Employment is one of the core elements of any business and should be handled by experts in this field. If you are not in the position to have such expertise, it would be better to discover the Employers of Record (EoR).
What is an Employer of Record (EoR)?
The technical meaning of EoR is often interchanged with that of the Professional Employer Organization (PEO), and while interchanging these terms is a valid mistake, you should still know what an EoR is.
In China, the EoR is also known as the local EoR, the local partner, or the Forein Enterprise Service Company (FESCO). An Employment of Record (EoR) is a third-party organization that takes over the role of hiring and paying the employees of their client-company as well as all other employment-related tasks from their client. This is particularly advantageous for companies planning on a global expansion strategy but do not have the logistics to make it happen.
Even as the registered employer of the employees, the administrative freedom of the EoR is limited to what is stipulated in the agreed-upon employer of record agreement. The client-company continues to make all decisions related to job descriptions, compensations, employment records, and employee termination. Today, amid a pandemic situation, the EoR industry continues to escalate. (READ: Global Employer of Record Services: Outsourcing’s Best Kept Secret).
Why Use an Employer of Record?
Imagine planning your first trip to another country: the documents you will need to accomplish, the hotels you will need to consider, and every other detail you need to look over. The tasks you will need to accomplish on this trip are quite similar to your company’s employment-related tasks, except the stress level in employment is a hundred times higher. Well, that is about to change when you are introduced to the Employer of Record.
Your EoR will help you hire, retain, and pay your employees. The administrative team at the EoR will take over many of the Human Resource tasks associated with managing your international employees. In other words, your EoR will do all the dirty work and ensure a higher success rate than you could ever imagine. Here are reasons why you should hire an Employer of Record of your own:
Localizes Your Business the Right Way
The Employers of Record do more than just providing you business guidance. They enable you to comply with your chosen country’s regulatory requirements and the costs that go along with it. Their job is to perform payrolling, timekeeping, staffing, legal employing, and other employment-related activities. Among these include compiling your employees’ records of employment, service records, and other necessary documents that help them make sure your employees receive the compensation they deserve.
Every country has its unique business requirements regarding employment, local payroll, and the prerequisite permits. A business from another country would hardly know any of these things. However, ignorance of the law cannot be used as an excuse, and the consequences of non-compliance can be costly and prohibitive for the company to survive in that foreign land. Smaller and newer companies should not take such a risk. Thus, hiring an International Employer of Record will help companies mitigate these risks by taking responsibility for their company’s legal employment and compliance.
Assures Immigration and Employment Compliance
With the current pandemic happening, foreign governments’ immigration policies have become ever changing, encouraging the host countries to be stricter and more apt. The EoR is the perfect entity to assure the absolute compliance of your company.
Some of these policies include the following:
- management of work permits and employment records,
- registration of your company and making it payroll compliant,
- ensuring the legality of the business with regard to the host country’s labor laws and contracts,
- employment protection of your employees, and
- termination rules and corresponding notice periods and severance pay.
Manages Local Payroll with Local Standards
Countries have different payroll standards and requirements, and “remote payrolls” are hardly allowed. EoRs are well-versed on the subject and aim to provide accurate and compliant handling of the statutory withholding deductions, health insurance, pensions, and taxes for every employee of the company.
Provides Engagement and Guidance in the Workforce
Engagement and guidance are two important facets when pointing out the difference between the services provided by the EoR and the international PEO services. While PEOs function as the HR for a company, EoRs go a step beyond by being involved in the hiring and onboarding of employees for their client companies.
More technically, global PEO companies are not included as a party in employment contracts between the company and its employees. The company still creates the terms and abides by the agreements. With an EoR, the setup is reversed. The EoR is responsible for all employment contracts between the company and the employee while maintaining compliance with labor laws of the country where the employee is based.
(READ: EoR vs PEO: Which does your business need?)
EoR Limitations You Need to be Aware of
There are specific cases that would not encourage the use of EoRs.
Companies with less than ten employees should opt for hiring the local experts of the host country. However, these companies can still utilize EoRs for the quick hiring of employees.
EoR as a concept is still relatively new and may cause some employer reluctance. Additionally, the EoR is basically between management and their local employees and may only add fuel to the fire. Therefore, the contract of your EoR should require them to act in the interest of the company.
Choosing the Best EoR
Companies have various concerns, and the first step is to identify them before choosing the suitable EoR for you.
If employment outsourcing and HR solutions are your priorities, your global PEO (Professional Employer Organization), ASO (Administrative Services Organization), or even BPO (Business Process Outsourcing) would be your best bet. If you are looking to hire permanent employees, a full-on service solution would be a good fit for you.
The pandemic has ushered an era when vital decisions are made, and businesses can choose to be stunted or continue the good fight. It obviously will not be simple, but you can now have the courage to move forward with your EoRs to minimize the risks and maximize your overseas opportunities.
Are you interested in global payroll, remote working, taxes, compliance, and benefits? Rivermate offers a wide variety of articles that talk about these topics.
Frequently Asked Questions
What is EoR’s advantage over a PEO?
An employer of record provides what is known as the General Liability, Workers’ Compensation and the requirements for payrolling instituted in a country. This implies that as far as risk management and employee benefits go, an EOR is superior to a PEO. EoRs also have their own insurance and leave you with less time doing paperwork and. An EoR will attend to every employment-related concern which gives you more time to accomplish other tasks. Employers of record take the full liability for the employment arrangement for the client company. You cannot say the same with the PEO.
What is global expansion?
Global expansion happens when a business grows rapidly and takes its operations into lucrative overseas markets. These businesses are looking to reach the next level of growth. This is done by establishing a presence in new countries across the globe.
How much does an employer of record cost?
On average, the Employer of Record will cost your company around $15,000 to $20,000. However, it should be noted that these are highly variable amounts and depend on your company’s needs, and the tasks stipulated on the employer of record agreement.
How much do payroll services in Chicago cost?
The cost of payroll services will vary primarily on the type of service you need and the number of employees on your payroll. Payroll companies use a monthly base rate plus the monthly rate per employee. Ranges for base fees go from $25 per month to $200 per month, while each additional employee on payroll costs between $2 to $15 per month.
Does an EoR payroll?
Yes. An Employer of Record can be an alternative payroll solution. Other services provided by the EoR are timekeeping, compliance, benefits, unemployment claims, worker’s compensation, and other employment tasks.
What employee records should be kept?
As an employer, you will need to maintain three types of employee documents: personnel records, payroll records, and medical files.
Personnel files cover employment history. These include hiring documents, employee and emergency contact information, and a signed acknowledgment of your company's employee handbook. Documents related to salary, benefits, and financial awards should be filed under payroll. The medical file should include application forms for health, life insurance, and other employee benefits if you offer them.
(READ: Recordkeeping 101: Tips for Organizing Employee Records)
How long do employers keep records of past employees?
The Fair Labor Standards Act (FLSA) requires employers to maintain employee records for three years from the employment termination date. However, the FLSA requires employers to keep the following records for two years instead of three:
- collective bargaining agreements,
- performance appraisals, and
- documents that may satisfy requirements to justify pay scales, wage rates, and salary levels.