What is an employer of record?

January 6, 2022

For many organizations, the “why” of international expansion is pretty clear-cut: to access a wider customer base or global talent pool, further a mission, or acquire another company. It’s the “how” that’s a struggle. But it doesn’t have to be difficult—thanks to employer of record services.

What is an employer of record? Simply, a global employer of record, also known as an EOR, is a way to quickly add workers in new global markets without having to take on the cost and risk of establishing an entity in a foreign country. An EOR provider facilitates all employment requirements on behalf of a client organization.

How does an employer of record work?

A global employer of record has already done the often costly and arduous work of setting up entities around the world—ensuring all banking, insurance, tax, HR, facilities and contract requirements are met—and it has the local infrastructure in place to employ and pay local workers.

Because EOR services can hire workers in its entity countries, that’s exactly what they offer to organizations that are looking to expand into new global markets: the ability to employ abroad without having an entity, along with the in-country expertise to do so compliantly.

When you use an EOR, you rely on the provider to hire workers on your behalf and take on the legal responsibility for complying with all the local payroll and employment laws. The employer of record: 

  • Onboards local employees with compliant employment contracts
  • Remits salaries, taxes and benefits owed
  • Supports in-country employees’ HR needs

While the EOR handles the HR and payroll for the in-country employees, you, as the client company, are responsible for managing the employees’ day-to-day work, including performance reviews and termination decisions. In effect, you get to benefit from in-country workers’ contributions without taking on risk to your organization.

Is an EOR the same as a PEO?

Although an EOR is similar to a PEO, or professional employer organization, they’re not quite the same thing.

In the U.S. where they’re common, PEOs are traditionally co-employment arrangements, in which HR and payroll administration is split from daily employee management. The PEO handles HR and payroll, and the co-employer manages the employees. In co-employment, both the PEO and the organization must be registered as a legal entity in the country where the employees are located—which is often the U.S.—and both organizations share legal responsibility for the employees.

When referring to a similar type of service for international workers, vendors often refer to their services as “global PEO” or “international PEO.” However, these vendors are not usually referring to the co-employment arrangement typically associated with a PEO in the U.S. What they’re really referring to is an outsource service like a global employer of record.

The key difference between an EOR and a PEO is the entity requirement and shared legal responsibility. Unlike with a PEO, the burden of entity establishment and legal responsibility falls solely on the EOR.

When to use an employer of record

If you’re involved with your organization’s international expansion planning, you know there’s a lot to consider. When a lack of speed or local expertise are among your organization’s top concerns, an EOR may be the best option for achieving your global growth objectives.

Here are some common situations in which organizations like yours have turned to an EOR provider to help their global expansion efforts.

As a vehicle for exploring new markets. 
An EOR lets you evaluate the readiness of an international market by hiring workers for you in your target countries. You can “test the waters” in the country by starting operations with your new workers, without having to commit the time and money required to establish an entity.

To guard against independent contractor noncompliance. 
If you rely on international independent contractors as part of your growth plan, it’s possible that the work they’re performing is too similar to what the local government prescribes for employees. These contractors could be putting you at risk of employment and tax violations. An EOR can hire your contractors on your behalf, in accordance with all local requirements, to prevent noncompliance penalties.

As an entity stopgap. 
Perhaps your organization has identified a new growth market and decided on entity establishment as the best course of action. But you need to begin operations quickly, and the entity setup process is long and complex. With an EOR, you can have workers up and running in the new country in a matter of weeks while your organization does the work of entity setup in parallel.

To facilitate an acquisition. 
If your organization has recently acquired a workforce in a new country but doesn’t have a way to compliantly pay the new employees because the deal didn’t include the legal business entity, an EOR can pay the employees compliantly on your behalf—indefinitely, or until you set up your own in-country entity. 

What to look for in an employer of record provider

When it comes time to evaluate EOR providers, there are some qualities to keep in mind to help protect your organization. 

Of utmost importance is the extent of the provider’s knowledge in the multiple countries you’re targeting for expansion. One way to gauge this is by finding out how long the provider has been in the country and whether it has a direct entity and is not just relying on local partnerships. You can ask the provider: 

Is your in-country entity permanent?
Only a permanent entity, like an LLC or service branch, can provide local invoicing and other comprehensive HR services. A permanent entity will also be an indicator of the provider’s commitment to providing service in the country—it wouldn’t have spent the time and effort required for entity establishment if the country wasn’t a priority.

What is your staff’s level of local knowledge?
The EOR provider should have staff at the local level to fully manage clients’ HR and payroll services. Top providers will also have at least a year of direct employment experience in the country, with multiple client examples to prove their expertise. If an EOR provider doesn’t have a deep local expertise, it may not be able to manage your complex employment situations.

Employer of record on a global scale

With over a decade of service, Safeguard Global is the longest-serving employer of record provider in the market. Organizations around the world rely on our service, GEO, to expand and hire in over 179 countries around the world, quickly and compliantly. 

We’ve been around so long, we’ve seen just about every global employment circumstance imaginable—and with our extensive local expertise, we know what it takes to get global employment right.

Find out if the GEO employer of record service is right for you by speaking with one of our global solutions advisors today.

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