What is EOR?

Introduction

In an increasingly interconnected world, companies are looking for ways to expand their reach by hiring from different countries, bringing in new expertise, and making their business multinational. However, managing international employment comes with its own set of challenges and difficulties: navigating the complex regulations, tax systems, and labor laws of new countries. This can be an overwhelming task, especially for small lamp businesses and unique companies. One solution to help simplify this process is the Employer of Record (EOR) model. 

This approach allows companies to hire and manage staff in other countries without having to set up a local branch or legal entity. By using a third-party service provider, companies can easily break new personal records: enter the global marketplace, focus on business development, and uniquely a product or service.  By outsourcing the administrative and legal complexities associated with international employment, your business will only benefit.

What is an Employer of Record?

An employer of record, or third-party employment intermediary, is a specialized service provider that assumes legal responsibility for employing workers on behalf of another company. This arrangement allows companies to bring in international talent without having to deal with the local legal issues that typically arise when setting up a business overseas. 

The intermediary handles labor contracts, payroll, taxes, and regulatory compliance while the company retains control over day-to-day operations and work assignments. In essence, the intermediary acts as a legal employer for compliance purposes, allowing the company to focus on managing its people and operations. Such a service is very popular in the fast-paced IT services and development business, as it allows the company to scale quickly and bring in new international expertise.

How does an Employer of Record work?

An employment intermediary acts as a legal bridge between a company and its foreign employees. Once the company selects candidates from another country, the intermediary becomes the official employer, performing essential administrative tasks:

• sourcing and interviewing employees; 
• preparing a commercial offer to the candidate and drawing up labor contracts;
• calculating and charging salaries to the staff;
• complying with legal and regulatory rules and regulations in the resident country.

While the company retains direct control over managing employees’ daily tasks, setting goals, and tracking performance, the third-party provider ensures compliance with all labor laws, taxes, and benefits by local laws. 

This structure reduces legal risks associated with employee misclassification or non-compliance with local labor laws. The coordinator also assists with immigration procedures, including obtaining work visas and permits when necessary, ensuring a smooth hiring process.

There are many positive benefits for companies by outsourcing their employment because, in the end, this principle of cooperation helps to avoid the long time and cost required to set up a local legal entity in another country. 

What is included in Employer of Record services?

The scope of services offered by third-party employment service providers is broad and covers all major aspects of hiring and managing international employees. After all, the hiring company is looking for its representative in the country’s labor market, so the range of services should be diverse and cover the basic HR management needs. 

Core services include:

1. Payroll management
   The service provider ensures that payroll is accurately calculated and paid by local tax laws. The service includes processing tax deductions, social contributions, and timely distribution of payroll, which takes the burden of payroll calculation off the client company.
2. Legal compliance
   The third-party partner ensures that employment contracts are legally clean and in compliance with local labor laws. This includes keeping abreast of changes in labor law legislation and engaging experienced experts.  Such actions help prevent potential legal problems related to employment practices. It also significantly reduces the risk of fines and penalties being imposed on the company.
3. Benefits Administration
   The contracting company not only manages the mandatory part of employee compensation but also manages incentive payments: the distribution of benefits, perks, bonuses, and other incentives to employees. This can also include the administration of mandatory benefits such as health insurance, pensions, and other benefits, as the employment service ensures that these are provided by local standards and practices.
4. Employee Management
   The mediator oversees key HR functions including contract renewals, terminations, and all workplace issues. They also provide information on local employment trends and practices, ensuring the client’s smooth operation in unfamiliar territory.
5. Tax Compliance
   In many countries, mandatory payroll tax deductions and financial reporting is a very complex system. The contracting company then ensures that all necessary financial reports and documents are completed, allowing the client to be fully compliant with the complex tax laws.
6. Human Resources Support
   Many employment services companies are expanding their services to cover a range of human resource tasks that would normally be performed by a responsible employer. These services include employee training, performance appraisals, moral incentives, retraining, and conflict resolution within the team. This can help a business increase productivity, create a healthy work environment, and ensure overall employee satisfaction.
7. Work Visa and Immigration Management
   Also, a very difficult topic for companies inexperienced in international labor management. Companies hiring talent from abroad or relocating to a new location need assistance in obtaining work visas and other necessary documentation. Intermediaries’ experience in immigration law ensures that the process is completed as efficiently as possible and in full compliance with local regulations.

By outsourcing these tasks, companies can minimize administrative issues while ensuring international employment compliance and efficiency, allowing them to focus on their core business.

Pros and Cons of Using a Third-Party Employer

We suggest exploring the main positives and negatives of using this type of HR management.

The pros of Third-Party Employer include:

1. Access to Top Talents. Utilizing a third-party employer allows businesses to recruit top professionals from around the globe, breaking down geographical barriers and increasing access to a diverse talent pool.
2. Time Savings. By taking over the complex legal and administrative tasks involved in international employment, third-party providers save businesses significant time. This allows companies to focus on their strategic objectives and core operations.
3. Cost Efficiency. Setting up a legal entity in another country can be expensive and time-consuming. Third-party employment solutions offer a more cost-effective route for entering new markets without the significant upfront investment.
4. Reduced Risk. These service providers ensure full compliance with local labor laws, significantly reducing the risk of legal action or fines associated with improper employment practices.
5. Streamlined HR and Payroll. The outsourcing of payroll and employee benefits management simplifies administrative processes, allowing businesses to manage their global workforce with ease.
6. Local Expertise. Third-party employment facilitators bring extensive knowledge of local labor laws, employment customs, and market trends, ensuring smooth operations in unfamiliar regions.
7. Quick Onboarding. With the administrative burden of hiring taken care of, businesses can onboard employees rapidly, often within a few weeks, which accelerates market entry and project timelines.

The cons of Third-Party Employer include: 

1. Limited Control. Since the third-party provider is the legal employer, companies may have less influence over certain employment details, such as the structure of benefits packages or the terms of employee contracts.
2. Potential Impact on Company Culture. When using a third-party employer, there can sometimes be a disconnect between the client company and its employees, making it harder to integrate international workers into the existing company culture.
3. Data Security Concerns. Entrusting sensitive employee data to an external provider raises potential concerns over data privacy and security. Companies must choose a reliable and secure provider to mitigate these risks.

EOR vs PEO

While both an Employer of Record and a Professional Employer Organization (PEO) offer HR management services, they differ significantly in how they operate. A third-party employment provider becomes the legal employer for international workers, handling the compliance, payroll, and administrative aspects of hiring in a foreign country. This model is ideal for businesses looking to expand their workforce across borders without setting up local entities.

On the other hand, a PEO typically acts as a co-employer within a company’s existing framework. It shares responsibilities such as payroll and benefits administration but does not provide the global employment capabilities of an EOR. PEOs are often used by businesses to manage HR functions in a single country, whereas EORs cater to companies looking for a broader, international solution. For global expansion, the third-party employment model provides more flexibility, while PEOs are more suited to domestic HR management needs.

Conclusion

EOR management services are available with the open and modern EOR.by service. It is a renowned company with an established community of experts ready to solve any international team management issue in any country. Ready-made solutions in IT recruiting, full-service employee management, HR consulting, IT outstaffing, accounting and bookkeeping, offshore development management, and other services. Learn more on the agency’s website or leave your contacts to get in touch with a company representative.
EOR.by provides professional services in managing remote teams, including employee onboarding, payroll management, accounting, and recruitment. With years of experience in these fields, the company offers comprehensive solutions for modern businesses, including international corporations and startups.
The company’s specialists assist in seamlessly integrating remote employees, regardless of geographic location, ensuring compliance with international legal requirements and timely payments. This allows clients to focus on business growth while being relieved of administrative tasks.
By utilizing advanced technologies and industry best practices, EOR.by helps minimize costs and enhance process efficiency. Companies can trust in the reliability of remote workforce management.
EOR.by services are in demand by businesses worldwide, from North America and Europe to Asia and Africa. The company builds long-term relationships with clients, grounded in trust and dependability.