What is the Difference Between an Employer of Record and a Common Law Employer?

Published on:
February 16, 2023
Written by:
Lucas Botzen
The modern workplace is constantly evolving, and with it comes the need for employers to stay up-to-date on the latest hiring trends. One such trend that has been gaining traction in recent years is the use of an Employer of Record (EOR) or a Common Law Employer when recruiting new employees. In this blog post, we will explore both options and discuss their advantages and disadvantages so you can make an informed decision about which option best suits your business needs. We'll look at topics like cost savings, liability exposure, compliance requirements, flexibility benefits, control over employee relationships and more - all while keeping in mind how each choice affects short term goals as well as long term success. By understanding these two types of employment better you will be able to ensure smooth sailing during recruitment processes now and into the future!

Table of contents

What is an Employer of Record?

What is an Employer of Record? An employer of record (EOR) is a third-party organization that serves as the official employer for workers who are not direct employees. It provides employers with access to talent on a global scale, while also taking care of all payroll and employment compliance requirements. The EOR model has become increasingly popular in recent years due to its flexibility and cost savings compared to traditional hiring methods. At its core, an EOR acts as the legal representative between two parties: the company seeking talent and the worker providing it. This means that instead of having a direct employee-employer relationship, companies can outsource their HR responsibilities by engaging an EOR service provider such as Globalization Partners International or Payroll4Free Incorporated.

In this arrangement, both parties benefit from reduced costs associated with onboarding new hires; however, there are some important differences between working with an EOR versus directly employing someone yourself. To begin with, when you hire through an EOR your business does not have any liability for taxes or other obligations related to labor laws since these matters will be handled by the third party provider itself – something which would otherwise fall under your responsibility if you were dealing directly with employees in most countries around world. Additionally, because they act as intermediaries, they often provide additional services like background checks, benefits administration, immigration support etc., making them ideal partners for businesses looking expand into international markets without worrying about local regulations.

Another key difference lies in how payments are made: rather than paying each individual contractor separately based on hours worked or tasks completed -as one might do when managing freelancers -the company pays only once per month via invoice issued by their chosen partner’s platform; thus simplifying accounting processes significantly. Furthermore, depending on where contractors live/work geographically speaking different tax rates may apply so using such services helps ensure accurate withholding amounts every time payment occurs.

Finally yet importantly – unlike common law employers who must abide certain rules regarding minimum wage levels & overtime pay among others– those utilizing external providers don't need worry about complying complex labor legislation since everything should already been taken care off beforehand during initial setup process before actual engagement begins (e g signing contracts) meaning less paperwork hassle overall!

What is a Common Law Employer?

A common law employer is an individual or entity that has the right to control and direct a worker’s activities, as well as the power to terminate their employment. This type of employer-employee relationship is based on principles established by case law rather than statutory laws. It's important to understand how this differs from an Employer of Record (EOR). At its core, a common law employer is one who exercises significant control over employees in terms of hiring, firing, setting wages and hours worked, providing benefits such as health insurance or vacation time off etc., determining job duties and responsibilities; all while having ultimate authority for making decisions about employee performance reviews. In other words - it's someone with real decision-making power when it comes to managing staff members.

The key difference between a Common Law Employer and EOR lies in the degree of responsibility they have towards their workers: A Common Law Employer assumes full legal liability for any actions taken against them by their employees – including wrongful termination claims or discrimination lawsuits – whereas an EOR does not assume any legal liability whatsoever since they are only responsible for payroll processing services provided under contract agreement with another company/entity which actually employs those individuals directly.

Furthermore, unlike employers who hire through traditional methods like recruitment agencies, temp staffing firms etc.; companies using EOR do not need to worry about complying with local labor regulations because these obligations fall upon the shoulders of third party service providers instead. As such, businesses can benefit from cost savings associated with outsourcing certain administrative tasks related thereto without compromising quality standards expected from professional HR departments within larger organizations.

To sum up: An Employer Of Record provides temporary solutions where there may be no permanent position available yet still requires some form of oversight over personnel matters but without taking on long term liabilities associated thereof; whereas Common Law Employment involves more comprehensive management rights vested into hands designated person(s) so that he/she could make binding decisions regarding day-to-day operations at workplace level accordingly.

Advantages and Disadvantages of Employer of Record

When it comes to hiring employees, many businesses are turning to the use of an Employer of Record (EOR). An EOR is a third-party company that takes on all the responsibilities associated with being an employer. This includes payroll, taxes and other administrative tasks related to employment. While this can be beneficial for some companies, there are also advantages and disadvantages associated with using an EOR.

One advantage of using an EOR is that they take care of all the paperwork involved in employing someone. All you have to do is provide them with information about your employee such as their name, address and job title; then they will handle everything else from there including filing tax forms and making sure payments are made correctly each month. Additionally, since most employers don’t have experience dealing with labor laws or regulations in different states or countries where their employees may work remotely from time-to-time; having access to a knowledgeable team who does understand these rules can save valuable time when setting up new hires quickly without any legal issues arising down the line due to lack of compliance knowledge by business owners themselves.

Another benefit provided by working through an Employer Of Record service provider is cost savings due not only avoiding costly mistakes but also taking advantage outsource services like payroll processing which could otherwise require additional staff members dedicated solely for those purposes within organizations own HR departments if done internally instead. Furthermore, depending on how much control over its workforce a company wants, outsourcing certain aspects via external providers might prove more efficient than managing every single detail itself.

On the other hand however, one potential disadvantage associated with relying too heavily upon outside help would be loss autonomy over decision making process regarding recruitment policies & procedures; another issue could arise should something go wrong during transition period between two parties while transferring data back forth - resulting into delays & extra costs incurred along way. Moreover, although majority reputable firms offer comprehensive insurance coverage against errors committed under their watchful eye yet still no guarantee exists that even best laid plans won't fail at times thus leaving customers exposed risk liabilities stemming from mismanagement activities carried out behalf said organization's personnel.

In conclusion, utilizing services offered by specialized entities known as “Employers Of Records” has become increasingly popular among small medium sized enterprises looking streamline operations whilst minimizing overhead expenses simultaneously – nevertheless careful consideration must taken before committing long term agreements given fact both pros cons exist when deciding whether pursue such route or not!

Advantages and Disadvantages of Common Law Employer

When it comes to hiring employees, employers have two options: an Employer of Record (EOR) or a Common Law Employer. Each option has its own advantages and disadvantages that should be considered before making a decision. In this blog post, we’ll explore the pros and cons of using a Common Law Employer for your business.

One advantage of using a Common Law Employer is that you can maintain more control over your employee relationships than with an EOR arrangement. With this type of employer-employee relationship, you are responsible for setting up contracts between yourself and each individual employee as well as managing all aspects related to their employment such as payroll taxes, benefits administration, etc., giving you greater flexibility in how these matters are handled within your organization. Additionally, since there is no third party involved in the process like with an EOR setup – meaning fewer fees associated with services rendered – costs may be lower overall when compared to other arrangements available on the market today.

On the flip side however; one disadvantage associated with being classified as a common law employer is increased liability exposure due to having direct responsibility for any issues arising from employment decisions made by yourself or those working under you at any given time - including potential legal action taken against them if necessary - which could result in costly settlements down the line depending upon circumstances surrounding said cases brought forth against either parties involved therein respectively speaking hereof course! Furthermore; another downside worth noting here too would include additional paperwork requirements needed not only during onboarding processes but also throughout duration thereof so make sure everything gets documented properly beforehand just incase something goes wrong later on down road...

In conclusion then; while there certainly exist some definite drawbacks when utilizing common law employers versus employing via traditional means such eor's et al.; ultimately choice still remains yours alone decide whether risk outweighs reward taking into account both short term longterm implications doing so might bring about accordingly!

Making the Right Choice

Making the Right Choice: Factors to Consider When Choosing Between an Employer of Record and a Common Law Employer

When it comes to hiring employees, employers have two main options – they can either use an employer of record or a common law employer. Each option has its own advantages and disadvantages, so making the right choice is essential for any business. But what factors should you consider when deciding between these two types of employment? Here’s everything you need to know about choosing between an employer of record and a common law employer.

Compliance with Local Laws and Regulations

The first factor that needs to be taken into account is compliance with local laws and regulations. An employee hired through an employer of record will generally be subject only to their home country’s labor laws, while those employed by a common law employer may also be subject to additional rules in the host country where they are working. This means that if your company operates across multiple countries, using an EOR could help simplify legal requirements as well as reduce costs associated with complying with different sets of labor regulations in each jurisdiction.


Another important consideration is cost-effectiveness; both methods come at varying levels depending on how much control over payroll administration you want or need from your provider (EOR vs CLO). Generally speaking though, employing staff via EOR tends to involve lower upfront fees than engaging them directly under CLO terms due mainly because there are fewer administrative tasks involved such as setting up bank accounts etc., but this does not necessarily mean it's always cheaper overall since some providers charge more for ongoing services like tax filing & reporting which must still take place even when using EOR services - something worth bearing in mind before committing!


Additionally, flexibility should also play into your decision-making process; many companies prefer having full control over their workforce without relying on external service providers who might not understand their specific needs or culture very well - especially if they're looking for long term solutions rather than short term fixes (which often require less customization). On top of this however there's usually greater scope within CLOs compared against EROS meaning businesses can tailor contracts according too individual circumstances whereas most pre-packaged deals offered by third parties tend towards one size fits all approaches which don't always suit everyone equally!


Finally yet importantly another key point here relates back again towards compliance issues mentioned earlier i.e., although outsourcing certain aspects related HR/payroll management may seem attractive initially due largely thanks reduced setup timescales plus potential savings made elsewhere along way (as discussed above) ultimately responsibility remains firmly upon shoulders employers themselves ensure all relevant legislation adhered throughout duration contract regardless whether handled internally externally...so make sure do thorough research beforehand avoid costly mistakes down line!


In conclusion then whilst selecting correct type employment arrangement isn't easy task requires careful thought analysis various pros cons outlined above order decide best course action particular situation faced today's ever changing global landscape understanding differences between 'Employers Records' 'Common Law Employees' becoming increasingly vital part successful recruitment strategy going forward....

In conclusion, Employer of Record (EOR) and Common Law Employers both offer advantages when it comes to hiring employees. EOR provides cost savings, access to knowledgeable teams and flexibility while Common Law employers provide increased control over employee relationships, lower fees and greater autonomy. However, there are also disadvantages associated with each option such as liability exposure for common law employers or loss of autonomy for those using an EOR. Ultimately the choice between these two types of employment depends on whether the risk outweighs the reward in the short-term and long-term. It is important that businesses understand their options before making a decision so they can make an informed decision about which type of employer best suits their needs.

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