The ‘Employer of Record’ (EOR), sometimes known as the local Employer of Record, is a third party contracted to take responsibility for all formal employment tasks. An Employer of Record can be useful for companies that choose not to directly employ a worker on assignment, either in a different state or foreign country.
There are a few terms used to signify a third-party Employer of Record has been engaged, such as local employer, local partner, local EOR, back office staffing and in China, a FESCO (Foreign Enterprise Service Company).
In essence, the EOR is the registered employer for the worker, but does not have any supervisory or management role vis a vis the employee’s position. The original employer maintains the substantive work relationship, making all decisions on compensation, position duties, projects and termination.
Specifically, the employer of record is the legal entity that:
- Arranges all visas and work permits for the employee, avoiding delays or refusals
- Provides a registered entity for running a local, compliant payroll inside the country
- Meets all host country labor laws pertaining to local contracts and worker protections
- Advises the client of required notice periods, termination rules and severance pay
- Is the host country interface between the employee and government authorities.
Responsibilities and Liabilities
The client company or staffing agency owner retains control over business operations and responsibility for workplace safety and compliance.
The employer of record assumes responsibilities and liabilities for employment issues such as administration, payroll, taxes, benefits, and maintaining employee records. Because the employer of record assumes most of the responsibility for compliance and tax laws, the client or staffing services owner receives peace of mind, knowing their business is being taken care of by qualified professionals.
Whereas an employer of record and staffing agency often work together, they have diverse purposes in the workplace.
How to Use an Employer if Record to Expand Globally (Benefits of Having an Employer of Record)
There are many distinct benefits for a company to use an Employer of Record. In many cases, the EOR has the greatest benefit when doing business in foreign countries, where the cost, complexity and compliance risk of local employment may be prohibitive.
#1 No Need for Local Incorporation
If a company elects a DIY approach, the first step is setting up a local entity via incorporation and registration. This of course can be time-consuming and expensive, requiring skilled legal and accounting support to ensure compliance.
While some companies can justify the time and expense of setting up a foreign subsidiary, there are many instances where utilizing a PEO local Employer of Record is a better alternative.
The PEO already has a legal entity in place that can handle all aspects of payroll, employment and immigration requirements in the host country. The EOR is an intermediary between the client-company and assignee, and has the network and expertise to ensure full compliance with all laws and regulations.
#2 Immigration Compliance
Immigration policies and rules are constantly shifting, and there is increased scrutiny by foreign governments of work permits, visas, and types of business activity. This makes compliance the number one challenge for multinationals, and immigration violations can have lasting consequences for a company and its employees.
Instead of risking non-compliance with immigration laws, many companies choose to use a PEO solution and local EOR.
With this method, the staff on assignment are legally permitted to work in the host country, eliminating the issues with remote payroll, overuse of business visas and multiple entries into the country. The PEO’s local partner handles all work permit and visa requirements, avoiding any complications or scrutiny from immigration authorities.
#3 Running a Local Payroll in the Host Country
Most countries will require a company with employees on assignment to run payroll according to local standards with a registered entity. The practice of ‘remote payroll’ (remitting by the home country payroll) is rarely permitted, especially for long-term assignments.
A key aspect of running a host country payroll is the calculation and withholding of statutory deductions from pay, including pensions, health insurance, and taxes. The EOR takes care of all of these critical details, to ensure the payroll is accurate and compliant for each employee on assignment.
The Employer of Record is the perfect employment solution, providing the required entity to run payroll with expertise in host country withholding and tax rules. This ensures that there are no issues with local authorities and is the most cost-effective means to quickly deploy employees abroad.
#4 The Future of International Employment Using an EOR
The benefits of using a PEO local Employer of Record for international assignments become apparent when a company considers the cost and time involved for a DIY approach.
The EOR provides a layer of legal insulation for companies, as well as taking responsibility for the numerous elements required to employ workers abroad.
Clearly, the future of the EOR solution is assured, as more and more countries are changing local regulations on immigration and employment to prevent abuses and loss of tax revenue. Companies must have a way to overcome this challenge of doing business abroad, the Employer of Record is becoming a core strategy for employing both local citizens and expats.