An employer of record (EOR) is an organization that manages employment responsibilities for workers on behalf of a client company, allowing that company to expand into new markets without needing a local entity .An employer of record (EOR) can quickly add workers to new global markets without having to take on the cost and risk of establishing an entity in a foreign country. To learn more, explore our To learn more, explore our employer of record services.
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. This includes all the banking, insurance, tax, HR, facilities and contract requirements. They abide by local employment laws to create an infrastructure to employ and pay local workers.
EOR services can hire employees in its entity countries and can therefore act as the legal employer for growing companies. It offers organizations the ability to employ abroad without having a local entity themselves. And the partnership with in-country expertise ensures you always stay compliant.
Companies that use an EOR rely on the provider to hire workers on your behalf. They also 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
- Cost effective means to manage payroll taxes
It's important to remember that the EOR only handles the HR and payroll for the in-country employees. The client company is 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.
Why use an employer of record instead of setting up an entity?
Using an EOR allows businesses to avoid the costs and complexities of establishing a legal entity in a new country. Learn more about the benefits of international hiring through our global recruitment services.
Companies that use an EOR rely on the provider to hire workers on their behalf. They also take on the legal responsibility for complying with all 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
- Provides a cost-effective means to manage payroll taxes
It's important to remember that the EOR only handles the HR and payroll for in-country employees. The client company is 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.
What are the main benefits of an EOR for global expansion?
An EOR provides organizations with a compliant way to employ workers in new markets quickly, without needing to establish a legal entity. For more insights, check out our global expansion services.
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.
Companies may notice PEOs are more common in the U.S. than the rest of the world. They are usually set up as co-employment arrangements, where 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. Additionally, 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.
How does an employer of record ensure compliance with local laws?
An EOR ensures compliance by employing in-country experts who understand local labor laws, tax requirements, and HR regulations. Read more about staying compliant with contractor management.
Can an EOR help reduce risks associated with independent contractor misclassification?
Yes, an EOR can hire contractors on your behalf, ensuring they’re classified correctly to avoid compliance issues. For more information, see our guide on independent contractor management.
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 years 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.
How can an EOR support rapid expansion into new markets?
An EOR can have local employees ready in weeks, enabling organizations to start operating in new countries quickly. Learn how Safeguard Global can help you with international expansion.
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 170 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 our employer of record services are right for you by speaking with one of our global solutions advisors today.