What is an Employer of Record (EOR)? - The Definitive Guide

Employer of record services can be mystifying for those trying to hire and pay employees in new locations. If you want to tap into global or remote talent, but you’re not sure how to stay compliant, you may benefit from the expertise of an employer of record (EOR). 

Let’s take a deep dive into employer of record services, including what is an employer of record and the pros/cons of using one. Get a full understanding with our ultimate guide below to know whether an EOR is right for your company. 

In our ultimate guide to EORs, you’ll learn...

 

  1. About employer of record services
  2. Pros and cons of employer of record services
  3. Examples of employer of record companies
  4. Types of EORs and similar services
  5. FAQs about EORs and other services
  6. Finding the right employer of record
  7. Hire and pay your remote employees as locals


About employer of record services

What is an Employer of Record


What is an employer of record?

An employer of record (EOR) is a third-party organization that handles key employment tasks such as payroll, taxes, benefits, insurance, and immigration. Essentially, an EOR takes legal responsibility for hiring and paying employees on your behalf, so that you stay compliant with local labor laws. 

EORs are especially useful for companies hiring remote or global employees. Through an EOR, you can efficiently hire employees in new locations and offset your liability for labor compliance.

Benefits of an Employer of Record Company


How do employer of record companies work?

As the registered employer of your workers, an EOR takes care of all employment paperwork and payroll tasks according to local legal requirements, including:

 

  • Payroll, taxes, benefits, insurance, and immigration (local IDs, work visas, etc.)
  • Labor paperwork, including contracts, unemployment, worker’s comp, forms, etc.
  • HR functions such as background checks, onboarding, etc. 
  • Any and all paperwork to stay compliant wirth local laws
  • Interface with local tax, labor and health authorities

 

However, an employer of record isn’t involved in the daily work that your employees perform. For example, even if you hire an EOR, you’re still in charge of the work relationship, such as defining responsibilities, managing projects, ensuring workplace safety, etc.

Why should I use an employer of record?

An EOR is useful for staying compliant when hiring employees in new locations, whether you’re a small business or a multi-national. By hiring one, you can streamline the required regulatory processes, saving you time and money. 

This is especially true if you have remote employees in several locations worldwide and you don’t have the resources to set up your own entity in each. Staying compliant in every city, state and country where your employees are doing work can be tricky. In this case, you’ll want to hire an international employer of record to cover all your bases.

 

What ISN’T an employer of record?

Employer of record services are often mixed up with other related services. It’s important to note that an employer of record isn’t…

 

  • Your own local entity – a company you create in order to hire and pay your remote employees as locals.

  • A staffing or recruitment agency – a service that connects you with top local talent, but doesn’t typically offer compliance services. (This is us! Here at TECLA, we recruit the best tech talent in LATAM.)

  • A payroll company – a third-party that calculates and processes payroll, but doesn’t legally register your employees or handle compliance activities.

 


While new hybrid services are becoming popular, you should be sure to understand their differences. For more info about these services and how they’re distinct from an EOR, scroll down to check out our FAQ section.

How much do EORs charge?

The cost of an employer of record ranges widely depending on your company’s needs. Often, you’ll be given a customized quote according to the number of employees or percentage of their salaries, as well as any additional services (such as setting up health benefits). Usually, this quote is expressed as a fixed rate per month. For example, EOR services typically start at $250/month per employee. 

Cost of an Employer of Record Company

Remember that EORs are an investment for staying compliant with local laws that you would have trouble navigating on your own. Often an EOR is less expensive than setting up your own local entity and stumbling through local paperwork.

How do international employer of record companies work?

International employer of record companies, also known as Global Employment Organizations (GEOs), perform the same services as regular EORs. However, these global companies may also provide guidance with international logistics such as paying in the right currency, interacting with authorities in the local language and getting time-sensitive paperwork filed without worrying about time zone differences. 

International employer of record services, or GEOs, can be especially helpful when you don’t have the language skills to understand and submit the right paperwork and permits.

Pros and cons of employer of record services

Now that you know what an employer of record is, it’s time to analyze the pros and cons of these services. Depending on your company’s needs, EORs may be a good fit.


Benefits of using an employer of record

Having an employer of record is an efficient way to hire remote employees without investing your time and money with a DIY approach. With an employer of record, you can focus on your company’s work and leave regulatory matters to local experts. Overall, an EOR can:

  • Save you time and money (no local entity needed!)
  • Access local expertise in labor and tax
  • Ensure that you stay compliant and avoid fines
  • Create efficient workflows for HR tasks
  • Keep your employees satisfied with local payroll and benefit packages
  • Mitigate risk in new locations
  • Peace of mind that key paperwork gets done correctly

Drawbacks of using an employer of record

While an employer of record can help you streamline key paperwork, you should also know that they’re not right for every company. Keep in mind the challenges of EORs, such as you:

  • May need to hire a different EOR for every new location, which means it’s most effective for multiple hires in the same location. However, if you’re investing fully in one country with all your employees based there, it might more sense to create your own local entity.

  • May not have full range of corporate rights in that location. This could make it difficult to handle legal issues and claims, as all matters will go through the EOR you hired.
  • May require extra effort to achieve a strong employer-employee relationship, as the EOR will be a “middleman.” Ultimately, you should make an effort to build company culture so that your remote workers bond with their teams.
  • May face language or cultural barriers, so be sure to hire the right EOR that suits your needs.
  • The cost could overall be higher if you are focused on hiring in just one single location (it might make more sense to set up your own entity in that case). Especially if your hiring is for long-term team members.

 

You can mitigate these drawbacks by working closely with an EOR to fulfill your requirements and ensure no barriers to your partnership.  

Examples of employer of record companies

Employer of record companies are available worldwide. Below you’ll find examples of both traditional and hybrid EORs. As you research potential services, remember to focus on your company’s unique needs. Not every EOR will offer the same scope of service or technologies. 


Traditional employer of record companies

These international employer of record companies and services have extensive local networks in multiple countries and have traditionally provided EOR services for companies hiring abroad.

Hybrid global payroll and compliance platforms

These platforms and apps are fairly new on the scene and combine global paywall software with compliance consulting. Many have already created large global networks and act as EORs: 


Types of EORs and similar services

PEOs and GEOs are often mentioned when talking about employer of record services, too. Let’s go through these terms below so you know the differences.


Differences Between EOR and PEO

PEO vs. EOR

A PEO (Professional Employer Organization) is a third-party organization that provides key HR services. It’s only available in the U.S., so if you have global payroll and compliance needs, a PEO won’t work for you. 

First of all, a PEO doesn’t legally register employees on your behalf. Instead, it offers support for payroll and compliance, as well as HR tasks such as onboarding remote employees. With a PEO, you can outsource your HR needs, but you’ll still be legally responsible for your labor and tax compliance in every location you hire and do business.

GEO vs. EOR

Differences Between GEO and EOR

Remember that a GEO (Global Employment Organization) is a type EOR. As we mentioned above, GEOs are simply EORs with an international scope, as they handle payroll and compliance for international hires in multiple locations. 

Essentially, a GEO manages a network of EORs in every country of service, so that you can get all your global compliance needs from just one company. If you have remote employees in several locations, an international employer of record service like this may be the right solution for you. 

What is a Global Employment Organization

FAQs about GEO/EORs and other services

Employer of record services can be tricky to understand at first. Here are some FAQs about EORs and other services that tend to come up. 

Is an employer of record the same as a payroll company?

No, a payroll company isn’t necessarily an EOR. Typically, a payroll company, platform or app will offer top software to handle time sheets and salary calculations. Their expertise is typically focused on streamlining payroll. 

However, other key compliance paperwork, such as taxes, benefits and work permits, may not be included in their services. That said, many hybrid payroll and compliance services have recently become available. You should check whether a payroll company you’re interested in just offers payroll or also includes EOR-like compliance services.

Is an employer of record the same as a staffing agency?

No, a staffing agency is focused on finding top talent in a location. These agencies typically create networks of workers to connect international employers with local talent. 

While some staffing agencies may offer some payroll assistance, they don’t often handle compliance consulting for local labor and tax regulations.

Isn’t it just easier to register my own entity in-country?

It depends on your needs. Setting up your own entity in-country involves lots of upfront costs and may be more resource-intensive than using an EOR. However, if you’re planning on making a long-term commitment to talent in one country, it might be worth your while. If you plan on keeping a global workforce in multiple locations, creating your own entity probably doesn’t make much sense.

Isn’t it just easier to hire international contractors?

It’s important to note that contractors and employees are separate employment categories. If you misclassify contractors vs. employees, you could get fined and face legal challenges. You should never hire an employee as a contractor. 

Remember that a contractor typically works on short-term projects for multiple clients at once. Their salary varies depending on their projects and they have the flexibility to create their own schedules. If this describes your worker, you may be able to hire him/her as a contractor. Just be sure this is the case, otherwise you may be taking on a high liability risk. 

Finding the right employer of record

It’s essential that you find the right employer of record for your company’s needs. As you look into potential EORs, you should consider your priorities. Some common characteristics of a great employer of record include:

 

  • Reputation and transparency: Great reviews and testimonials from past clients, as well as a transparent discussion about services. 
  • Geographic range: Coverage of the countries you currently need and the potential to expand to others in the future.
  • Proprietary technology: A platform, app or software that handles paperwork and calculates payroll in a transparent way.
  • Full-service range: Payroll is just one part of a full compliance suite, including taxes, benefits, insurance, immigration, etc.
  • Pricing model: Understanding how you’ll be charged (by employee? percentage of salary?), as well as any add-ons.
  • Ongoing support: Knowing your needs will be covered from day one and you can get support for questions, issues, etc.
  • Benefits Package: countries around the world don’t always have the same implied legal payroll benefits for every firm. In Peru, for example, there are two different tiers of payrolls that can be provided by local firms to employees. The range of benefits offered by the particular EOR of choice could be different from provider to provider, and it would be wise to get a very detailed list on what exact benefits the EOR will be offering for the pricing offered.

Questions to ask a potential EOR partner

Once you have a few EORs in mind, you should be sure to interview each and get a good sense of the company’s range of services. Some questions you might ask include:

  • Does the EOR have experience in your industry or with similar companies?
  • Do they have regional managers with in-country expertise handling your case?
  • What range of services do they offer? Are they included in the pricing?
  • What are the benefits of their platform, app or software? 
  • How will confidential paperwork, contracts and information be managed?
  • How will they handle communication with your employees? Does this align with your company’s style?
  • What is the pricing model and payment schedule?

These are just a few questions to get to the heart of whether this EOR is right for your company. As a last step, be sure to contact past clients and hear their honest opinion about the EOR at hand. 

Hire and pay your remote employees as locals

EORs are an excellent service that can make it easy and efficient to hire remote employees. Let the experts handle the paperwork and take care of the local regulatory matters. In this way, you can focus on managing your new employees and getting amazing work done.

Finally, employer of record services are just the start of remote expansion. The world of work is changing – and fast. To get the pulse on future work trends, be sure to check out our 2021 remote work stats.

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Don’t forget to visit TECLA’s YouTube Channel and subscribe if you are interested in more insights about international recruiting, hiring, and LATAM tech talent. You can always leave us comments there, and our team will be quick to provide answers :)

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