What is an employer of record?

What is an employer of record? 

The competition for top talent is hotting up and companies are increasingly looking across international borders in search of the best people. Where employees are located is no longer the priority, but rather whether they are able to deliver their work outcomes and objectives. But while this approach is great for remote workers, for companies the employment process has become increasingly complex. Consequently, many are turning to organisations that offer employer of record services to manage their global team.

But what is an employer of record and what does it do?

Simply put, an employer of record (EOR) is an employment services provider that helps companies legally employ people in other countries. An EOR can be likened to an international human resources team that takes care of an organisation’s workforce in all the countries they are located.

Companies are obligated to comply with numerous employment and tax laws when hiring people in countries where they do not own a legal entity. And while it is possible to establish a legal entity, this usually takes several months and is costly for the business. This is where an employer of record is invaluable.

The EOR hires employees on the company’s behalf, thus becoming the workforce’s full legal employer and assuming responsibility for all employer-related functions.

While the organisation continues to manage employee-related tasks such as compensation, job descriptions, project allocation and performance management, the EOR frees the company to focus on its core business by taking care of:

  • Human resources
  • Payroll
  • Employee benefits
  • Taxes
  • Local compliance

An employer of record’s extensive knowledge of the payroll regulations and labour legislation in multiple countries plays an integral role in alleviating risk for the company in that management does not have to worry about compliance issues and can rest assured that the remote employees will be paid accurately and on time, wherever in the world they work.

This is borne out by a survey done by CFO Research, which reveals that some of the top benefits of hiring an employer of record include legal and human resource compliance assurance, regulatory compliance assurance and leveraging local knowledge.

The EOR business model

Employers of record operate according to one of two business models – the aggregator model or the wholly owned model.

Aggregator model

The aggregator model is a system where the EOR works as an intermediary between the client organisation and independent in-country partners such as benefits providers and payroll companies. EORs who operate according to this system usually work with multiple in-country partners so that their clients can choose the partner that meets their budget and specific preferences. In this way it’s easy to switch to another partner if they are unhappy with the services provided.

Wholly owned model

With the wholly owned model, the EOR takes ownership of the entire process and employs its own in-house payroll professionals to support the client company, along with sophisticated payroll software.

Why should you appoint an employer of record? 

Expanding the company footprint to new markets is a top priority for business owners. Employers are increasingly starting to realise there are no geographical boundaries when it comes to the search for top talent, and the wider recruitment net makes it considerably easier for them to find the exact skill sets they need to make their business successful.

From an employee’s perspective, being able to work from any location in the world has become a highly sought-after benefit, especially in the post-pandemic labour market.

But whether you are expanding globally, or looking to recruit remote staff from other countries,   there are a host of challenges to navigate between countries, especially when it comes to human resource and payroll compliance.

Navigate compliance complexities

Not only does each country have its own tax rates and regulations – which change frequently – but compliance calendars differ from country to country and each one must be meticulously observed to ensure that no deadlines for making tax payments or filing reports are missed to avoid incurring hefty penalties.

Additionally, tax filing and reporting must also be done in the local language of each country, while processing payrolls across different time zones is a communication headache in itself.

This is when you should seriously consider hiring an employer of record. Because an EOR has the expertise to assist your company in meeting all the HR and payroll requirements in each country, they can help you extend your company’s footprint to international locations quickly, inexpensively and legally.

Access the latest technology

An EOR utilises the latest human resource and payroll technology, which makes them well equipped to stay up to date with constantly changing human resource and payroll regulations and legislation – in any country.

Take care of employment matters

An EOR takes care of visas and work permits, performs background checks and drug screens, creates and maintains employment contracts, oversees employee onboarding, manages holiday, sick, maternity and other leave benefits, and deals with contract termination.

Additionally, they are on hand to answer – quickly and thoroughly – any questions employees may have about their remuneration, benefits or other workplace issues.

Placing all the legal employment issues in the hands of a capable EOR will not only ensure that your internationally located employees stay productive, but also help to promote a positive employee experience within the company, even though your staff is located in multiple countries. This will enhance your company’s reputation as one which takes care of its employees and has their best interests at heart.

Conclusion

When all is said and done, working with an employer of record creates a win-win scenario for both employers and employees.

If you are looking for ways to hire high-end talent across international borders without the complexity of regulatory challenges, CROS can provide you with access to a network of allied service providers that provide the full spectrum of human capital management services to any location in the world. Contact CROS today.

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