We love remote work.
With happier people, better work, and less attrition, the benefits of remote work are plentiful – making it hard even to think back at a world where we were sitting side by side for 40 hours per week.
But there are some practical challenges we have to solve in this new working model, one of them being how to employ people who are in other countries.
Fortunately, this is exactly where an EOR, or an Employer of Record, comes in.
In this article, I'll guide you through:
- What is an Employer of Record (EOR)?
- Benefits of using an EOR
- Global EOR Services and Companies
- What to look for in an EOR
- The difference between a POE and an EOR
What is an Employer of Record (EOR)?
Many businesses are expanding their operations across borders, especially companies that practice remote work and hybrid remote work.
But just because you found that amazing engineering talent in another market doesn't mean you're an expert at international employment laws and regulations.
And even if you did, staying current on the laws and practices in one or multiple foreign markets would be very time-consuming – and time is the one thing we never have enough of.
That's where an Employer of Record (EOR) comes in.
An EOR lets companies legally hire and manage employees in foreign countries without establishing their own local entity.
The Employer of Record employs people on behalf of another business in the local market, making the EOR become the legal employer, handling all aspects of employment, including compliance, payroll, taxes, and benefits.
By partnering with an EOR, you can hire people globally with less risk and hassle.
What does an Employer of Record (EOR) do?
The tasks performed by an EOR depend on the service and location, but some common responsibilities include:
Compliance with Local Employment Laws
One of the key advantages of working with an EOR is their expertise in navigating the intricate web of local employment laws.
An Employer of Record ensures that employees are hired in accordance with local regulations and provides compliant employment contracts.
You can rely on the EOR's knowledge and experience to ensure your business operates within each country's legal boundaries.
Onboarding and Offboarding
When a company hires a new employee, the EOR oversees the onboarding process, including managing the employment agreement and setting up necessary processes for the new hire to start their role.
Similarly, when an employee's contract is terminated, the EOR handles all the necessary details, making the offboarding process smoother and more efficient.
Payroll and Benefits Administration
Managing payroll and benefits across multiple countries can be a complex task.
An EOR simplifies this process by handling payroll administration, ensuring accurate and timely salary payments, and managing local taxes and statutory benefits.
Additionally, an Employer of Record often offer a range of benefits that can be customized to meet the needs of employees in different countries.
Legal Compliance and Risk Mitigation
Compliance with local employment laws and regulations is crucial to avoid legal risks and penalties.
An EOR takes on the responsibility of ensuring compliance, reducing the burden on the client company (you.)
While it comes at a sometimes significant cost, partnering with an EOR mitigates the risks associated with global expansion and focuses on your core operations.
Some EORs even offer contractor management software features, so that you can ensure compliance practices and streamline management processes with both fulltime team members and unofficial ones.
Benefits of Using an EOR
As you can guess from the above, there are several benefits to utilizing the services of an Employer of Record:
Simplified Global Expansion
Expanding into new markets can be a complex and time-consuming process. By partnering with an EOR, you can streamline the global expansion process.
The EOR handles the legal and administrative complexities, allowing businesses to focus on their core operations.
Compliance and Risk Management
Compliance with local employment laws is critical for businesses operating in foreign countries.
An EOR has a deep understanding of local regulations and ensures that employees are hired and managed compliant.
This helps businesses mitigate legal risks and avoid costly penalties.
Access to Global Talent
Working with an EOR enables businesses to tap into a global talent pool, which many remote-first companies see as the biggest benefit of remote work.
By hiring employees in different countries, companies can access a diverse range of skills and expertise.
An Employer of Record helps businesses navigate the complexities of international hiring, making attracting and retaining top talent easier.
Establishing a legal entity in a foreign country can be expensive and time-consuming.
By partnering with an EOR, businesses can avoid the costs of setting up and maintaining a local entity.
Additionally, EORs have economies of scale, allowing them to provide cost-effective solutions for payroll administration and benefits management.
Flexibility in Workforce Management
An EOR offers businesses flexibility in managing their workforce.
Companies can hire full-time, part-time, or project employees, depending on their specific needs.
As fractional work becomes more popular, this flexibility allows you to scale your workforce up or down quickly, depending on market conditions.
Downsides of working with an Employer of Record
But with all those benefits, there are some downsides, too.
EOR services can be expensive, particularly for full employment services compared to paying independent contractors. Fees for employing through an EOR typically range between $500-$700 a month per employee, which can be costly, especially for high-salary employees.
Permanent Establishment Risks
Using an EOR doesn't mitigate the risk of creating a permanent establishment (PE) in a country, which can lead to tax obligations and legal complexities. Companies hiring senior roles or those generating significant revenue might face heightened PE risks
WFA has a helpful table to understand this better:
Regulatory and Compliance Challenges
The regulatory environment for EORs is evolving, with some countries posing specific legal and operational challenges that could affect service consistency and risk. Laws around contractor misclassification, outsourcing, and EOR operations vary significantly across jurisdictions, potentially complicating compliance efforts.
Employee Experience and Company Culture
Engaging an EOR can create a sense of detachment between the company and the employee, potentially impacting the company culture and employee's sense of belonging and loyalty.
Complexity in Benefits and Equity
Offering personalized or sophisticated benefits and equity through an EOR can be challenging since the employee is legally employed by the EOR, not the company. This limitation could affect an employer's value proposition and employee satisfaction.
Intellectual Property (IP) Risks
For roles involved in generating sensitive IP, there might be concerns about the proper assignment of IP rights when using an EOR, necessitating careful contractual arrangements to ensure IP protection.
Suitability for Long-Term Structural Needs
While EORs are a quick solution for international hiring, they may not be the best fit for organizations planning a long-term presence in a new market, where setting up a local legal entity might be more beneficial.
Global EOR Services and Companies
After weighing the pros and cons you'll want to reach out to a few EORs to get a sense for what they uniquely deliver and at which cost.
Below are some great options to consider from my experience in working with a few of them:
Offering one of the lowest starting prices for EOR services at $199 per employee per month, Remofirst is favored for keeping costs low while providing extensive country coverage and 24/7 support.
This service is especially notable for its same-day onboarding, flexibility in managing international payroll, and additional services like visa and immigration assistance at extra costs.
This Employer of Record platform is celebrated for its enterprise-level global workforce payroll and payment solutions.
With pricing starting at $650 per employee per month or $2 per contractor per month, Papaya Global provides an end-to-end solution for global hiring, emphasizing compliance and smart technology to ensure error-free payroll and real-time business intelligence.
It also offers advanced compliance and liability coverage.
Multiplier is an Employer of Record service specializes in quick hiring and effortless onboarding across 150 countries.
With EOR pricing starting from $400 per employee per month, Multiplier is ideal for businesses seeking rapid expansion and a straightforward onboarding experience.
It also offers various payment options, including over 120 currencies.
Known for its comprehensive global hiring, payroll taxes, and compliance management capabilities, Deel stands out for its flexibility in payment options (including bank transfers and cryptocurrency) and immigration support for over 30 countries.
It offers Employer of Record services starting at $599 per employee per month, with contractor services starting at $49 per worker per month.
Deel's platform is praised for its user-friendly web app, 24/7 customer support, and integrated contract management.
If that wasn't enough, Deel has also been building one of the most impressive HR Software Platforms of 2024. This allows you to manage your local and foreign employees all from the same HR system.
Recognized for its emphasis on protecting intellectual property and providing education on the challenges of managing employees internationally.
Remote offers special Employer of Record plans for nonprofits and companies hiring refugees, with EOR services starting free for up to 10 refugee employees.
Its services include comprehensive HR tools, payroll in local currencies and crypto, and a full medical and health benefits spread
Remote also offers a very helpful Remote Job Board, for finding the talent you'd hire through them in the first place.
Choosing the Right EOR
Each EOR service has distinct advantages, from Deel's payment flexibility and immigration support to Remote's focus on IP protection.
You can choose based on your specific needs, such as cost-efficiency, global reach, or specialized services like IP protection and immigration support.
When selecting an Employer of Record, it's important to consider several factors to ensure the best fit for your business. Here are some key considerations:
The first step is determining whether the EOR operates in the countries where you intend to hire employees.
Not all EORs have a global presence, so it's essential to choose an EOR with coverage in your target countries.
Ownership of Legal Entities
Some EORs own their legal entities in their countries, while others rely on partnerships with local or third-party providers.
It's important to understand the implications of each model. EORs with their own entities can provide more control and ensure compliance, while those relying on partnerships may introduce additional complexities and potential risks.
Data Security and Privacy
EORs handle sensitive employee and business data, so it's crucial to ensure they have robust data protection measures in place.
Look for an Employer of Record that prioritize data security and have secure technology platforms to safeguard your information.
Support and Expertise
Choose an EOR offering comprehensive support and a team of experts well-versed in local employment regulations.
This ensures that you have access to the guidance and assistance you need throughout the employment lifecycle.
Consider the pricing structure of the EOR and evaluate whether it aligns with your budget and requirements.
EORs typically charge a fixed monthly fee per employee or a percentage of payroll.
Be sure to understand the complete cost breakdown, including any additional fees or charges, to avoid surprises.
Depending on your business's specific needs, you may have additional considerations when choosing an EOR.
This could include factors such as the ability to integrate with your existing HR systems, the level of automation and technology offered, and the EOR's track record and reputation in the industry.
EOR vs. PEO: Understanding the Difference
It's essential to differentiate between an Employer of Record (EOR) and a Professional Employer Organization (PEO).
While they may share some similarities, they are legally distinct entities with different roles and responsibilities.
A PEO acts as a co-employer, meaning that both the company and the PEO have legal employer responsibilities.
The PEO handles administrative tasks like payroll processing and benefits administration, allowing companies to outsource their HR functions.
However, a PEO does not enable companies to hire employees in countries where they do not have a local entity.
On the other hand, an employer of record is the sole employer of record and assumes all associated liabilities and responsibilities.
EORs allow companies to hire employees in foreign countries without establishing their own local entities.
This makes an EOR a suitable solution for companies looking to expand their global workforce without the complexities of setting up legal entities in each country, and a key partner for most leading remote companies.
The Bottom Line
In conclusion, an Employer of Record (EOR) can be a valuable partner when you're looking to hire and manage employees in foreign countries.
By taking on the legal responsibilities of employment, an EOR simplifies global expansion, while it helps you ensures compliance with local laws, and provides access to a global talent pool.
This why the Employer of Record has become instrumental for most remote companies, who don't want to set up entities all over the world. Research estimates that this will further help EORs expand, with a 8 billion dollar market size in 2031.
When choosing an EOR, it's important to consider factors such as country coverage, ownership of legal entities, data security, support, pricing, and additional requirements specific to your business.
And if you find a good fit, let the EOR take of international employment so that you can focus on your core operations.