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](https://research.nelson-hall.com/blogs-webcasts/nelsonhall-
blog/?avpage-views=blog&type=post&post_id=1038)).
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?](/blog/navigating-the-
world-of-global-hiring-employer-of-record-vs-peo))
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.
Moving Forward
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.
