Many executives in Finance, Human Resources, and Legal often ask what is the difference between a secondment assignment and employer of record. To help give you a better understanding of the two, we’ve outlined the key difference below.
For an employer, international secondment offers the opportunity to ensure that foreign interests are protected by one’s own employees. Specifically, it mitigates Permanent Establishment(PE) risk. PE or a taxable presence is determined on a country by country basis and typically has a low barrier for triggering tax nexus. By temporarily loaning one or several employees to a foreign entity (typically an affiliate), you can utilize talent within your organization to diagnose if a market is feasible commercially. In a seconded arrangement, the employee remains on the home country payroll and participates in those benefits. However, the employee is under the guidance and control of the local company. The local affiliate in the “host” country will bear all risk and rewards of that employee’s assignment.
In conclusion, it allows for companies to avoid PE implications in a country where they have no legal presence while proving the market makes commercial sense. The drawback is that the employee typically falls outside the scope and management of the organization back home.
An employer of record allows for organizations to enter international markets quickly, compliantly, and with a light footprint. An EOR organization takes over legal responsibilities of employing employees internationally. This essential service keeps your business compliant and helps during international expansion where regulations surrounding benefits and taxes become complicated. Companies can avoid or delay setting up a legal entity in foreign countries. Firms get a local legal employment relationship, access to all the HR and employment expertise necessary (for both company and the employees), a timely and locally-compliant payroll, and avoid the pitfalls of setting up a legal entity until the market proves fruitful. While gaining these key benefits they also are able to maintain all management control of their employees. This is a key difference from secondment.
If you have any questions regarding secondment, employer of record, or international expansion in general, please reach out to us. With capabilities in over 185 countries, Velocity Global is the current leader in global expansion.