What is an Employer of Record?

The business landscape of this day is constantly aiming toward global expansion, and it’s almost a no-brainer that businesses should understand the meaning of employer of record.

Not just the meaning, a business looking to establish its presence globally, but without setting up a local entity in the countries it wants to expand should essentially know the following things: 

• What is an employer of record (EOR)?
• What does an employer of record do?
• Why should you use an employer of record?
• What are the benefits of an employer of record?
• When to use an employer of record?
• How does an employer of record differ from PEO and staffing agencies?
• How to choose the right employer of record?
• How to compare employer of record services?

Now let's look at the answers to each of these questions.

What is an employer of record?

An Employer of Record (EOR) is a connecting entity that hires employees on behalf of another organization. So, businesses can hire, pay, and manage employees in a different country without setting up a local entity.

An EOR, like Skuad, assumes complete legal responsibilities for a client company’s employees and manages administrative tasks like onboarding, payroll, taxes, benefits, offboarding, and compliance with local labor laws.

The client company maintains authority over the daily operations and workforce management.

What does an employer of record do?

An employer of record provides comprehensive services that simplify international employment. 

These services cover multiple administrative and legal responsibilities.

The core services offered by an EOR include:

• Human Resources Management: EORs handle all HR-related duties like onboarding, employee records oversight and offboarding processes.
• Payroll Administration: An employer of record fully manages the payroll process, ensuring employees receive timely and accurate payments, in compliance with local currency and tax laws.
• Compliance and Legal Support: EORs ensure adherence of employment tasks and practices to local labor laws. They minimize legal risks for the client company.
• Benefits Administration: EORs handle employee benefits such as health insurance, retirement plans, statutory benefits, and other localized benefits as per local laws.‍
• Tax Management: EORs take on tax calculation, withholding, and remittance while assuring compliance with the local tax code.

Why should you use an employer of record?

Using an employer of record eases your efforts of global expansion and remote workforce management.

With an employer of record, like Skuad, a company can start hiring full-time employees, and manage and pay them in local currencies in no time.

It also saves significant resources and since the EOR owns all the legal liabilities for the employees, it takes a major load of employer stress off from the business.

Moreover, using an employer of record is an affordable and time-effective way to build globally distributed teams.

Top benefits of an employer of record

Leveraging EOR services delivers a noteworthy edge for companies looking to oversee their global workforce more effectively. 

Here are some of the essential benefits:

1) Seamless Global Expansion

One of the most prominent benefits of using an EOR is the comfort with which businesses can extend into new global markets. 

Generally, setting up legal entities in different countries with unfamiliar laws takes several months or even years. This also involves substantial paperwork and requires a deep knowledge of local legal standards and labor laws. 

An employer of record nullifies these challenges by letting businesses hire global employees in just days without needing to set up a local entity. 

This enables companies quick entry to new markets and better access to regional talent. 

This way companies can begin operations, ensuring compliance with local employment laws. 

An EOR makes global expansion more efficient and less risky.

2) Risk Management and Compliance

Compliance with local labor laws, tax codes, and statutory benefits is critical when managing a global workforce.

Non-compliance leads to severe penalties, legal disputes, and damage to the company's reputation. 

An EOR assumes the responsibility of ensuring that all employment practices adhere to local regulations, significantly reducing legal and financial risks for the client company. 

This includes 

• Managing employment contracts
• Tax filings
• Employee benefits
• Localized benefits
• Employee classification
• HR compliance

3) Administrative Efficiency

Managing a global workforce affects innumerable administrative tasks, from payroll in different currencies to variable tax laws and benefits. 

These duties consume a significant amount of time and resources, diverting attention from core business actions. 

An EOR takes over administrative responsibilities, including payroll processing, benefits administration, and HR management. 

This ensures the efficiency and accuracy of administrative tasks while freeing up the company’s time to focus on strategic initiatives. 

4) Cost Savings

There is a cost associated with utilizing an employer of record, but businesses often find that it’s a better option than setting up a local entity and suitable for long-term employee commitments.

Establishing a foreign subsidiary involves substantial expenses, including legal fees, administrative costs, and ongoing operational expenses. 

An EOR service consolidates these expenses so that companies can achieve significant cost savings. 

Additionally, the EOR’s expertise in managing international employment prevents costly compliance mishaps and legal conflicts. 

Want to know how much it costs to hire in a specific country? - Try Skuad’s cost calculator.

5) Strategic Flexibility

The employer of record platforms offer businesses strategic flexibility.

This allows them to respond quickly to altering market situations and industry demands. 

Whether a company wants to test a new international market, hire remote talent in a foreign country, or adjust its workforce size in response to market demand, an EOR provides the agility needed to act swiftly and decisively. 

This flexibility provides a competitive edge in today’s dynamic business landscape.

Companies can scale their operations up or down, enter or exit markets, and access specialized talent as needed, all while ensuring compliance and minimizing administrative burdens.

When to use an employer of record?

Employer of Record (EOR) services are a useful resource for businesses in various scenarios. 

Understanding when to use these services help companies effectively oversee their global workforce and achieve their strategic objectives. 

Here are key situations where EOR services are incredibly valuable:

1) Expanding internationally

When a company plans to enter new global markets, setting up a local entity in a foreign country is potentially an administrative nightmare. 

It involves elaborate paperwork, getting familiar with local employment laws, and establishing payroll and benefits systems. 

However with an EOR’s local expertise, and established infrastructure, this process becomes easy. 

By partnering with an EOR like Skuad, businesses can initiate operations in new markets fast, without the need to navigate the time-consuming process of setting up a local entity. 

This lets companies concentrate on their core business while the EOR handles the administrative and legal complexities of international expansion.

2) Testing new markets

If a company wants to test a new global market before committing significant resources to full-scale operations, it can opt for an EOR. 

An EOR allows businesses to hire employees or contractors temporarily, providing valuable insights into the market's potential. 

This encourages companies to measure the viability and performance of their products or services in a new market without considerable investment. 

If the trial run in the market is successful, the company may choose to create a long-term presence. Contrarily, if the results are not as expected, the company can exit the market with minimal legal and financial implications, thanks to the EOR's flexible arrangements.

3) Hiring specialists for short-term projects

Companies sometimes need the assistance of global talent for short-term projects. 

Employing these experts directly is a complicated process, involving visa applications, contract negotiations, and compliance with regional labor laws. 

An employer of record provides a speedy and compliant solution, facilitating companies to hire contractors for short-term projects without the administrative hassles. 

A few other reasons to use an employer of record is if a company wants to onboard, hire, pay, and manage its globally distributed workforce without setting up a local entity.

How does an employer of record differ from PEO and staffing agencies?

How does an EOR differ from a PEO?

A key element that sets an EOR apart from a Professional Employer Organization (PEO) is the legal responsibilities and liabilities of the global workforce.

An EOR assumes complete legal responsibilities of the employees and manages payroll, benefits, taxes, onboarding, offboarding, and compliance with local laws.

However, a PEO only co-employs individuals and shares responsibility for HR tasks with the client company and takes zero legal responsibility for the employees.

How does an EOR differ from a staffing agency?

An employer of record, like Skuad, legally employs global talent on behalf of other companies that want to build globally distributed teams.

An EOR manages onboarding, payroll, benefits administration, HR compliance, and offboarding.

However, a staffing agency is responsible only for sourcing, screening, and providing companies with a list of qualified candidates who match the requirements.

So a staffing agency helps companies with recruiting the right candidate, and an EOR comes in once the right candidates are selected.

How to choose the right employer of record?

Picking the right EOR partner is a vital decision that significantly impacts your company’s global expansion and workforce management. 

Here are the essential factors to evaluate to ensure you choose the best EOR provider 

• Compliance expertise: The EOR provider must have a vast understanding and experience in compliance with local labor laws, tax regulations, and statutory benefits. This helps minimize legal risks and ensures smooth operations in foreign countries.
• Range of services: Look for an EOR that offers comprehensive HR solutions, including payroll processing, benefits administration, recruitment support, and ongoing HR management. The more services the EOR can handle, the less burden on your internal teams.
• EOR reputation: An EOR’s track record provides insights into its reliability and performance. Check for client reviews, testimonials, case studies, and industry recognition.‍
• Transparency: Transparency in pricing and contract terms is essential to avoid unexpected costs and ensure a clear understanding of the services provided. Ensure the EOR offers a straightforward pricing structure and clearly outlines all charges.

How to compare employer of record services

• Look for an EOR provider with a robust presence and a proven track record in the countries where you plan to expand.
• Check if the EOR handles a wide array of HR functions, including talent acquisition support, employee onboarding, benefits administration, risk management, and ongoing HR support. Typically the entire employee lifecycle.
• Assess transparency in pricing models. Understand whether the EOR charges a flat fee, a percentage of payroll, or a per-employee fee, and what these fees include. Be aware of any hidden costs.
• Research case studies, client reviews, or references from other businesses that have similar needs and challenges as yours. It provides deeper insight into the EOR platform.

Hire anywhere in the world with Skuad

Now that you have understood the true meaning of an employer of record, it’s time for you to see it in action.

Are you planning to expand into new markets or looking to build a globally distributed team for better stabilization of business operations? Try Skuad today.

Skuad can help you hire, pay, and manage employees across 160+ countries without setting up a single local entity.

Onboard, pay in multiple currencies, administer benefits, ensure compliance, and offboard employees with ease. 

Contact Skuad’s experts today!

FAQs

What is an example of an employer of record?

Skuad, a global employment platform, is a great example of an employer of record. It has a global coverage of 160+ countries, enables companies to pay in 100+ currencies, and helps manage the entire employment lifecycle of your global employees, compliantly.

How much does an EOR cost?

Generally, most EOR service providers charge somewhere between 10% to 20% of the employee’s salary. It is also advised to look for any hidden costs to avoid surprise expenses. A good EOR has transparent pricing and zero hidden costs, like Skuad - which starts at just $199 per employee.

How does an EOR work?

An EOR legally employs candidates on behalf of another company and manages payroll, benefits administration, onboarding, HR compliance, and offboarding. 

Should I use an employer of record?

Yes. It’s a smarter alternative to setting up a local entity. Using an employer of record is a cost-effective and hassle-free process that enables companies to hire, pay, and manage globally distributed teams.

What is the best employer of record?

There are multiple factors to consider when deciding which is the best employer of record. One should consider the EOR qualities like global coverage, legal expertise, customer support, ease of business, affordability, pricing plans, comprehensiveness of services, etc., Skuad is one of the best employer of record platforms out there that qualifies for all the necessary parameters.