5 Scenarios Where an Employer of Record (EOR) Can Be Beneficial
An EOR offers numerous valuable advantages for your company, and its utility depends on your specific objectives and challenges. An EOR can address these areas and assist in handling these tasks effectively.
In many instances, a company can derive the greatest benefits from an EOR when confronting the intricacies and compliance risks associated with entering a new foreign market. Here are 5 scenarios in which your organization can gain from partnering with an Employer of Record:
1. Expanding Without Establishing a Legal Entity:
Expanding into a new market often involves establishing a local legal entity through incorporation and registration, a process that can be exceedingly time-consuming, costly, and demanding of specialized knowledge regarding the legal intricacies of the new country to maintain compliance. In such cases, a global EOR can offer a more advantageous alternative by handling payroll, as well as employment and immigration requirements in the host country. The EOR acts as an intermediary between the client company and the assignee, facilitating compliance through its expertise and network.
2. International Hiring Made Easy and Compliant:
The increasing popularity of remote work has removed geographical barriers, making global talent accessible. This presents an opportunity for companies to enhance their diversity initiatives, not only in terms of gender and disability but also in ethnicity and origin, as employees no longer need to relocate. A diverse workforce can drive innovation and increase revenue, as evidenced by a study. However, this model introduces new challenges, particularly regarding compliance with a dispersed workforce. An Employer of Record can provide the necessary guidance and legal framework to ensure compliance with local legislation.
3. Transitioning to a Remote-First Approach:
Many employers are considering adopting a hybrid or fully remote work model. Research indicates that the pandemic has accelerated the trend of remote work, with companies planning to shift toward more flexible work arrangements. A growing number of executives also anticipate a substantial portion of their workforce working remotely. However, this transition entails complex organizational changes, particularly in HR-related areas, and brings about heightened compliance complexity, encompassing tax laws, labor law compliance, social security, and data protection across multiple countries. With an EOR, your company can implement a remote-first approach with a smaller employee subset, enabling a smoother transition and significant cost and time savings.
4. Converting Freelancers into Employees:
Many organizations leverage an alternative workforce consisting of freelancers and contractors. Nevertheless, there may be considerations to transition freelancers into full-time employees to reduce turnover, exercise greater control over work hours, and mitigate compliance risks such as misclassification, which can lead to tax and benefit liabilities and penalties. Some countries have introduced or updated legislation related to misclassification, such as the UK's IR35, which aims to ensure that workers deemed employees for tax purposes pay similar Income Tax and National Insurance contributions. An EOR can assist in retaining this talent and support long-term workforce planning, encompassing the transition period and HR processes to maintain compliance.
5. Providing Flexibility to Employees:
Global studies reveal that 30-40% of employers worldwide faced talent shortages in 2006, a trend that has persisted since 2009. Attracting and retaining talent has become increasingly critical. Post-pandemic, offering employees greater mobility, freedom, and flexibility is essential. If an employee is contemplating a move to another country, it should not lead to their departure from your organization. Allowing employees to remain part of your talent pool even if they relocate abroad can reduce turnover and bolster your employer brand, enhancing talent attraction. An EOR can support this process, overseeing labor law compliance, addressing payroll variations, and addressing other aspects crucial for maintaining compliance during such transitions.
