What are the alternatives for Employer of Record (EOR)
An Employer of Record (EOR) is an organization that assumes the legal role of employing individuals on behalf of another company. The EOR assumes complete responsibility for various employment-related matters, such as adhering to regulations, managing payroll, handling taxes, and administering benefits.
Employers of record may operate either within the same country as the business they serve or in a different country with distinct employment regulations.
How Does an EOR Differ from a PEO?
An EOR operates differently from a Professional Employer Organization (PEO) in that EOR employees are not 'co-employed' as they are under a PEO arrangement. Typically, a PEO manages specific HR functions such as payroll, taxes, and benefits. When businesses engage with a PEO, they enter into a co-employment agreement. The National Association of Professional Employer Organizations defines co-employment as a situation where:
"Both the PEO and the client company will share certain employment responsibilities, while both may also jointly handle other obligations and act as 'an' employer, but neither party assumes the role of 'the' employer for all purposes."
Under this arrangement, both the company and the PEO contractually share the responsibilities of being the employer.
Drawbacks of Co-Employment
Co-employment can pose challenges because employee risk and responsibilities are divided between the client company and the PEO. This sharing of risk and employment responsibilities can be complex and, in certain instances, has resulted in legal issues where an employee sued both the company and their PEOs for discrimination claims. The legal and compliance complexities of the PEO model have led to the development of employer of record services as an alternative.
Advantages of EORs Over PEOs
While both services offer employment solutions, their similarities end there. Unlike a PEO, an EOR goes beyond general HR outsourcing by assuming the risk associated with hiring employees internationally, allowing the client company to concentrate on its day-to-day operations.
How Does an EOR Differ from a Staffing Agency?
A staffing agency acts as an intermediary between potential talent and the hiring company, with their primary objective being to assist the client company in finding the right candidate for a specific job vacancy.
Some staffing agencies may offer supplementary services like:
- Posting the job opening on job boards.
- Conducting background checks.
- Reviewing applicants and filtering them based on role suitability.
- Handling administrative paperwork.
In contrast, an employer of record (EOR) service only becomes involved after an employee has successfully completed the recruitment process. EOR services do not participate in the talent search and screening phases.
