What is an EOR, an Employer of Record?
An Employer of Record (EOR) is a third-party organization that hires and pays an employee on behalf of another company. Using an Employer of Records allows companies to legally engage with workers from other countries, without having to set up a local entity or relocate existing members of their workforce to the new foreign country.
In a post COVID working environment where the nature and make-up of the global workforce is becoming more and more diverse in terms of worker types: permanent staff, contractors, expats and remote workers- the EOR professional employer organization model is becoming increasingly popular as global companies look to ramp up their recruitment activities in new markets and countries where they don’t have a legal entity or business presence.
In this article, we will take a look at what an employer of record does, what responsibilities fall to them and why eor services represent an interesting option for global companies who are looking to expand into new countries and territories.
What they do
In simple terms, they act as an intermediary in the traditional employee- employer contracts relationship. When a multinational company wants to recruit, employ and pay people in a country where they don’t have an office location or a legal entity, it can be difficult for them to secure candidates. For cost and business reasons, they may not wish to set-up an office or legal entity in the new country, but they still want access to the market, therefore they need people on the ground to work for them and help deliver their products and services.
This is where the EOR comes in- they do have a presence in the local country, and they are fully legal to operate there- this means they can take care of local country statutory and regulatory labor requirements as well as tax obligations. They help to source and recruit local talent, then on board and set them up on their systems so that they can be managed and paid efficiently and quickly.
The actual employee works for the multinational based in another country and their day-to-day obligations and work duties are for them, their legal employer, not the EOR. Their employer defines their roles, assigns job titles, projects and duties and is the main negotiator for their payment and compensation package.
The EOR allows the multinational company to access local talent without going through the hassle and cost of setting up an office or legal entity in the country. Some of the responsibilities that the EOR will handle for the client company include:
Why EOR services are used
Essentially, choosing to use an employer of record service means that a global organization can hire an employee anywhere in the world-this is a major plus and makes this service very attractive, especially to rapidly growing organizations who need to hit the ground running quickly in a new country or territory.
The global employer benefits from access to the local talent for their staffing and business needs and does not have to go through the complicated process of setting up a legal entity in a new country: rules and regulations, local employment laws, contracts, permits, immigration, tax and labor law–this can be a costly and time-consuming process especially for non-resident companies looking to do business in a new country. It represents a barrier to international expansion, hence the need for a locally based solution that can help them overcome this quickly.
The multinational may only be interested in locating a small percentage of their global workforce in the new country, therefore it does not make sense to go through all the work of setting up and establishing a legal entity. They may also be looking at a new country for a set period of time, rather than having long term ambitions to stay for decades. For these reasons, it makes sense to use the services of an EOR. The multinational can also save a lot of time on HR and payroll related administration: it really helps to move things along when payroll is handled in the local countries and the employee is paid in their own currency and according to local taxation laws. The EOR takes care of all of the important details around pensions, health insurance, taxes and benefits, all of which ensures the multinational does not run into any difficulties with the local tax authorities.
The payroll visibility challenge
An EOR can be an excellent solution for global companies looking to enter into new markets or undergoing periods of rapid expansion. But the global organization remains responsible for the employee who works for them regardless of where they are located and regardless of who takes care of their administration.
So, in essence, from a visibility and reporting angle, they need to be managed just like any other employee. Otherwise, you could be operating without the full picture-especially when it comes to reporting around payroll costs. You cannot simply leave EOR workers out of your reporting or payroll management, they need to be included so that business leaders have full insight into what is happening. Payroll managers seek complete visibility and control over the global workforce, so they also need to be able to see clearly who is being paid as an EOR worker.
This is really about looking at payroll management from the perspective of the entire or extended workforce. As a global organization, you need to manage all of your worker types and ideally be able to do so on a single platform.
Payslip’s global payroll control platform facilitates payroll management and reporting of your entire workforce- permanent employees, contractors, remote workers and EOR workers. If you can manage and report on them all from a single location, then you get the kind of visibility and control you are looking for as well as multicountry reporting that contains consolidated employee data- nobody is left out and you don’t have to manually add in some figures to cover EOR workers.
The platform features an extended workforce module enabling global employers to set-up & manage the extended workforce, generate invoices and report on various employee types using our reporting suite. The built-in automated functionality on the Payslip platform supports payroll processing for all worker types in the global workforce so your payroll team can track payroll data across you entire workforce.
If you currently find yourself managing payroll at an organization that is increasingly hiring more and more EOR workers across the globe due to international expansion-and you find that you have challenges managing them all and reporting on them- then perhaps it is time you had a tour of the global payroll control platform, our team is ready and waiting to show you how easy it is to manage your extended workforce on our platform.
For more information about our Global Payroll Control Platform contact us today.