The Pros and Cons of Hiring an Employer of Record (EOR)

For most companies, hiring remote workers overseas can be taxing and complicated. When you plan to hire or recruit people from foreign countries, you must comply with numerous employment and tax laws. Additionally, putting up a branch office in the foreign market is an expensive option. Luckily, there is an Employer of Record (EOR, learn more about EOR here) service that will help you eliminate the hassle of these recruiting processes. However, these Employer of Record benefits also come with disadvantages, especially when your company does not actually need their services after all. This blog will help you weigh the pros and cons of hiring a Global Employer of Record.

What is an Employer of Record?

The Employer of Record (EOR) is a term often interchanged with the Professional Employer Organization (PEO) in the HR industry. The most significant difference between these two is that a PEO’s role in a company is basically similar to the function of the Human Resource department, while EORs go a step beyond by being involved in the hiring and onboarding of employees for their client-companies.

To learn more about the Professional Employer Organization (PEO), READ: Professional Employer Organizations: Allies in Crises.

More comprehensively, an Employer of Record 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. Employer of Record responsibilities include the arrangement of all visas and work permits for the employee, and avoiding delays or refusals to abide by compliance laws and regulations. In other words, an EOR helps you hire, retain, and pay your workers (e.g. international and local employees, local contractors, etc.).

(READ: Daring Global Expansion with the Employers of Record)

Pros

1. Speed up your business expansion application

As a business owner, expanding your business to different markets is obviously one of your primary priorities. With an EOR, you can easily hire employees from all parts of the world without registering a subsidiary to enter global markets.

Additionally, whether you have a small or large business, an employer of record hiring will provide you with HR professionals who will take care of administrative tasks and employment arrangements without getting thousands of buckets from your pocket. It will give you enough time to increase your sales before investing in a full-time HR division.

An Employer of Record will also serve as your employment consultant that looks into the concerns and complaints of your company’s employees. The EOR will help you deal with these issues and make it easier for you to achieve your corporate goals.

2. Provides everything your business needs

From hiring remote workers to the onboarding process to payroll to contract termination, employers of record hiring will take care of and handle everything for you. For instance, once an EOR hires new remote employees, they are already expected to be trained and oriented about the duties and responsibilities they have for your company. It is no longer your job to prepare them for work.

An EOR also offers payroll software that helps you manage all of your remote employees’ payment transactions. Rivermate can assist you in setting up global payroll with full compliance, benefits, and automated payments. It enables your employees to update their paycheck and check if you have missed a piece of information regarding their payroll. You can also use the EOR solution to terminate employees if you think they are not performing well and do not fit the position.

3. Adapts to your work culture

Another benefit of hiring an EOR is they always make sure to implement appropriate working culture or practices when hiring remote employees. Providing a conducive working environment and a safe space attracts more potential candidates. Since EOR integrates on the local level, the hiring process will be much easier on the employees. However, they will still consult with you about your wishes and needs.

The EOR can also help you decide what type of worker your company needs. They do this by detailing why you should hire an employee over an independent contractor (employee vs independent contractor) or vice versa (independent contractor vs employee). To learn more about the differences between these two types of workers, READ: The Benefits of Having Employees Instead of Contractors, and Top 10 Benefits of Hiring Independent Contractors.

4. Guaranteed full compliance

An Employer of Record hiring provides full compliance with labor or employment laws when recruiting remote workers outside the country your business is located. If you are new to hiring remote employees, an EOR will undoubtedly be a smart choice for you because you do not need to worry about complying with local laws anymore. EOR companies will take off and handle full employer responsibilities. Such responsibilities include employee benefits (e.g., maternal leave, healthcare, paid vacation, etc.), employees’ compensation, and insurance.

5. Cost-efficient

Most independent consulting companies also recommend startup businesses to hire an Employer of Record because doing so is cost-efficient. The price you pay for an EOR already includes the taxes you need to pay when hiring remote employees. Also, EOR services will take over submitting taxes for each country and they will be responsible for the penalties due to misfiled reports and documents. You might think that getting an EOR service will cause you hundreds or thousands of dollars, but the truth is that it is cost-efficient.

Cons

1. Less influence

You might be a type of business owner who is hands-on in facilitating the training and onboarding processes of your employees. Relying on EOR services may not be suitable for your business because there will be tendencies where you feel that you have less control over your workers. An Employer of Record hiring has professional and well-trained HR specialists tasked to welcome and prepare new hires. Because of this, you may not build strong connections with your employees, especially during their training period.

2. Dissimilarity in goals and standards

When it comes to hiring remote employees, your standards might be different from the standards set by the EOR. Since they handle the hiring and recruitment processes, their wrong decisions might negatively affect your business, and you do not want that to happen. The best move to go about this is to hire an EOR service provider that has the same vision and goal as your company.

Final Thoughts

Hiring an Employer of Record’s services is certainly a tremendous decision your company will have to deliberately consider. It has its benefits and disadvantages just like any other business decision. There may not be a universal answer to whether or not an EOR is a win-win solution for your business, but its risks can be mitigated to at least prepare your company for any contingencies in the future. One risk, for example, is disparity in goals. This can be patched up with constant communication with the administrative team in your EOR to make sure that both of you align your goals to what is best for your business. Nevertheless, it is always best to study the situation first before making any decision that would greatly alter your company. Performing a SWOT analysis will help you make the best choice for your company’s own good.

Are you interested in hiring remotely? As an employer of record, we offer full legal compliance and runs global payroll anywhere in the world. Start growing your team and building your business with us. In Rivermate, your success is also our success.

Frequently Asked Questions

Why should you use an Employer of Record (EOR)?

An Employer of Record will take care of every one of your responsibilities that have to do with employment. This will take a huge pile from your paperwork and will therefore shorten your task list. An EOR will also help you abide by compliance laws and regulations, and will hold itself liable in cases of mishap and non-compliance. Most people will think of hiring an EOR as an expensive move, but more often than not, this is actually a cost-efficient decision, especially for startup businesses. The price you pay for an EOR is already inclusive of the taxes required to be paid when hiring employees.

How much does an Employer of Record cost?

Traditionally, 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.

What does a consultant do?

A consultant offers its expertise to an organization that is in need of guidance and counsel regarding how to go about their business. Consultants do this by providing advice to help them improve their performance in operations, management, profitability, structure, and strategy. This may involve realigning the company’s goals to adapt to the market, competition, or the demand of the people. The workload of consultants can be heavy but this is also an opportunity for them to enrich their network and experience.

What is the difference between a consultant and a contractor?

The difference between a consultant and a contractor has become blurred over the years, and these two terms have been used interchangeably in the Human Resource industry. The difference between a consultant versus a contractor is that a consultant’s role is evaluating a client’s needs and providing its expert advice and opinion on how the company goes about this situation. The contractor’s role, however, is to evaluate the client’s needs and perform the tasks assigned to them.

How much does a part time consultant job pay?

On average, a part time consultant will make $69,167 annually. This is $1,600 (2%) more than the national average annual salary of $67,567.

(READ: Part Time Consultant Salary)

Do you have to pay the Social Security Tax on an H1-B visa?

Yes. You will have to pay Federal Payroll Tax, also known as FICA, which includes Social Security and Medicare on an H1B visa. The US government takes 6.2% out of your pay for social security up to $132,900 of your pay.

(READ: How Much Will I Pay In Income Tax While Working On An H1B In The US?)

How does an Employer of Record in the USA work?

The EOR in the United States of America works much like how it works in the rest of the world. The notable difference, of course, are the compliance and regulation laws that have to be abided by. EORs in the U.S. answer to federal and state laws that both have distinct rules regarding the hiring, paying, and employment processes.