When Does Using an Employer of Record (EOR) Make Sense?

Is your organization ready to hire in another country? Then, you’re in good company. 

Nearly all US multinational corporations (MNCs) have close to half of their workforce outside the United States, according to the World Investment Report. The rapid rise of remote work has only fueled this trend, making teams of all sizes more global than ever as organizations look beyond borders to find just the right fit. 

Amid the myriad of considerations involved in going global, one question will inevitably surface: 

What is the best way to legally engage with new talent across international borders? 

At some point, any growing business with an eye on foreign markets will need to become familiar with the meaning of employer of record (EOR)

What is an EOR?

Think of a global EOR as your international HR team. This third-party expert hires, pays, and manages your employees in international markets on your behalf. While you still control everyday employee management, the EOR assumes the role of the employee’s legal, registered employer.

From a legal perspective, a few features stand out about this arrangement:

  • It allows companies to legally and efficiently employ professionals in multiple countries without the need to set up a local entity. Aside from the obvious cost benefits of not having to establish international subsidiaries, it also speeds up the hiring process, allowing new recruits to be onboarded within days.
  • It ensures compliance across markets. Local labor laws can be incredibly complex to navigate. An EOR alleviates that burden by tending to all the details that vary by market, such as payroll, taxes, stock options, local compliance, on- and offboarding, benefits, and more. From drafting compliant employee contracts and managing tax withholdings to offering comprehensive benefits packages and ensuring on-time payments, the EOR fulfills all statutory and regulatory criteria.
Using an EOR is, of course, not your only option for outsourcing payroll and other duties. Before we outline the scenarios that generally call for an employer of record, there are primarily two other routes expanding companies can take, depending on their needs.

Entity Establishment

Do you have a large budget and intend to hire a considerable number of employees in a specific country for the long term? That combination makes your organization a candidate for setting up a legal entity. This conventional approach to building a presence abroad takes time, resources, and substantial in-country expertise, but gives your organization the flexibility to create a local branch, hire talent, and manage payroll in adherence with local tax and labor rules. 

International Contractors

Do you have limited, short-term needs, or are you trying to gain a better understanding of a local market? Hiring an international contractor could be an option for recruiting full-time employees. This option opens up the global workforce to your company but comes with an important caveat; if you treat the contractor like a full-time employee, you could be accused of misclassification and suffer legal repercussions, such as fines and employee contribution backpay.

So, when does it make the most sense for a company to partner with a global employer or record? 

Engaging top talent 

Who would you hire if international borders were a non-issue? An employer of record gives you an opportunity to find out. Even before the pandemic, the competition for top talent was fierce. Now, as remote work has taken off, you have an even greater chance to let your search go global. As many as 77% of polled workers like the flexibility of how and where they work, according to the World Economic Forum (WEF). With the help of an EOR, you can draw from the global talent pool without having to concern yourself with the nitty-gritty of local labor laws and regulations. 

Easing into expansion

Hiring a distributed workforce does not automatically mean a company is ready for a full-scale expansion into the country of each employee’s residence. Employer of record companies provide a gradual path to global growth, allowing your business to explore new markets and create new revenue streams without the commitment that comes with entity establishment. 

Speeding up hiring during entity establishment

Setting up an entity in a foreign market is quite a costly undertaking. It also takes time, capital investment, and local expertise to successfully complete the process. While the setup moves through the different steps, an employer of record service can act as a bridge, enabling you to move forward with hiring and other pressing HR needs.   

Staying compliant by avoiding misclassification

Misclassification of independent contractors is a relatively common issue for businesses with a multi-country footprint. As the business grows, so may the roles of the contractors. If you treat them like employees- in other words, they may receive a fixed salary, work a certain number of hours – you could be subject to fines and liabilities by tax or employment regulators, or courts. Using an employer of record for independent contractors lets you hire them as employees, eliminating the risk of misclassification.

We can help

The decision to hire in another country is a natural step for any growing business. But the regulatory complexities can take even the most seasoned leader by surprise. Determining the most optimal employment structure is just one of many key features of a successful expansion strategy. You don’t know what you don’t know. That’s where HSP Group comes in. 

Our Global People Solutions were designed for you and your global workforce. From EOR/Global Payroll and HR Administration to Global Mobility and HR Technical Consulting, we provide the full suite of services to help you thrive. Need help setting up an entity? We can do that too. 


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