result, a company will be able to provide overseas personnel personalized HR services without worrying about compliance.

Choosing the right partner

Knowing the difference is crucial, but when choosing between EORs and PEOs, knowing your use-case is more important. Consider these questions before selecting your choice:

How big is your workforce?
An EOR is a common option if you want to recruit a small number of people in a country, irrespective of whether you possess a formal organization. However, the cost often rises when you recruit more personnel from a nation with a high level of talent. So, if you need to employ a large number of professionals quickly, a PEO is your best bet.
Do you own a local entity in the country of hiring?
If you don’t possess a legal business in the employee’s nation, your sole option is an EOR. Different nations have different levels of legal entity formation complexity, taxation requirements and employer compliances.
Are you hiring contractors, temporary employees or full time employees?
Typically, when working with interim and contractual personnel, firms opt for an EOR. This is due to the fact that EOR offers the crucial HR solutions that are ideal for contract employment. On the other side, a PEO offers you access to all of its services, which improves your management of full-time staff.

Now that you know which one to select, there are certain things that you must keep in mind before engaging and EOR. The costs, legalities & other considerations are important factors when considering which EOR to choose.

The cost of engaging an EOR

An EOR manages payroll, employee incentives, bonuses, benefits management, talent retention, complies with changing labor costs, offers consistent HR assistance, and acts as a liaison between the business and the employee, to name a few tasks.

Without knowing the specifics, the cost of an EOR cannot be calculated with accuracy. These might include factors like the hiring area, the amount of employees employed, and the type of person hired (contractual vs. full-time), among others. So let’s examine what often influences an EOR’s price.

EOR pricing models

EOR pricing schemes may be divided into two categories: flat fee structures and percentage agreements. Avoid any potential partners that charge a percent rather than a set number if you wish to work with an EOR.

EORs using percentage calculations dissuade their client companies from paying employees appropriately. When you levy a percentage, you must pay a third party more money in order to provide an employee a bonus or a raise. Despite the fact that percentage-based EORs were previously the standard in the industry, things are beginning to change.

Factors affecting EOR quotes

Any taxes, required contractual perks, and other fees that the local authority may demand are costs to the firm when hiring an employee in a particular country.

The total cost to the company will vary based on the employing nation, specific area or region, and staff wages. For instance, in Canada, employers pay for the Canada pension plan, the occupational health tax, the parental health bonus, and workman’s compensation insurance.

Choosing the right EOR

If you’re ready to take the next step, the only question left for you is figuring out which EOR to choose, and how. There isn’t a lack of EORs out there, and they all offer different quotes and services. Here are some of the major things you need to keep in mind when selecting the EOR you’re going for.

Transparent costs & communication

When contrasting several companies, select a global Employer of Record that is transparent about its costs. They might add setup fees, taxes, or cancellation fees to their initial estimates. They may also later introduce hidden fees and surcharges, which would change your budget and have an effect on many departments inside your business. Request a complete price breakdown from prospective EORs upfront.

Accurate quotes & calculations

Pick an EOR that is honest and informed about employer burden costs. When calculating payroll expenses, the business must include extra social contributions like health insurance, social assistance, and paid time off. Due to the fact that these employer restrictions differ depending on the market, your EOR supplier must provide you specific rates on these parameters.

Track record

Read reviews on unbiased websites and get in touch with references to see whether current clients of the EOR are happy with the company’s services. Asking a potential partner for references from businesses that have goals and characteristics similar to yours, such as budget, industry, and types of people they work with, is also beneficial.

Pick a provider who has experience with EOR work and complies with global standards. This reduces the likelihood of breaching the law and angering the host country.

Help & support

Choose a proactive partner who can move quickly in response to your requests and the expectations of your team. Your EOR partner will regularly interact with both your present staff members and any future hires on your behalf. Make sure your EOR partner designates a client account manager who takes into account language barriers and regional time variations, reacts quickly to questions from your team, and onboards new supported people.

Businesses need a partner in EOR that can respond quickly and support your personnel. Look for a global EOR that offers a specialized client manager rather than one that will direct you to a chat window or a manual.

Benefits of EOR

Hiring across borders becomes easy when you have the right global recruitment partner. An Employer of Record (EOR) helps you hire superlative talent across the world, without spending a fortune.

Let’s take a look at the different benefits of working with an EOR ~

Global talent made accessible

Although there are many advantages to creating teams abroad (competitive cost of labor, a broader applicant pool, workplace diversity), many business owners are hesitant to hunt for talent abroad due to the difficulties involved in establishing a corporate organization abroad.

It might take months to wait for the embassy’s clearance to begin commercial operations overseas in nations with a high degree of bureaucracy. Business owners have been in a limbo for a while, unsure of whether to keep attempting to break in or concentrate on hiring local people and give up on a worldwide office.

In order to avoid having to circumvent red tape, engaging an EOR vendor enables company owners to begin recruiting personnel overseas and working on projects immediately.

Save time

It takes a lot of time to manage paperwork, handle benefits administration, process paychecks, and end employee contracts. Business owners who attempt to balance dozens of management responsibilities on their own wind up not devoting enough time to the company’s essential operations, such as developing strategy, enhancing the product, and cultivating deep relationships with customers or partners.

Company managers may spend much more time doing useful things if they have a trustworthy vendor handle their tax filing, payroll, and other formalities. Instead of spending hours learning foreign rules and regulations, company owners may work with an EOR to advance their abilities in areas they are knowledgeable and enthusiastic about.

Cost-efficient

Opening an office overseas entails significant expenditures. Building a team overseas from the start ends up costing business owners a fortune.

Employers of Record enable company owners to save money by avoiding the costs of employing fiscal, HR, and judicial consulting firms. In case the relationship is not as successful as the business management first anticipated, the versatility of EOR agencies allows for the exploration of new markets and the closure of international offices without being concerned about maintenance and HQ termination fees.

Compliance with regional law

International enterprises frequently experience costly litigation as a result of failing to understand local trade and labor rules. Due to ignorance of the legal intricacies, a business owner may find themselves in hot water.

Organization managers rely on EORs to steer clear of such circumstances and manage teams in a way that complies with the law. EOR agencies will ensure that all corporate procedures are compliant since they have a thorough understanding of labor and business laws.

Each expansion into a new overseas market has its own set of complications that need an expert staff. At Talent500, we understand that the transition to location independent working is a multi-layered process involving numerous stakeholders and factors. Our team of experts and network of highly skilled professionals are here to help you build your global team in over 50 countries. Ready to take the first step? Set up a consultation with our team here.

What is an Employer of Record (EOR)?

Posted on October 19, 2022 by temp

When a company hires an employee, it takes on all the duties, expenses, and obligations related to having that person on staff. This is a challenging and complex process, especially for multinational corporations managing international staff.

The solution? EORs. An EOR, or an Employer of Record, is a third party organization that specializes in handling all the legal and operational requirements of building a global workforce for its client companies. Thus, traditional employment responsibilities like management of payroll and taxation, employee benefits, and other such administrative and legal obligations are undertaken by the EOR.

Functions of an EOR

A global Employer of Record enables businesses to hire professionals throughout the world without the need to establish a local entity, or running the risk of breaking regional labor regulations. In short, an EOR is like a multinational HR company that is familiar with the intricate payroll rules and labor laws of the locations where personnel are situated.

A global EOR handles the regulatory and legal requirements for migration, recruitment, compensation, and perks when a company wants to hire across multiple countries. While the EOR is the employee’s official and registered employer, you continue to have control over daily management activities including pay, job responsibilities, projects, and performance evaluation.

A global EOR helps you ~

Create and update employment contracts that comply with local laws
Pay salaries in a different country through their own local bank accounts
Oversee all salary and tax deductions and compliance
Pay international employees in their local currency and provide a full range of legal benefits
Ensure adherence to all company policies and guidelines
Provide updates on local labor laws and regulations and streamline planning
Help in the integration of the new talent with the parent company

Benefits of an EOR

A worldwide EOR partner has several advantages for businesses. It enables companies to recruit the best talent from any location, and support them in accordance with their local and cultural requirements. A lot of businesses lack the resources or in-depth knowledge necessary to employ legally in international locations; EORs, thanks to their local presence and experts, are able to fill these gaps.

Let’s see some of the benefits of engaging an EOR

Reduced risk of violating laws

Depending on the nation, hiring internationally has multiple legal implications. For instance, tax rates vary widely across the world, and every country has its own set of legal and regulatory compliances, making it difficult to stay on top of all obligations. To guarantee that their customers comply with various laws governing taxation, employee welfare, and retirement benefits, EOR businesses keep up with changes in these laws and advice their clients accordingly.

Cost and time effective

Once they engage an EOR, companies are no longer required to set up a legal entity in the foreign country, thus saving up on the cost of registration, opening up of a bank account and other such formalities. Additionally, hiring through an EOR gives enterprises access to talent that is available at highly competitive cost.

Easier onboarding

EORs are able to ensure smoother onboarding as they are already aware of the various cultural, economical and legal requirements of hiring in the employee’s home country. They undertake the task of background verification and documentation, setting up of statutory benefits, as well as management of payroll and taxation, thus delivering a smoother overall onboarding experience for the employee as well as the employer.

Scalability

For administrative and tax considerations, several nations demand that foreign businesses or investors form a corporation domestically. Since an Employer of Record serves as the local registered entity, it removes the need to set up a new company.

An EOR enables you to make and implement quick decisions in terms of hiring, operations and expansion, thus ensuring a high level of scalability. The fact that the existing EOR is in charge of all legal compliance, rules, and administrative tasks, however, may be where the true value resides, freeing them to concentrate on scalability and expansion.

How to choose the right EOR

Even though an EOR partner will assist in achieving hiring and management goals for remote teams, selecting the right one is key. Here are a few things to keep in mind.

Transparency

Choose a worldwide Employer of Record that is open about their cost when comparing different firms. In addition to their original quotations, they could also charge setup costs, taxes, or termination fees. Additionally, they may subsequently add undeclared costs and markups, which would alter your budget and have an impact on several divisions of your company. Ask potential EORs to explain all aspects of their price up front.

Track record

To find out whether current customers are satisfied with the EOR’s services, read reviews on independent websites and contact references. Asking a prospective partner for references with companies that share your company’s objectives and traits, such as budget, sector, and the sorts of people they work with, is also helpful.

Choose a service provider who has handled EOR work and complied with international requirements.

Accurate quotes

Choose a provider who is knowledgeable and truthful on employer burden charges. The company must include in additional social contributions such as medical insurance, social welfare, and paid leave off when determining payroll expenditures. Your EOR partner must provide you precise prices on these criteria because these employer constraints vary by market.

EORs bill different amounts for their services. Before you sign any contract, be sure the business is honest about the costs. It is unacceptable to have any fees or expenditures that aren’t disclosed up front.

Global presence

With different parts of the world emerging as talent hubs, global teams today are seldom restricted to a few countries. Your primary reason for engaging an EOR is access to talent in multiple countries, which is why it is imperative to ensure that your EOR partner has a global presence. Check the list of 50+ countries where Talent500 can help you build your teams here.

Support

Pick a responsive partner who is proactive at responding to the needs of your team and leadership, as the EOR will act as the primary link between you and your distributed workforce. Ensure that your EOR partner assigns a client account manager that responds to inquiries from your team promptly, onboards new supported personnel, and takes into consideration regional time differences, cultural differences and languages.

How Employer of Record works

Posted on September 9, 2021January 24, 2022 by satya

According to the United Nations Conference on Trade and Development, 80% of the total world trade takes place due to multinational corporations. Setting up a legal entity or subsidiary in a foreign country is no mean feat; it requires a deep understanding of local labor laws, the local taxation framework and other legal and regulatory compliance. In terms of the timelines, this can take anywhere between 3-9 months.

For businesses seeking to accelerate this process and avoid overheads, an Employer of Record (EOR) is often a simpler alternative to get started.

An Employer of Record is a third-party organisation that serves as the legal employer for a company’s foreign employees. The EOR undertakes the management of all workforce-related aspects – from hiring & payrolls to taxation, employee benefits, and legal compliances.

Why EOR – The complexities of setting up in a new country

In an ideal world, hiring international employees would be as easy as setting up interviews via video conferencing and wiring their salaries to them at the end of the month. In reality, there are multiple hurdles in this process:

Upfront Investment

Setting up a legal entity in a foreign country requires a sizable investment in terms of capital, as well as time. In many cases, small and medium enterprises are not able to allocate the resources necessary for international expansion. An EOR solves this problem by charging companies a predetermined fee for undertaking all these responsibilities, consequently enabling them to hire from a global pool of talent.

Compliance with local & international laws

Every country has its own laws of employment which require strict compliance. This applies equally to taxation and foreign direct investment. EORs have legal teams that are well versed with the local laws, having years of experience in these areas.

Speed of operations

Registering a new entity and establishing a working framework can take months. Whereas employing an EOR allows companies to begin their operations within weeks, as they already have a framework in place for each step of the process.

In effect, a company is able to outsource all its duties with respect to the hiring, management of benefits & payrolls, and administration for its global workforce to the EOR. The EOR manages all taxation and regulatory related compliance for the company, making the entire process highly efficient and cost- effective.

Who do the employees work for?

The EOR enters into two contracts – the first is a service agreement with their client, for providing them all employment related services in the foreign country. The second is an employment agreement with the employees, where it agrees to pay them the agreed compensation and manage their perks and benefits.

Ensuring compliance with all employment and labor laws: Every country has its own set of laws governing employment. Well versed with the legal regime of the country, the EOR ensures due compliance with all employment laws.
Management of payrolls: The EOR undertakes the process of negotiating compensation, and pays the employees through its local bank account. It is the responsibility of the EOR to ensure the application of the correct taxation framework in accordance with the country’s laws.
Management of perks and benefits: Being in the same geographical location, the EOR has a much better grasp of the perks and benefits, and ensures that your workforce has access to the benefits that are most valuable to them.
Connect with the local ecosystem: An EOR gives you direct access to the right resources within a specific geography – the right recruiting partners, legal and financial consultants, or even the workspace.

In short, while employees are legally contracted by the EOR in their local region, in effect, they still work for the client and the client can retain all IP, creation processes and operational control.

Things to keep in mind while choosing an EOR

An EOR plays a huge role in the trajectory of a company’s expansion into a new territory, which is why it is imperative that businesses take an informed and reasoned decision when choosing one. The right EOR fits in line with the company’s vision, and has the requisite resources to bring it to fruition.

Here are some points that companies should consider in this process:

Established operations in the desired country

The biggest reason for employing an EOR is their grasp of the local laws and experience in operating in a particular country. Every country has its own set of employment legislations, tax regimes, and local operational guidelines. For example, while data privacy laws are not strictly applicable in most South-Asian countries, Europe’s data protection law, GDPR, demands a high level of compliance from all companies operating within the European Union. An EOR that is not locally present in the desired country will be unaware of these requirements, and hence, of little assistance to its clients. Here’s a list of the multiple countries where Talent500 can help companies hire their global teams.

Protection of your IP, data and information security

One of the biggest challenges that companies face when expanding into new territories is the protection of their intellectual property, data and proprietary information. Before choosing an EOR, it is essential to check their policies with respect to data collection, security protocols and mechanisms.

Data privacy & regulation

Before signing up, companies must enquire about the information the EOR is retaining, and how this information is being processed. Companies must insist on utmost information security via ironclad contracts.

Protection of Intellectual Property

A company’s trademark, logo, proprietary technology and all other IPR is highly valuable, and must be protected when venturing into new markets. Before selecting an EOR, it is crucial to verify that it has the requisite legal framework to be able to protect its client against potential IPR breaches.

Confidential Information

During the course of operations, a company has to share its sensitive information such as customer lists, pricing information & market strategy with its EOR, as well as the subsequent workforce. It falls upon the EOR to ensure that this confidential information is protected at all times. This is usually achieved through a dual method – the enforcement of airtight Non Disclosure Agreements with all employees, and the implementation of a robust security mechanism, complete with firewalls and multiple encryptions.

By removing the restrictions of hiring within a 30-mile radius, an Employer of Record enables companies to work with geographically diverse teams, giving them access to a limitless pool of talent. For companies that plan on firmly establishing their base through setting up a subsidiary, availing the services of an EOR is the best way to test the waters in a completely new market with minimal investment. The right EOR provides access to the best talent, while simultaneously remaining prudent about the investment of capital and effort.

Thinking about expanding into new locations? At Talent500, we are helping companies build, manage and scale global teams in more than 30 countries, including Pepsico, 7- Eleven, Target, H&M, Walmart, Ikea, and more. We have our roots at ANSR, a global market-leader trusted by the world’s leading organizations to set up, build and run high-impact, global technology hubs. For the last 15 years, ANSR has pioneered the global talent movement enabling $1.5B+ in capital investment.

Our dedicated team of professionals would be delighted to help you figure out the best match for your organization. Sign up here to take your first step towards global expansion!