What Is an Employer of Record (EOR)? Complete Guide

Whether you're a startup venturing into new markets or an established company looking to optimize your global workforce, understanding Employer of Record (EOR) services is crucial. This guide provides a practical, in-depth look at EORs, covering everything you need to know to make informed decisions.

What Is an Employer of Record (EOR)?

An EOR is an intermediary that assumes the responsibility for all the legal aspects and human resources (HR) tasks related to your workforce (payroll processing, benefits administration, taxes, compliance). 

In this case, your employees work for you, but the EOR is in charge of the workforce's legal aspects. This third party organization can be located in the same country as the company that is asking for the services or in another country with different local labor laws. 

What Is an Example of an Employer of Record?

Google is one of the famous companies around the world and it has a lot of international employees working remotely in different countries. 

Nowadays, Google is using the services of a global employer of record to act as a legal entity to handle the employment contracts, global payrolls, intellectual property disputes, and tax withholding of the global workforce.

How Does an Employer of Record Work?

The EOR service provider has the task of settling a legal entity in a new country to allow the company to hire top talent new employees without worrying about the administrative burden or employment responsibilities (such as worker’s compensation, onboarding and offboarding processes or background checks on new employees). 

Working with an EOR partner allows companies to manage the day-to-day operations and keep with the process of global hiring to acquire global talent outside the country of origin.

Why Use an Employer of Record? Do I Need One?

While expanding internationally presents significant opportunities and competitive benefits for a business, it also entails intricate regulatory hurdles and legal responsibilities. An EOR service alleviates these concerns by managing all legal and administrative aspects of overseas hiring. 

This approach allows companies to operate in new markets without establishing local entities or hiring extra HR services, guaranteeing full compliance with labor laws and avoiding costly penalties. Because of this, businesses can prioritize strategic growth, making global expansion both secure and manageable.

What Are the Disadvantages of an Employer of Record?

Expanding throughout the global markets often involves navigating a complex web of legal and administrative requirements. EOR solutions have emerged as a popular tool to simplify this process. 

However, like any business decision, utilizing an EOR service comes with its own set of considerations. To make an informed choice, it's vital to explore the potential disadvantages alongside the benefits.

Lack of Flexibility

Due to many regulations in some countries, the EOR model can show certain flaws in its functioning (employment contract obligation and restriction on tasks that the workers can perform). These factors can have a negative impact on your company's roadmap to achieve the objectives.

Operational Issues

Working with an EOR may limit operational flexibility, affecting project management, resource allocation, and employee communication, potentially harming your team's agility.

Ineffective Employee Management

Though fast entity setup is a selling point for some EORs, it often comes at the cost of thorough onboarding. This can lead to overlooked details and neglected HR tasks, jeopardizing trust and deterring potential candidates of a certain talent pool.

How Much Does an Employer of Record Service Cost?

When considering using the services of an EOR, nowadays you should expect monthly costs to range from $200 to $2,000 per employee. This price range depends on several variables, such as the geographical region, specific services required, total number of employees, labor laws of the country, and local tax regulations.

The global EOR provider generally utilizes two pricing structures: a flat rate pricing, which provides costs, especially for smaller or fluctuating companies, and a percentage-based model, where fees are calculated as a percentage of the employee's salary.

If you are looking for a remote team that can fit with your company's requirements and offer cost-effective results, in Lupa we can find the perfect candidates with our staffing services. We offer both contractor and full-time employee options, tailored to your needs. This flexibility ensures you get the right talent with the right engagement model.

What Is the Difference Between Employer of Record and Staffing Agency?

When expanding your workforce, especially internationally, you might encounter both EOR services and staffing agencies. While both play a role in talent acquisition, their functions and responsibilities differ significantly. Let's clarify these distinctions.

Hiring Process

In the case of an EOR, the client company can look for the ideal candidates for the new job role. For example, a U.S. company expanding to Spain might find a local candidate but uses a German EOR as a legal employer in the foreign country.

On the other side, a staffing agency is in charge of finding the perfect employee that can be the best fit to the company.

Staff Administration

The EOR only deals with the legal and administrative aspects of employment. The client company has to manage and supervise the employee's daily tasks and progress.

On the other hand, staffing agencies typically place temporary or contract workers who are employed by the agency, with varying levels of day-to-day management provided.

Compliance and Legal Framework

An EOR provides expertise in international employment law, handling intricate paperwork and ensuring compliance across various countries. 

A staffing agency, on the other hand, specializes in a single country's legal framework, offering local expertise and focusing on local employment compliance.

Lupa offers a single, expert solution for regional compliance and talent acquisition. We specialize in Latin America, unlike agencies limited to one country. Simplify your hiring process.

Employer of Record vs Professional Employer Organization (PEO)?

A Professional Employer Organization (PEO) offers a co-employment relationship, which means the people you hire are collaborators of your company (and must reside where your company has a business registration). You are legally responsible for your collaborators, and the PEO is only there to help with HR tasks.

EOR providers function as the legal employers of anyone you hire through them: the collaborators sign employment contracts with the EOR, not with your company, although you determine their salaries and evaluate their performance. 

Because the EOR is the legal employer, you can work with anyone anywhere the EOR has a business registration. This can apply to international workers that are not living in the same country of the company.

Even though most of the companies could hire workers as independent contractors without worrying that much about the legal implications, payroll companies promote the services of EOR due to their higher cost-effective work and their management of the administrative and legal aspects.

What Options Exist Besides an Employer of Record ?

Here you have the best alternatives to the services of an EOR. Each of them has its own pros and cons that can fit with your company needs. Understanding these can help you to make better decisions that can improve the growth of the company in the long term.

Using an Staffing Agency to Hire New Employees

Staffing agencies excel at sourcing, screening, and placing candidates. They possess expertise in identifying and attracting talent that matches specific job requirements. 

In Lupa we can help you to find the ideal candidates for your company. We handle all aspects of staffing, from sourcing to placement, ensuring a seamless hiring experience. Get access to pre-vetted talent and build your team faster. Contact Lupa today and discover the power of expert staffing.

Establish Your Own Legal Entity

This is a direct alternative to EOR services, but is not an easy decision to make. Establishing a legal entity in the country where you want to hire new employees gives your company control of all the operational and legal aspects.

With a branch office, you can directly manage and supervise the employees without using an intermediary. This alternative allows companies to build a stronger presence in the local market which can have a positive outcome in the short term.

However, to achieve sustained success, companies must prepare to modify their operations in accordance with local norms, absorb the relevant costs, and dedicate the necessary time and resources to these tasks.

Local Direct Hiring

Direct domestic hiring offers a viable alternative to EOR services for businesses prioritizing centralized operations. This alternative is ideal for a company with a good HR infrastructure that can manage remote employees within the same territory.

Professional Employer Organizations (PEOs)

PEOs provide HR outsourcing solutions, covering payroll, benefits, and compliance, as a less involved alternative to EORs. They don't legally employ workers, but typically require a local legal entity. 

Once established, they manage HR, allowing companies to focus on their core business. PEOs are ideal for companies with a local presence seeking HR streamlining and offer adaptable services to meet specific needs.

Hire Freelancers and International Contractors

For businesses requiring specialized expertise from international talent, engaging freelancers and independent contractors presents a viable alternative to EOR services, particularly for short-term or part-time needs. 

This approach provides project-based flexibility, eliminating the need for long-term employment obligations, which is advantageous for companies with fluctuating workloads or specialized project requirements. 

However, companies and startups should be aware of legal risks, such as worker misclassification risks, which can cause compliance problems.

FAQs

We recognize that many businesses have similar inquiries about how EORs function and what they offer. This FAQ section aims to address those common questions, providing practical insights and solutions to help you make informed decisions regarding your global hiring strategy.

Does an Employer of Record Service Include Access to Software?

The provision of software access within EOR services is subject to provider-specific variations; however, the integration of software platforms into service packages is an expanding industry trend.

Client access to EOR software can provide valuable insights into employee data, payroll information, and compliance status.

How Does an Employer of Record Handle Employee Benefits and Payroll?

By acting as the legal employer, an EOR assumes responsibility for compliance and HR management, eliminating your need to handle payroll (calculating and distributing employee wages and making payments following a schedule), benefits (such as health insurance and retirement plans), and other administrative tasks, allowing you to focus on operations.

How Does an Employer of Record Handle International Compliance Risk and Local Employment Laws?

EOR providers demonstrate expertise in local labor laws and regulatory frameworks by guaranteeing adherence to local standards in all employment-related processes, encompassing recruitment, contractual obligations, payroll administration, benefits provision, and termination procedures.

Can an Employer of Record Help with International Hiring?

In this case, the company client is responsible for hiring the new employees, but the EOR only can help with the legal aspects of hiring international workers. 

If you find difficulties in the process of talent acquisition, LupaHire's staffing experts are here to simplify the process. We provide comprehensive support, from sourcing and vetting candidates to managing contracts and payroll. 

Our tailored solutions ensure you find the right talent, every time, allowing you to build a strong, successful global team. Learn how LupaHire can elevate your staffing strategy. Request a detailed proposal today!

How Does an Employer of Record Handle Payroll and Taxes?

The EOR is responsible for the withholding and remittance of employee income tax obligations, thereby mitigating the complexities of foreign tax compliance for the client organization and obviating the need for individual tax filing on the part of the employee.

Which Countries Are Employers of Record Present In?

Nowadays, you can find that EOR services are available across a great number of countries. Here you have a list that resumes the regions and countries where it is important to have an EOR to streamline the hiring process and legal compliances:

Western Europe: United Kingdom, Germany, France, Netherlands, Ireland, Spain, Italy, Switzerland. 

Eastern Europe: Poland, Czech Republic, Hungary, Romania, Estonia, Lithuania, Latvia.

Southeast Asia: Singapore, Malaysia, Indonesia, Vietnam, Philippines, Thailand. 

East Asia: Japan, South Korea, China (with specific regulations). 

Oceania: Australia, New Zealand.

LatAm: Brazil, Mexico, Argentina, Colombia, Chile, Peru, Venezuela.

How to Select the Best Employer of Record?

To ensure successful international expansion, begin by defining your specific hiring needs: target countries, necessary services, and anticipated growth. Evaluate potential EORs based on their expertise in local regulations, compliance history, financial stability, technology platform, communication capabilities, and transparent pricing and contract terms.

Can Contractors Receive Onboarding Through an Employer of Record ?

While EORs primarily handle employees, some EOR-like platforms also facilitate the management of contractors, including aspects of their onboarding, particularly related to contracts and payments

Your LatAm expansion shouldn't be held back by administrative burdens. Lupa simplifies the entire process, taking care of payroll, compliance, and legal, so you can focus on building your team, faster. Don't miss out on the incredible talent potential in LatAm. Book a personalized consultation now and let us tailor a staffing strategy just for you.

Hire Top Remote Teams with LatAm Talent for 70% Less with Lupa

We connect you with skilled tech professionals from LatAm, helping you scale quickly and access the specialized talent needed to drive your company forward.

Our recruitment specialists provide pre-vetted remote talent within a one-week timeframe. Upon your selection of the optimal candidate, we facilitate seamless onboarding, contract administration, and ongoing payroll processing.