Free Webinar: Learn everything you need to know about building a team in India. Register now

What is an Employer of Record (EOR)?

What is an employer of record

Hire and pay talents
with Horizons in
180+ countries

Key Takeaways

1. An Employer of Record (EOR) solution means that a third party company takes over as the legal employer for a client company’s workforce.

2. Employer of Record solutions are commonly offered as an international expansion solution by Global Professional Employer Organizations (‘Global PEOs’).

3. An Employer of Record is generally responsible for payroll, ensuring that all necessary withholding and deductions are made, and meeting other compliance obligations of employers.

4. Employer of Record solutions are usually a more cost-effective, and more compliant, international expansion tool than setting up a separate company or subsidiary overseas.

What does an Employer of Record (EOR) mean?

An Employer of Record (EOR) is a third-party entity that assumes complete legal responsibility for your workforce, handling all employer-related duties and obligations on behalf of your company. With an EOR, your company delegates human resources responsibilities, including the recruitment, payroll, and management of supported employees, while you retain control over your daily operations.

What is a global Employer of Record (EOR)?

A global employer of record enables companies to lawfully employ individuals across international boundaries without the need to establish a local presence or potentially infringe upon the employment laws of various countries or states. Consider a global EOR as your international human resources department, well-versed in the intricate labor regulations and payroll requirements of the diverse locations where your employees are situated.

Outsourcing of the employment function is a newer phenomenon. This reflects that the concept of an ’employer’, in a legal sense, is a recent phenomenon. 

What does an Employer of Record (EOR) do?

Ultimately, an employer of record enables companies to lawfully and effectively engage with talent in the global marketplace, eliminating the need to establish a foreign entity or risk violating local employment regulations.

The global EOR takes care of the legal and regulatory aspects of immigration, employment, payroll, and benefits for your geographically dispersed workforce. While the global EOR assumes the role of the official, registered employer for the supported employee, you retain control over day-to-day management responsibilities such as determining compensation, defining job roles, overseeing projects, and managing performance.

Some of the services offered by a global EOR include:

  1. Creating and maintaining employment contracts that comply with local regulations.
  2. Handling all aspects of payroll and tax deductions.
  3. Ensuring timely payment of supported employees.
  4. Providing comprehensive and statutory benefits.
  5. Ensuring compliance with termination and offboarding procedures.
  6. Offering ongoing guidance and support regarding local labor laws and regulations.
 

How does an Employer of Record (EOR) work?

The Employer of Record is defined by their legal obligations in the country or jurisdiction in question. 

While the client company retains day-to-day supervision of workers, the EOR, in consultation with client companies carries out the following actions: 

  1. Tax registration: The EOR is registered with the tax authorities as the employer of staff. This means they are required to withhold certain taxes from employee payments (namely income tax and payroll tax contributions). In addition, they are required to submit those amounts to athorities on a regular basis and comply with any reporting requirements.
  2. Payroll processing: The EOR processes the payroll of all employees in line with the legal requirements applying in that jurisdiction. This includes managing necessary deductions, garnishments, expense reimbursements and leave entitlements.
    Payment method and cycle will follow legal obligations, local custom and the wishes of the client company.
  3. Benefits and social contributions: The EOR registers with pension funds, health insurance, and workers’ compensation providers, and other providers of benefits for employees. This may be to comply with legal requirements for employers (that depends on jurisdiction), or it may be to provide benefits in addition to a legal mandate.
  4. Employment contracts: The EOR will employ staff under jurisdiction-complaint employment contracts. These may be indefinite, casual, or fixed-term employment contracts.
  5. Termination or re-hire: The EOR will terminate employees on advice from client companies and when permitted under the law. Similarly, they can renew contracts on expiration.

What are the benefits of a global Employer of Record (EOR)?

A global EOR partner provides numerous advantages to companies. Given that most businesses lack the resources or in-depth expertise to legally hire employees in international markets, an EOR enables you to recruit top talent from any location and provide them with support tailored to their local requirements. Additionally, partnering with a global EOR allows you to:

  1. Expedite the onboarding process for new hires.
  2. Achieve cost savings in comparison to establishing local entities.
  3. Retain valuable talent by offering comprehensive benefits packages.
  4. Ensure compliance with employment contracts and continually changing labour laws.
  5. Benefit from ongoing HR assistance and support.
 

When should you use an Employer of Record (EOR)?

An employer of record (EOR) is a valuable ally when managing a geographically dispersed workforce and navigating global markets. A global EOR offers businesses the following advantages:

  1. Exploring New Markets: If your company has ambitions for global expansion and wants to venture into a new market without committing to establishing a local entity, an EOR enables you to test a new country’s waters compliantly. Through an EOR, you can swiftly assemble a team in new international markets, open up fresh revenue streams, and tap into a different customer base.

  2. Attracting and Retaining Top Talent: Working from anywhere is a highly sought-after perk in today’s competitive labour market. The competition for top talent remains fierce, and many companies embrace remote work options. Moreover, hiring without geographic limitations widens your talent pool and allows you to pinpoint individuals with precisely the skillsets you require. A global EOR facilitates hiring from anywhere and attracting exceptional talent. Furthermore, when employees need relocation, a global EOR helps you retain your top-tier talent without establishing a local entity.

  3. Hiring Employees During Entity Setup: Although establishing a local entity permits you to hire local talent and expand into new international markets, it demands a significant investment of time, resources, and expertise in the host country’s legal landscape. An EOR can serve as an interim solution by providing support in hiring and valuable insights into entity establishment while you finalize the necessary requirements.

  4. Avoiding Contractor Misclassification: As an alternative to hiring international employees or setting up a local entity in another country, some companies opt to engage contractors, considering them a cost-effective means of hiring remote international talent. However, as a company grows, it becomes increasingly susceptible to misclassifying contractors as employees, exposing itself to compliance risks. A global EOR offers an efficient way to engage contractors as employees, mitigating compliance concerns.

How Much Does an Employer of Record (EOR) Cost?

The overall cost associated with an Employer of Record (EOR) will vary based on several factors such as the number of employees you hire through the EOR, the range of services you select, and the EOR’s fee structure. EORs generally employ one of the following pricing models:

  1. A fixed monthly fee for each employee.
  2. A percentage of the payroll plus any relevant taxes.

Be mindful that these pricing models might include additional administrative fees, onboarding charges, or other expenses for supplementary services. It’s crucial to be aware of any potential hidden fees. Thoroughly review your contract to fully comprehend the complete costs involved in your EOR partnership.

How to Select an Employer of Record (EOR)?

When selecting an Employer of Record (EOR) partner, consider:

  1. Transparent Pricing: Choose a provider with clear, upfront pricing to effectively manage your workforce budget.
  2. Accurate Employer Burden Calculations: Ensure they accurately calculate payroll, including health insurance, social security, and paid time off, relevant to each market.
  3. Global Coverage: Verify their expertise in your target markets to avoid non-compliance and extra costs.
  4. Responsiveness and Support: Select a partner offering prompt support and a dedicated account manager for smooth operations.
  5. Independent Third-Party Validation: Look for industry recognition and validation from reputable sources for quality assurance.

EOR vs PEO: What’s the Difference?

An Employer of Record is a specific solution commonly offered by a PEO. 

In addition to EOR solutions, a PEO also often offers recruitment, payroll outsourcing, global mobility, HR strategy and company incorporation services. 

Employer of Record solutions can also be distinguished from: 

Contract staffing: While this term is sometimes used as a synonym for PEO, it is usually considered a distinct form of HR solution. In contract staffing, the third-party company employs a workforce that it leases out to clients, often temporarily. By contrast, the workforce is often exclusive to one client in an Employer of Record solution.

Umbrella company: An umbrella company provides compliant payment solutions for self-employed workers. This is a particularly popular payment model in the UK.  While an umbrella company pays workers, those workers are not on the umbrella company’s payroll. This is the crucial difference with an Employer of Record solution.

Read more: What is an Umbrella Company and How Does it Ease Global Expansion?

Is Horizons an Employer of Record (EOR)?

Horizons is a global Employer of Record that enables businesses to hire in 180+ countries without setting up subsidiaries or entities. Employees get streamlined payroll in local currencies with a single monthly bill and as an employer, you can accelerate international hiring to just 24 hours while we take care of compliance, including employment taxes and social security. Plus, you save up to 60-80% on hiring costs with our efficient EOR solution.

Contact Horizons to find out how our Employer of Record solution can hire and onboard your international team in as little as 24 hours.

Frequently asked questions

Employer of Record services are usually charged either as a percentage of the total cost of the employee to the enterprise, or on a set per month basis. 

International EOR services usually start from USD$200 per month. 

In general, yes.  In some countries, such as Germany, there are restrictions on how long an employee may be engaged by an EOR before they have to move onto the payroll of the client company (see discussion above). 

Note also that there is a ‘co-employment’ or ‘joint employment’ risk, where both an EOR and a client company may be found to be the employer for certain purposes. See discussion of this risk, and how to mitigate it, above. 

An Employer of Record is the legal employer of a workforce. By contrast, an Agent of Record is an individual or entity that represents an insured person or entity with the insurer. 

Any industry could potentially benefit from the use of EOR solutions. 

Originally, EOR services were popular in the US for administrative, temporary and janitorial and cleaning staff, but they are now popular across all industries.

Hire and pay talents
with Horizons in
180+ countries

Related posts