Employer of Record: What Are They & Why Do You Need One

Hiring employees across different regions or countries can be a complicated process. Every country has its own labor laws, tax regulations, and compliance requirements. For businesses that want to expand globally or hire remote talent, managing these legal and administrative tasks can quickly become overwhelming. This is where an employer of record (EOR) comes in. Instead of setting up a legal entity in another country or navigating complex employment laws alone, companies can rely on an employer of record to handle the legal responsibilities of hiring, paying, and managing employees in different locations.

Understanding how an employer of record works and why businesses use this service can help companies of all sizes make better hiring decisions. Whether a startup is looking to expand internationally or a company wants to onboard remote employees without legal hurdles, an employer of record provides a simple, efficient solution.

What is an employer of record?

An employer of record is a third-party service provider that legally employs workers on behalf of a company. While the business remains in charge of day-to-day work responsibilities, the employer of record takes care of all legal and administrative aspects of employment. This includes handling payroll, tax filings, benefits administration, and compliance with local labor laws.

Think of it as outsourcing the legal employer role while keeping full control over how employees contribute to the company. Businesses can hire talent in different countries without having to establish a local entity, which saves time and reduces legal risks.

Many industries rely on an employer of record to simplify hiring, especially those with a remote workforce or global teams. Technology companies, startups, staffing agencies, and multinational corporations often use these services to streamline their operations. By using an employer of record, businesses can focus on growth and innovation without getting bogged down in legal paperwork.

How does an employer of record work?

The process of working with an employer of record is straightforward. Once a company chooses a provider, the employer of record becomes the official employer for legal and tax purposes, while the company continues to oversee the employee’s daily tasks.

One of the main responsibilities of an employer of record is managing payroll. Instead of dealing with different tax systems and compliance rules in each country, businesses can rely on the employer of record to ensure salaries, taxes, and benefits are processed correctly. This prevents errors and reduces the risk of fines or legal complications.

Beyond payroll, an employer of record handles employment contracts, benefits administration, and termination processes if needed. They ensure that everything aligns with local labor laws, which can be particularly complex when operating in multiple regions. For companies expanding into new markets, this means they can hire employees quickly without spending months navigating foreign legal systems.

Key reasons to use an employer of record

Hiring across borders is exciting but comes with challenges. Every country has different employment laws, tax rules, and compliance requirements that can be difficult to manage. An employer of record helps businesses overcome these challenges by offering a seamless way to hire and manage international employees.

• Expand globally with ease
  Hiring employees in different countries is simpler with an EOR. There’s no need to set up a legal entity in each location, which allows you to access a wider pool of talent and grow your presence internationally without delays.
• Save time and reduce legal risks
  Dealing with local tax systems, employment regulations, and compliance can be overwhelming. An EOR takes care of these tasks, ensuring that you stay compliant while freeing up your time to focus on other important aspects of your business.
• Focus on business growth
  With an EOR handling HR responsibilities, your team can focus on scaling the business and driving innovation. This means you don’t have to worry about administrative tasks or the complexities of managing a global workforce.
• Ensure compliance with local labor laws
  Labor laws and regulations differ from country to country and can change frequently. Partnering with an EOR ensures that your business remains compliant, protecting you from potential legal issues and fines.

Who benefits most from an employer of record?

Many businesses, from startups to large corporations, can benefit from using an employer of record, but certain types of companies tend to find EOR services especially helpful.

For startups and small businesses, expanding internationally can seem like an insurmountable challenge. Setting up a legal entity in another country takes significant time and money. By partnering with an employer of record, startups can quickly hire employees abroad without having to navigate the complex process of forming a new legal entity. This allows them to tap into global talent pools and scale efficiently without the hefty upfront costs.

Remote-first companies are another group that benefits from an EOR. With the rise of remote work, businesses have teams scattered across different regions, often in countries where they do not have a legal presence. An employer of record makes it easy to employ workers in these locations, ensuring the company stays compliant with local laws while maintaining control over the employees’ work tasks.

Larger enterprises looking to expand globally can also take advantage of an EOR. When entering new markets, an employer of record helps companies quickly set up a workforce without having to go through the lengthy process of opening a new office or subsidiary. It’s a cost-effective way to grow in new regions while mitigating risk.

Finally, companies that are testing new markets can use an employer of record to hire a small team in a new region without making a large financial commitment. This allows businesses to test the waters before deciding whether to make a larger investment in the market.

In short, any business that wants to expand internationally, hire remote workers, or scale quickly can benefit from the services of an EOR. The flexibility and simplicity they provide are key advantages for companies navigating the complexities of global hiring.

Common myths

When it comes to employer of record services, there are several myths that can cloud understanding. Let’s clear up a few of the most common misconceptions.

EORs take control of my employees

While an EOR is the legal employer for administrative and tax purposes, businesses retain full control over their employees’ daily tasks and job responsibilities. The EOR handles legal matters, but you stay in charge of work management.

Only large corporations need an EOR

This is not true. Startups and small businesses often benefit the most from an EOR. These businesses typically don’t have the resources to set up a foreign entity, and using an EOR allows them to quickly hire and expand without the complexity and costs.

EORs are too expensive

Though there are costs associated with using an EOR, it is often more affordable than setting up a legal entity in a new country. Additionally, an EOR can help businesses avoid expensive mistakes, legal issues, and delays that come with non-compliance, ultimately saving money in the long run.

Steps to get started

Getting started with an employer of record is a simple process, but it’s important to follow a few key steps to ensure everything runs smoothly.

Assess your hiring needs:

• Identify the countries or regions where you need to hire.
• Determine the number of employees you want to onboard.
• Understand the skills or roles required to ensure the EOR can meet your needs.

Research and compare EOR providers:

• Look at their experience in the specific regions where you plan to hire.
• Read customer reviews and check their track record.
• Evaluate the services they offer, such as payroll management, compliance handling, and employee benefits.

Discuss legal and compliance details:

• Ensure the EOR understands local labor laws in your target regions.
• Confirm that they will handle all necessary legal paperwork, including contracts and tax filings.
• Discuss their process for ensuring ongoing compliance with changing laws and regulations.

Onboard employees through the EOR:

• Work with the EOR to complete all employee documentation and contracts.
• Set up payroll, benefits, and tax filing through the EOR’s platform.
• Focus on managing your employees and growing your business while the EOR handles legal responsibilities.

Conclusion

An employer of record is a powerful tool for businesses looking to expand globally, hire remote workers, or simplify their HR operations. By handling the legal and administrative aspects of employment, an EOR allows companies to focus on what they do best—running and growing their business.

From reducing legal risks and saving time to enabling global hiring, the benefits of working with an EOR are clear. Whether you’re a startup looking to hire internationally or a large corporation needing to scale quickly, an employer of record offers a straightforward and cost-effective solution.

If you’re considering expanding your team internationally or hiring remote employees, partnering with an EOR could be the smart choice. Reach out to an EOR provider today to explore how they can help you manage your global workforce and navigate the complexities of international employment.

Sara Duerr

Sara has been in the career development field for over 10 years and has a wealth of knowledge to share. She covers topics such as resume writing, job search strategies, interview techniques, career planning, and more. You can connect with her on LinkedIn and Medium. She has curated our free downloadable resume templates for Word and resume templates for Google Docs.