If you are considering expanding your operations outside your home country, you may have encountered the term “Employer of Record.” An EOR is a common arrangement companies use to staff up – especially across borders – without taking on all the administrative overhead that comes with international expansion and a growing workforce.

This is a particularly helpful way to ensure compliance with local labor laws when expanding internationally. An EOR assumes all the regulatory responsibilities and liabilities associated with employing personnel in the countries in which they operate. If you need people in a specific country, your only alternative to engaging an EOR is to establish a legal entity in that country… with all the administrative and legal expense that involves.

Even if you’re just looking for talent outside your home country, regardless of nationality, an EOR is often the best channel through which to make those arrangements. This article explains why.   

What Is an Employer of Record (EOR)?

An Employer of Record is a third-party administration company that manages the employment contract, compensation – including payroll and benefits – time off of work, regulatory and tax compliance, and the equipment and resources necessary for employees to do their job.

The employing company – the EOR’s client – is responsible for locating and recruiting employees, directing their work, evaluating their performance, and may sever the employee relationship according to their needs and local law.

For example, if a Polish manufacturer wants to set up a sales office in the United States, they may identify the individuals they wish to employ based on knowledge of the industry, products, and market. Rather than incorporate in the U.S. and establish a corporate presence, the Polish employer can simply administer the people they need through an EOR.

Technically, the U.S. sales team is employed by the EOR. Salaries and other compensation are funded by the Polish company, but pass through the EOR, which is responsible for all necessary recordkeeping, tax filing, and statutory compliance related to employment regulations.

All functional communications, like sales reports or lead referrals, are conducted directly between the Polish firm and their U.S. salespeople. Likewise, negotiations about compensation – like bonus terms – are conducted directly between the foreign employer and the employee. The EOR only implements the terms of the resulting agreement.

It’s easy to confuse these services with those of a professional employer organization (PEO). But there is one very crucial difference: A PEO offers co-employment services. That requires 1) that the client company also be a legal entity in the country in which the employees are being managed, and 2) the client company assumes some liability for non-compliance with employment law and workplace regulations.

Staffing agencies sometimes also get included in such conversations. But employers have less control over the personnel such companies provide, making them more suitable for filling purely clerical or administrative roles.  

In short, if you are looking for a resource to administer all aspects of international employment for skilled professionals, you want an EOR.

Key Services of an Employer of Record

While an EOR’s engagement with the employees it manages is carefully limited, its duties are critical for basic business operations.

Perhaps the most important of these is managing payroll. That includes ongoing currency conversion. This would be a recurring headache for any employer on their own, with a high probability of errors. But EORs serving non-domestic clients handle the process as part of their normal workflow.

Employment law compliance is another routine practice for EORs. Not only can they set up new employees inside applicable regulations, but they stay abreast of new and revised requirements. Liability for noncompliance would fall on the EOR in any case, so this might not be an employer’s first worry. But having experts in the field increases the client’s comfort level and assures virtually no complications involving employees.

The same goes for taxes and benefits administration. Proper management has implications for a company’s financial operations, regulatory compliance, and employee relations. EORs assume responsibility for all these and are set up to keep those functions error- and drama-free.

Lastly, since the EOR is legally responsible for the employee, they handle terminations should that be necessary. As with all their other responsibilities, this assures regulatory compliance and clean financial settlements.  

Top Benefits of Using an EOR for Your Business

Labor laws in most advanced countries tend to be complex, specific, and informed by the “cultural” logic of that nation’s social contract. Navigating the rules can be hard enough. Dealing with exceptions or unique business requirements – as can arise when non-domestic employers seek to establish a presence in a new territory – demands in-country expertise. Then that expertise must be put into administrative action, filing the right forms, paying the right fees, and engaging with all the right governmental agencies.

EORs exist to provide that expertise, submit those forms and fees, and engage the necessary agencies. And, once the client company is up and running in its new region, it’s the EOR’s responsibility to maintain that compliance moving forward. This frees the client and their new local personnel to focus on growing the business.

Best of all, employing an EOR can speed the process of entering a new market with the flexibility to scale up as the business grows and adapt as conditions require. And, while the EOR must necessarily be compensated for their work, the total cost is invariably much less than the cost of establishing and maintaining a legal entity in another country for all but the largest multi-national enterprises.

These factors make an EOR the ideal solution for any company looking to expand outside their home country, especially those with limited resources. This is even more true if the expansion is a trial market or limited to a short-term or project-based engagement. If a company is only looking to employ specialized talent – with no particular intention of operating in the country where that talent resides – an EOR is absolutely the best way to administer those hires.

How to Choose the Right EOR

Once you’ve determined an EOR is the right solution for your business, you need to find the right provider for your needs.

The obvious first criteria are confirming they operate in the country you’re entering. Given that, find trusted sources in that country to check a prospective partner’s reputation and references. Because of the close and crucial relationship an EOR shares with clients, you want the most solid foundation of trust possible.

Building on that, look for experience in your industry or with employees whose skills match those of your company’s. Remember: You will be the one locating and recruiting your employees. You just want to make sure that your EOR partner knows how to work with employees like yours; software developers can be very different from account representatives.

Confirm that the EOR can provide all the services you require, including managing the types of benefits programs you will offer and addressing any compliance considerations unique to your business.

While cost is always a consideration, this is the last thing you should worry about. It’s more important to get the details above right. So long as the price at the end seems fair, you have the basis for a positive and productive relationship going forward.

Simplify Global Expansion with EOR Services

Choosing the right resources for entering a new market outside your home country is critical to success. And most critical are the people working for you. That is especially true for small and medium-sized businesses for whom every employee is a key contributor.

To make sure your transnational team is properly administered, the smartest move is to engage the services of an Employer of Record. They can handle the payroll in the native currency, manage HR and benefits in compliance with local laws, and protect your company from liability for non-compliance.

This eliminates the need for establishing and operating a legal entity in-country and eliminates all the expense that goes with that. This speeds up the process at launch and will keep it running smoothly from then on.