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EOR – Employer of Record Explained for International Companies

By August 10, 2016 No Comments
EOR - Employer of Record Explained for International Companies

An Employer of Record, or EOR, is an organization that overtakes the legal responsibilities of employing your employees to decrease complexities associated with HR functions, market access, and paying employees internationally.  The EOR actually becomes the primary employer of your employees on paper.  This essential service keeps your business compliant and helps during international expansion where regulations surrounding benefits and taxes become complicated.  The EOR can give you access to new markets, get better benefits rates, or even sponsor work permits.  Let’s take a look at your EOR options, what these options provide for your business, and how to choose a service.

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Why use an EOR?

Essentially, through a chain of contract, an EOR is the effective employer of your employees and you “lease” them back from them; retaining control.  An EOR can be used for many HR/administrative/strategic reasons by a client company.  Although the precise reasons can vary every country for every company, these typically include:

  • In-Country Legal Presence / Access to a new market
  • Employment Contracts
  • Payroll
  • Taxes
  • Visa Application and Sponsorship Applications
  • Health Benefits
  • HR
  • Termination Requirements
  • Unemployment

Let’s take a look at some of the types of EOR services in the international space:

International PEO (Professional Employer Organization)

International PEO allows companies to hire in a foreign market without establishing a costly subsidiary. This service assists with monthly withholdings including income tax and employer social security contributions. Also, a PEO drafts local employment contracts, which can help with managing permanent employees and contractors. In addition, supplemental insurance and work permits can be taken care of by the International PEO.  Essentially you are borrowing or leasing the International PEO’s company for your employees to access to the country or to decrease overhead.

Foreign Subsidiary as a Service (FSaaS)

FSaaS manages risk and compliance while you focus on getting established in your new market. This unique service is ideal for companies looking to create a legal presence in a new country quickly and affordably. Building a foreign subsidiary costs businesses thousands of dollars and many months, which can put a kink in their global expansion plan. FSaaS reduces these risks. In addition, it’s easier to get out of the country if things don’t work out as planned.

Administrative Services Organization (ASO)

An ASO provides outsourced services to manage administrative and HR needs for your business. The difference between an ASO and a PEO is that in an ASO, the client retains all employment-related risks and liabilities. This type of service typically manages international payroll processing and benefits.

Business Process Outsourcing (BPO)

BPO contracts specific administrative tasks like payroll, accounting, or HR to a third-party provider. This is an option for firms looking to save money and resources by outsourcing these complex tasks to an expert. It’s especially useful in international expansions when bookkeeping becomes complex due to unfamiliar foreign regulations.  The BPO firm suppliers both the human capital, the management, and the employment vehicle.  Typically you contract a BPO more like a team of 1099 workers, versus actually considering them employees.  The BPO manages a process start to finish and owns the success of this segment of the business.

Choosing an EOR

Picking the perfect EOR for your company explores differences between outsourcing employment vehicles/needs, working with contractor employees, or hiring fully under your legal entity.

If you simply need outsourced employment vehicles and/or HR solutions, consider working with an International PEO, ASO, or BPO for support. Also, you’ll want to ask these resources about liability if conflicts arise, who manages the employees on a day-to-day basis, and who is on the hook is compliance is compromised.

When working with contractors, you’ll want to be safe and use FSaaS to establish a legal presence in-country. It’s not necessary to have an entity, but it protects you from potential legal troubles if the contractor attempts to dispute their agreement. In addition, when working with contractors, you want clear language in the agreement about IP protection and autonomy.

If you want to hire permanent employees, you will need a full-service solution to manage compliance, HR, payroll, and benefits. Making mistakes in any of these categories is costly, and mistakes are something you want to avoid at all costs. We suggest FSaaS for hiring full-time or part-time, permanent employees to reduce your risks and remain compliant.

You can easily learn more about EOR by giving us a call. Helping businesses get established overseas is our specialty, and we love to help!

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