Summary: An Employer of Record (EOR) company hires and pays international employees on behalf of client companies, saving them time and money, and ensuring legal compliance.

Have you met a brilliant developer online who you’d like to hire? If you’re in the US and she’s in Iceland, you might think you’re out of luck if you can’t convince her to move.

However, this is no longer the case. New technologies will enable her to work for you remotely without having to worry about ever coming into the office. There are also service providers that can help you manage this employee and other staff, no matter where they are in the world.

In this article, we’ll look at how Employers of Record (EORs) help their clients hire and manage HR for employees around the world in countries where they don’t own entities.

What Is an Employer of Record?

An Employer of Record, or EOR, is a service provider specializing in international hiring. Most EORs work in dozens of countries where they own entities themselves or work with third-party partners. They use these entities to hire local employees directly, entering into contracts with them to hire them on behalf of their clients.

By doing so, EORs become the legal employers of the local workers while their clients are the employees’ workplace employers. 

EORs also handle all human resources needs for their clients’ staff. They manage things like record-keeping, payroll, and benefits, taking the administrative burden away from their clients and allowing them to focus on their core business operations.

What Does an Employer of Record Do?

EORs provide a wide range of services for their clients, which include both core services and optional, supplementary services. These services are normally managed and delivered through a combination of their digital platforms and expert advisors and other staff. The services offered by EORs include:

Core Services

  • HR administration: EORs help to onboard employees extremely quickly and store their records and documents in their online, cloud-based platforms. While the client company manages the employees’ day-to-day tasks, the EOR is their go-to contact for all human resources-related questions and concerns.
  • Payroll: Since the client manages the employees’ daily duties, it is responsible for collecting time and attendance data. Often, it can do this using time-tracking functions built right into the EOR’s platform. Once this data is shared with the EOR, it can calculate each employee’s pay for each pay period. It will also withhold taxes and benefits contributions to arrive at the net salaries, which it then distributes to the employees.
  • Taxes: In most countries, employers are required to deduct income taxes from their employees’ salaries on a pay-as-you-earn (PAYE) basis. EORs perform this service on behalf of their clients, collecting these taxes and remitting them to national tax authorities. Often employers must also pay separate payroll taxes. 
  • Mandatory benefits administration: The mandatory benefits required in each country differ widely but can include things like social security benefits, pensions, paid time off (PTO), and more. EORs work with local HR experts to ensure that all of these benefits are provided correctly. Many of their platforms also include employee portals, which allow employees to monitor their own benefit entitlements as well.
  • Compliance: EORs take on full legal responsibility for their clients’ employees, shielding the clients from liability. They monitor employee entitlements, create compliant contracts, and report to government agencies as required.

Additional Services

  • Recruitment: A few EORs, like Horizons, also provide active recruitment services. Their recruiters assess the client’s staff needs and search for local workers who fulfill their requirements, normally assessing an additional fee as a percentage of a recruited worker’s annual salary. Other EORs provide tools like access to global talent pools or partner with recruitment agencies worldwide to help clients source talent on their own.
  • Supplementary benefits: In most countries, social security systems provide workers with insurance for unemployment, old age, disability, and work-related illness. However, employers may wish to supplement these benefits by offering private health insurance or pensions to enhance their employees’ compensation packages. Many global EORs offer these benefit packages through collaborations with insurers.
  • Employee engagement: Many EOR platforms include employee engagement tools to help clients get their finger on the pulse of their staff teams. These include surveys and feedback mechanisms to collect and manage employee opinions.
  • Performance management: While clients will do the work of evaluating their employees’ performance and providing feedback, many EOR platforms provide tools to help facilitate these activities.
  • Contractor management: Most EORs also help their clients hire independent contractors, take care of 1099 forms, and manage their payments in multiple countries. Some even enable providing benefits for contractors.

Process of Working With an EOR

When a client wants to work with an EOR, they can choose and engage one easily, entering into a partnership that can be very useful. The process normally includes these activities;

  1. Sourcing talent: A client may start the process because they’ve already found workers in other countries they want to hire. In other cases, clients know they want to hire abroad but haven’t yet sourced talent. In these cases, they can partner with recruitment agencies or choose EOR providers that also offer recruitment services.
  2. Engaging an EOR: Clients find EORs that meet all of their needs and fit their budgets. They enter into service agreements with them for monthly or even annual services.
  3. Negotiations and hiring: EORs advise their clients on appropriate compensation levels and generate locally compliant contracts for their employees. They may help their clients negotiate salaries and benefits before entering into contracts directly with the workers to become their legal employers.
  4. Onboarding: Client companies provide orientation and job-specific training as required for their new hires. They also need to provide them with the tools and access to information that will enable them to function on their teams. EORs handle the administrative side of onboarding. They collect employee data and documents, add the new workers to the payroll, and register them with the appropriate government agencies. 
  5. Managing payroll, taxes, and benefits: While the client tracks worked hours and attendance, the EOR manages this data to calculate their salaries for each pay period. It also withholds their income taxes and contributions to mandatory and optional benefits programs. The EOR pays the employees and remits their taxes and contributions to the authorities.
  6. Compliance: EORs typically employ HR, tax, and legal experts to help them maintain compliance with all local employment and tax laws in the countries where they work. They monitor changes in the law to ensure compliance is constant, and they report to various government agencies regularly on behalf of their clients.

How Employers of Record Charge Fees

The most common fee structure that EORs use is to charge a service fee per employee per month (PEPM). These fees will include the EORs’ core services and can be charged on a month-by-month basis or based on annual contracts that provide discounts.

Additional services are then added on as needed and may be assessed on a PEPM basis or as one-offs, as in the case of recruitment fees. EOR fees can be substantial as they cover the cost of providing HR services and taking on the legal responsibility for employee hiring.

EORs typically bill their clients monthly or semi-monthly, depending on the pay periods required in the countries where they work. Clients receive regular invoices that include their employees’ salaries, employer contributions, payroll taxes, and the EORs’ fees.

Pros and Cons of Engaging Employer of Record Providers

As with every business decision, clients need to weigh the advantages and disadvantages of working with EORs to decide if this kind of collaboration is best for them. These advantages and disadvantages include:

Pros of Working with EORs

  • Enables hiring in multiple countries without the need for the client to own entities
  • Provides clients with full HR services 
  • Ensures legal compliance and protects clients from liability
  • Allows clients to focus solely on skill and not geography in their hiring decisions
  • Helps clients access foreign markets quickly with fast onboarding of workers worldwide

Cons of Working with EORs

  • Fees can be substantial and can add up over time 
  • Gives clients less direct control over their employees
  • Can make clients dependent on EOR services rather than building their own HR capacity

Employers of Record Summarized

EORs are service providers that focus on helping client companies hire anywhere in the world without needing to establish their own entities. This can help clients tap skills and enter markets that they’d otherwise have no way to access.

EORs also use their online platforms and expert staff to manage HR for their clients, ensuring compliance with all local laws in the hundreds of locations where they work.

FAQ

Many EORs offer services in well over 100 countries, with some reaching 185 to 200 countries and territories for truly global coverage. They typically do this by working with networks of their own entities and third-party partners already incorporated in those countries.

Almost all modern EORs base their services on complex cloud-based platforms. These platforms allow both EORs and their clients to manage employees and use multiple tools to meet their needs. Often, these platforms are equivalent to full HRIS or human resources information systems used for administration, record-keeping, and service provision.