How Employer of Record helps with employment
Establishing a business entity in a foreign country presents significant opportunities for business owners. It opens up access to new markets, expands the talent pool, and reduces project development costs. To ensure that bureaucratic hurdles do not hinder your exploration of foreign markets and talent, it is time to consider engaging an employer of record (EOR).
In most cases, EOR organizations perform the following critical tasks:
- Act as a proxy entity officially registered as a legitimate employer in the region, overseeing payroll.
- Ensure compliance with local labor and tax regulations, including the drafting of valid contracts and agreements.
- Complete tax and insurance forms on behalf of the employer (e.g., W-2, I-9, and other documents).
- Handle visa-related documents and work permits when the relocation of an international employee is necessary.
- Provide consulting services to the company on best practices for employee onboarding, severance pay, or contract termination in the region.
Collaborating with EOR service providers has become a standard practice for global companies. Engaging a company that can act as an intermediary between a business located in a different country and the local government offers several advantages, including risk mitigation, cost reduction, and enhanced team efficiency.
Let’s go through advantages of hiring with an employer of record:
1. Overcoming Global Market Entry Barriers
Establishing teams abroad offers numerous advantages such as access to a cost-effective workforce, a larger talent pool, and increased workplace diversity. However, many business owners are hesitant to seek talent overseas due to the challenges associated with registering a foreign business entity.
In countries characterized by bureaucratic hurdles (e.g., Ukraine, Argentina, India), the approval process for commencing business activities abroad can span months. During this uncertain period, business owners may grapple with the decision to persevere or abandon the idea of expanding globally and opt for local talent.
How EOR Helps: An employer of record is an officially registered company with the authorized right to hire and remunerate employees. Engaging an EOR vendor enables business owners to commence talent recruitment abroad and initiate projects promptly, sidestepping bureaucratic red tape.
2. Ensuring Compliance with Local Laws
International businesses often encounter costly legal disputes resulting from inadequate knowledge of local trade and labor laws. For instance, European companies are obligated to provide female employees with a 14-week maternity leave, whereas such requirements do not exist in the United States. An American business owner can find themselves entangled in legal issues if they are unaware of the nuances of EU legislation.
How EOR Helps: To avert such predicaments and maintain teams in a legally-compliant manner, business owners entrust employers of record. EOR agencies possess a comprehensive understanding of labor and business regulations and ensure that all company processes adhere to local laws. In the event of legal infractions, the responsibility falls on the employer of record, sparing the business owner from liability.
3. Time Savings
Managing paperwork, administering benefits, processing payroll, and handling employee terminations consume a significant amount of time. Business owners who attempt to juggle numerous management tasks on their own often allocate insufficient time to their company's core activities, such as product improvement, strategic planning, and building meaningful client and partner relationships.
How EOR Helps: Enlisting a dependable vendor to oversee tax payments, employee payroll, and other formalities results in considerable time savings for company managers. Collaborating with an EOR allows business owners to focus on honing their skills in areas where they are passionate and proficient, instead of dedicating hours to researching international laws and procedures.
4. Risk Mitigation
Hiring an employer of record enables business owners to shift the burden of responsibility from their organization to the vendor. Since the employer of record is the entity featured in official documentation, responsible for drafting agreements and remitting taxes, the organization will bear the consequences in case of any mishaps.
Consequently, by engaging an EOR, business owners can alleviate concerns about the repercussions of inadvertent tax documentation errors or violations of local labor regulations.
5. Reduction in the Costs of Establishing a Global Office
The process of setting up an overseas office incurs numerous expenses, encompassing subsidiary establishment costs, expenditures related to hiring legal and financial advisors, and the recruitment of local teams from scratch. This endeavor often places a substantial financial burden on company owners.
How EOR Can Help: Engaging an employer of record enables business owners to save on the costs associated with hiring financial, HR, and legal consulting firms. The high level of flexibility provided by EOR agencies permits exploration of new markets and the option to close global offices without the concern of maintenance and headquarters termination expenses.
