What is an Employer of Record? (A Complete Guide)

Last Updated: 

April 9, 2024

What is an Employer of Record? (A Complete Guide)

Over the past couple of years, businesses around the world have experienced perhaps the biggest shift in their recruitment of new employees. Today, working from home is considered the new normal, and for businesses this means hiring global talent is a much more viable option than ever before. For candidates, there’s access to multiple opportunities, with ample avenues to landing a great role in a new business.

Employer of Record (EOR) services play an important role in growing global teams. With help from an experienced provider, expanding your operations to other countries is easier than it might otherwise have been. The best part? You won’t even need to set up a new legal entity before hiring overseas talent, because an EOR effectively acts as their ‘local’ employer. That means you’ll remain 100% compliant with overseas laws and regulations, while having a reliable solution for paying your workers in other countries. If you want to expand globally, there might not be a better time than now!

Here’s all you need to know about Employer of Record services and how they can help you.

Key Takeaways on Employers of Record:

  • EOR Overview: An Employer of Record (EOR) service allows companies without local legal entities overseas to legally employ workers in other countries. The EOR acts as the 'local' employer, ensuring compliance with overseas laws and regulations.
  • EOR Responsibilities: EOR services handle global HR requirements, including global payroll, benefits, taxes, stock options, and compliance. They manage the onboarding process, handle payroll for employees in different countries, address local tax and compliance regulations, and draft employment contracts in line with local regulations.
  • EOR Distinctions: EOR services are distinct from setting up a local entity, staffing or recruitment agencies, and third-party payroll companies. They focus on compliance and onboarding, not recruitment or day-to-day payroll management.
  • EOR vs. PEO: An EOR is the legal employer of the hired individual, whereas a PEO (Professional Employer Organisation) assists businesses with HR functions in a co-employment relationship.
  • Cost Considerations: EOR service providers typically use flat fees or percentage pricing models. Flat fees are more transparent and often less expensive.
  • Selecting an EOR Provider: Choose an EOR provider with extensive knowledge of the country you're expanding into, a permanent in-country entity, and a track record of managing HR and payroll services.
  • Benefits of EOR Services: Using an EOR offers compliance with local immigration laws, flexibility in growing an international team, simplified onboarding, access to global talent, legal compliance assurance, and potential cost savings.

For businesses looking to expand globally without the commitment of setting up a new legal entity, EOR services offer a convenient and compliant solution.

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What is an EOR service?

Employer of Record services enable companies that do not have local legal entities overseas to legally employ workers in other countries. An EOR provider such as Remote will cover all global HR requirements, including global payroll, benefits, taxes, stock options, and compliance, so you can concentrate on finding the best candidates for your roles while your EOR provider takes care of the background work of onboarding your international workforce. In contrast, a professional employer organization UAE offers a co-employment model that is particularly beneficial in regions with complex labour laws, like the UAE.

What responsibilities does an EOR service cover?

An Employer of Record effectively hires workers in another country on your behalf. For example, if your company is based in the United States and you want to hire someone in Germany, you can use an EOR to ensure the onboarding process is smooth and, more importantly, legal.

Each service is slightly different, but usually covers these main responsibilities:

  • Payroll for employees in different countries
  • Handling local tax and compliance regulations
  • Drafting employment contracts in line with applicable local employment regulations

EOR service providers, such as Horizons EOR, do not have involvement in the day-to-day management of the employee, such as assigning job responsibilities or overseeing their career development. Their job is simply to facilitate the onboarding process and other vital — but otherwise time-consuming — HR functions, leaving you with plenty of control over how their role develops.

What isn’t an Employer of Record service?

Employer of Record services are frequently confused with other closely-related, but very separate, services. It should be noted that the none of the following applies to an Employer of Record service:

Your own local entity: an EOR is not a company you set up to hire and pay remote employees as if they were locals. If you already have a legal entity in the country you want to hire in, there’s no need for an EOR.

A staffing or recruitment agency: an EOR service will not help you find local talent (that’s the job of an international recruitment agency such as Airswift). It will simply cover compliance requirements and other obligations during a cross-border onboarding process. 

A third-party payroll company: don’t confuse an EOR with a dedicated payroll service, such as Sage. Beyond managing pay, they legally register your employees and handle compliance activities on your behalf.

Before going ahead with an Employer of Record service, it’s essential that you thoroughly understand the services that are being provided. A professional provider should talk you through the ins and outs of the service before signing you up so you’re fully aware of their areas of expertise.

How does an Employer of Record service differ from a PEO?

An Employer of Record service is for business owners who do not own a legal entity in another country, but would like to employ someone from that location. EORs are effectively the legal employers of anyone you hire using them — your new employees sign employment contracts with the EOR, not with your company. Of course, you still have to pay the employee and evaluate their performance, but because the EOR is the legal employer, you’re free to employ anyone in any location where the EOR has a business registration.

A PEO (Professional Employer Organisation), on the other hand, is suited to businesses that have local remote HR support for their remote teams. With a PEO, you enter into a co-employment relationship, which means the people you hire are employees of your company (and must reside wherever your company has a business registration). You are legally responsible for your employees, and the PEO's role is to assist you with your HR function.

How much do EOR services cost?

The majority of EOR service providers use one of two pricing models: flat fees or percentage pricing. Flat fees are more transparent and tend to be less expensive, whereas percentage pricing can be very costly.

Before working with any Employer of Record that charges a percentage rather than a flat fee, tread cautiously. Global employment costs can vary, but a good EOR takes these into account and can tell you how much your bill will be up front. Fee structures based on a percentage encourage businesses to keep employee salaries low while funnelling more money to third-party providers.

What should you look for in an EOR provider?

The extent of their knowledge of the country you are looking to expand into is critical when selecting an Employer of Record provider. You want an experienced and reliable service provider, as a minimum. Furthermore, considering the duration of the provider's presence in said country is a good indicator of how well suited they are to your needs.

You want a company that has an in-country entity rather than relying on local partnerships or an external staffing agency. A permanent entity will be able to offer local invoicing and human resource services. It will also give you peace of mind that they will continue to provide the service in the country for an extended period of time. Their local knowledge is also essential when it comes to managing clients' HR and payroll services. 

What are the benefits of using an EOR service?

There’s a reason why so many businesses use EOR services — they’re convenient, typically easy to use and make global business expansion far simpler. If you think hiring globally could be a smart move, here’s how an Employer of Record Service can benefit you:

Compliance with local immigration laws

Countries frequently update their immigration and visa approval policies. It is becoming increasingly difficult for foreign entities to obtain work permits and visas, particularly for certain types of business activity. Using an EOR reduces the risk of noncompliance, because the EOR understands local immigration policies and can hire staff through their own structure.

You can grow an international team at your own pace 

The main benefit of using an EOR service is that you are not required to have a legal entity in the country you want to hire from. This is extremely valuable for businesses that want to expand but don’t want to make the commitment of setting up a new legal entity just yet. Instead, you can take your time and see what works.

EOR services will simplify the onboarding process

When a new employee is joining your business, it’s important to keep the onboarding process as slick as possible to avoid unnecessary obstacles. However, there are always a few extra compliance requirements you need to be aware of, which in itself can be very stressful. EOR services handle this for you, so enrolling new employees is as straightforward as possible.

International employees can add more talent to your business

When you’re only hiring from within your local area, region, or country, you’re potentially missing out on some incredible untapped talent. If you’re struggling with high staff turnover, it could be that you’re simply not matching the right people with the right roles. With help from an EOR service, recruiting overseas is perfectly viable, and finding the best candidates is a lot easier. With more talent comes increased opportunity.

Greater protection when it comes to legal compliance 

As a business owner or employer, there are regulations that need to be followed, and these can be a little more complicated when it comes to international employees. Nevertheless, this shouldn’t put you off. EOR services are on hand to ensure you are complying with the right employment laws so you’ll have greater peace of mind when taking on overseas talent.

You can save money in the long run

Setting up a legal entity is very expensive when compared to hiring through an EOR service. What’s more, the investment you make in new talent can make an even bigger difference in the long run, as you expand your reach and chase down your company targets.

If you’re looking to expand globally but don’t want to commit to setting up a new legal entity, an EOR service is a great alternative. Find a reliable provider today and you’ll be one step closer to having incredible global talent at your fingertips.

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