For companies planning to expand their footprint across international borders, ensuring compliance with payroll and other HR-related issues in a new country can be a daunting challenge. Not only is it time-consuming to get up-to-speed on employment laws and regulations in another country, companies that get it wrong could get slapped with fines. One solution to avoid entity set up fees and costly penalties is partnering with an Employer of Record (EOR).
An EOR is an organization that helps a company expand internationally by hiring and paying employees on their behalf in countries where that company does not have a physical presence. EORs handle several common HR tasks, including hiring, payroll processing, tax deductions, and ensuring compliance with local employment laws.
EORs allow businesses to grow their workforce internationally without setting up a foreign branch or dealing with another country’s labor regulations. With this arrangement, companies retain control over day-to-day operations and employee management, while the EOR oversees the administrative aspects of employment.
The strategic advantage of an EOR in global payroll management
Efficiency is a key selling point for partnering with an EOR, specifically when it comes to simplifying the process of recruiting and overseeing a global workforce. By collaborating with an EOR, businesses can quickly expand into international markets, recruit local talent, and avoid the need to learn about diverse international labor regulations. You can pay your global team in local currencies and ensure you are offering the appropriate health benefits, time off, etc., for the country where that employee is based.
Additionally, EORs provide benefits packages aligned with local market norms, improving a company’s ability to attract and retain top talent globally. The flexibility and cost effectiveness offered by EOR services, along with their expertise in employment laws, can give companies an edge when focusing on expansion strategies.
The future of global employment and EOR trends
Working with an EOR ensures that your business is compliant with the laws and regulations of any country in which you employ talent. Labor laws in other countries typically cover a variety of issues, including parental leave, vacation and holidays, the right of employees to separate from their employer, and health and safety standards.
International labor laws are also always evolving, and employers need to ensure compliance with changing legal requirements. For example, many countries, including Argentina, Belgium, and Spain, have recently introduced laws related to telecommuting.
The comprehensive role of an EOR
Working with an EOR helps companies defer to local experts on complex international workforce management compliance issues, such as legal, payroll, and benefits.
Legal compliance
By working with an EOR, companies can efficiently and legally hire employees in other markets while reducing the risk of violating local labor regulations. This arrangement allows businesses to retain control over day-to-day workforce management, compensation, and job responsibilities while entrusting the EOR with legal employment tasks and aspects related to local labor compliance.
Streamlining international onboarding and payroll processes
An EOR allows businesses to quickly hire and onboard talent in countries worldwide without needing to establish a local entity in each country. while also complying with local labor laws and regulations. The EOR takes charge of compliance, payroll, taxes, and benefits, so all the employer needs to do is manage the employee’s daily work tasks.
Benefits management, customizations, and exit processes
EORs are experts at managing administrative duties associated with employment, and can oversee benefits management to suit local market needs, enabling businesses to offer packages that help attract and retain top talent worldwide. Additionally, EORs simplify the process of termination and employee exits by compliantly managing these procedures with sensitivity —reducing risks and upholding a positive employer reputation.
EOR vs alternatives
EOR vs. PEO
EORs and Professional Employer Organization (PEO) services each provide options for businesses interested in outsourcing human resources.
An EOR:
- becomes the legal employer for your staff in countries where you don’t have an entity
- takes on local HR and compliance responsibilities
- reduces the administrative workload for your global team
A PEO:
- becomes the co-employer for your talent in locations where you already have an entity
- handles HR functions, payroll, and compliance, but your company remains the employer and maintains control and increased liability
When deciding between the two, the biggest factor to consider is where your employees are currently based, and if you are planning to hire employees in countries where you company doesn’t have a physical presence. An EOR allows you to manage employees across many countries while keeping your business registration limited to your home country. On the other hand, a PEO requires you to register your business in every country where you plan to hire.
EOR vs. staffing agencies
When deciding between utilizing EOR services or staffing agencies, businesses must determine how much assistance they anticipate in hiring and managing employees, and if they will be hiring talent in locations where they don’t have a legal presence.
A staffing agency primarily functions as a means of recruiting and hiring talent. The employee is technically employed by the staffing agency, and it handles payroll, benefits, and other administrative tasks. However, while an EOR assumes all employment-related liabilities, a staffing agency does not.
In contrast, an EOR offers a comprehensive service that oversees integrating and onboarding international employees into your business under their legal umbrella. The EOR functions as the legal employer under their legal entity in that country, and ensures that your business is compliant with a specific country’s employment laws.
Entity setup vs. EOR partnership
Choosing between setting up your own international corporate entity or partnering with an EOR depends on factors such as the scale of your company’s expansion, your preference for direct control, and considerations regarding costs, time investment, and effort required.
Cost
When it comes to cost, it's generally less expensive to use an EOR than to establish your own entity in another location, be it in other countries or even across state lines. Because there is no need to establish a new location, maintain separate bank accounts, or pay local taxes, most of the cost goes to the EOR managing HR-related issues for your international workforce.
The costs associated with partnering with an EOR can vary. The most common model is the fixed fee per employee. In this scenario, an EOR charges a set fee for each employee, regardless of the employee’s salary.
On the other hand, establishing a legal entity can be an expensive endeavor, costing anywhere from hundreds of thousands to even millions of dollars, depending on the location and the type of work being performed.
Time
Partnering with an EOR equates to faster expansion into other markets since there is no need to formally set up a foreign office. Establishing your own entity can take months, or even longer, based on legal and regulatory requirements. EORs can onboard new employees in as little as 24 hours.
Effort
Companies that use the services of an EOR enjoy a simplified process of hiring and managing employees in foreign countries, easing the burdens associated with payroll, compliance, and administrative tasks. On the other hand, establishing your own entity requires significant effort, including navigating legal and tax issues, and various employment laws.
Advantages of partnering with an EOR
There are various advantages for companies that choose an EOR to help hire their talent in other countries. These include:
- easily manage international payroll across borders in 180+ countries, without needing local entities
- compliance with local governmental authorities
- cost savings associated with a significantly lower investment compared to creating a local subsidiary
- the ability to easily access a diverse talent pool across international borders
- simplification of the hiring process
- the ability to quickly scale their workforce
EOR partners can help you hire and onboard a new international employee in a matter of days or even hours without the need for a subsidiary office. An EOR will manage all aspects of the onboarding process, including performing background checks, creating compliant employment contracts, and assisting with visas and work permits.
Choosing the right EOR provider
Choosing the right EOR for your organization will help smooth international expansion while managing regional and international growth costs.
When choosing an EOR partner, there are several factors to take into consideration. First and foremost, you’ll want to confirm that their services meet your company’s needs. For example, you might need an EOR that can help you hire both contractors and employees, and can manage benefits, including health insurance. You’ll also want to confirm that the EOR is fully compliant with local employment laws in every country of operation. This will minimize any potential compliance risks or liabilities.
Other considerations to take into account include transparent pricing and billing options that fit your budget, flexible solutions if you expand or decide to hire additional types of talent (for example, adding contractors), and strong customer support.
EOR solution by RemoFirst
As an Employer of Record, RemoFirst enables companies to easily hire internationally without establishing a local entity. This service is crucial for businesses looking to expand their talent pool globally, while ensuring legal compliance and protecting intellectual property.
Leveraging an EOR like RemoFirst and prioritizing employee satisfaction enables companies to efficiently manage a global workforce, maintain compliance, and cultivate a positive and productive work environment.
Contact us today to request a demo and discover how we can manage the process of expanding your operation across international borders.
FAQs:
What services does an EOR payroll solution provide?
An EOR payroll solution typically covers many HR-related tasks, such as hiring, payroll, tax deductions, and compliance with employment-related laws.
How does using an EOR service affect my company's control over its employees?
When partnering with an EOR, employers retain control over their employee’s day-to-day activities while the EOR manages the administrative components of employment.
Can EOR solutions help with hiring contractors as well as full-time employees?
An EOR can handle the hiring and administrative management of contractors as well as full-time employees.
What are the typical costs associated with partnering with an EOR?
The costs and pricing methods can vary, although the most common model is a fixed fee per employee. In this scenario, the EOR charges a set fee for each employee. This allows companies to only pay for the services they require, rather than a percentage of payroll.
How can an EOR solution support my company's global expansion strategy?
An EOR can support your company’s global expansion strategy by enabling quick access to local talent, simplifying the hiring process, offering cost savings, and ensuring compliance with local laws.
