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Employer of Record: A Complete Guide for Global Employers

August 30, 2023 | Jessica Wisniewski

Employer of Record: A Complete Guide for Global Employers

An Employer of Record (EOR) is an outsourcing entity that employs full-time or part-time employees or consultants for a company. They are responsible for handling administrative tasks related to onboarding and payroll. 

Though the company retains control over the day-to-day work of the employee, the employer of record assumes the legal and administrative responsibilities of being an employer. For example, a company in Canada can hire employees in Japan using the employer of record services. Accordingly, an employer of record can own their own legal entity or act as an intermediary body. This arrangement can benefit both the company and the employee, as it is cost-effective and allows for greater flexibility while maintaining legal compliance. Therefore they act as the legal employer on behalf of the companies and help them recruit and handle operations efficiently. 

What are the responsibilities of an Employer of Record Services? 

These services include hiring and onboarding, management of payroll and tax withholding, and offering employee benefits such as allowances or lifestyle benefits, stock options, and compensation insurance. They handle the paperwork and issues related to compliance with local labour laws, tax regulations, and other standards of employment as stipulated by the state, thereby saving companies from potential legal penalties or other such concerns. Global EORs even handle travel visas and tasks related to risk mitigation and taxation. 

Who should consider the Employer of Record Service? 

An employer of record service is recommended to those looking to reduce administrative tasks and legal responsibilities. It is to be noted that the company still remains responsible for assigning tasks, managing the assigned task, and other such operations related to it. Any small or medium-sized business can opt for the employer of record services in order to navigate complex processes, as setting up these departments can be both time-consuming and expensive. Startups can also employ these services in order to concentrate more on building their company and establishing themselves while these agencies handle the administrative tasks and other such paperwork. Additionally, companies offering remote work opportunities can use EOR services in order to access the talent pool all over the globe, helping them hire people with the required skill set. 

When should companies consider hiring an employer of record service? 

Companies often diversify in order to avoid depending on a single market and to mitigate risks. Therefore such companies should consider hiring an employer of record service when they want to expand their markets in a new region where they do not have a legal or administrative entity. These services can help them traverse their legal obligations, thus avoiding penalties for failing to comply with the regulations. 

Furthermore, companies taking up short-term projects to tap into a new consumer base can employ the help of employers of records in order to explore and test the waters of their venture, as these services are accommodating to a dynamic environment. 

Did you know?

Tarmack helps you easily hire international talent as your full time employees without opening international subsidiaries. Find out more about our Employer of Record services

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What are the Benefits of Employer of Records? 

1. Cost savings 

Employing an employer of record service reduces the need to hire in-house HR and legal consultants, investing in HR- technology and related software. Therefore it helps the company cut down on costs since they do not have to establish legal entities in the regions they are looking to expand. 

2. Compliance with labour laws 

Employer of Record service entities are well versed with the various employment regulations worldwide. Since these laws differ from region to region, it can be quite a chore for the company to keep track of these stipulated legal requirements. Thus, these services handle issues related to compliance, thereby helping companies prevent and navigate potential legal penalties or other such risks. 

3. Flexibility 

The Employer of Record agencies offers flexibility in hiring practices for companies. This can especially be convenient for startups or other dynamic work environments where they can scale as required. 

4. Reduced administrative burden

The employer of records services handles all the administrative tasks related to recruitment, payroll, benefits, and compliance with labour laws. This allows the company to focus its energy on more strategic activities such as retention and other transactional aspects of human resource management. 

5. Expertise 

These agencies offer access to expert advice and guidance in the field of human resources and legal support alongside a suite of other professionals ranging from payroll management, tax filings, benefits administration, and training. 

Sometimes working with an EOR can make companies feel like they exercise lesser control or would require restructuring one’s own in-house HR department. Therefore, companies have to clearly assess their priorities and goals before opting for an agency. The factors involved in informing the decision of employing an employer of record service include the expertise and experience offered by the agency, the budget of the company, transparency in operations, the size of the company, and the degree of control and flexibility required, etc. 

A thorough evaluation of these aforementioned factors acts as a basic framework, helping them make an informed decision, thereby allowing ease of business and refining their focus on working and improving the core competency of the company.

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