What is an employer of record?

What is an employer of record and how to use it to build global remote teams.

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What is employer of record

Covid-19 may not have invented remote work but it surely became the great catalyst. As work could be done from anywhere, companies were no longer bound to hiring employees from one location only.

However, there’s one major issue with remote hiring – if you don’t have a legal entity in the country where your employee is located, you cannot offer full-time employment. And that leads to all sorts of issues – from not being eligible for mortgage and car lease to your digital nomads having to sort out their own visa arrangements.

That’s where the employer of record comes in. In this article, we’ll answer what is an employer of record and how it can help your company to attract and retain top talents from around the world.

Employer of record meaning

An employer of record (EOR) is an organization that formally hires an employee of another company. The EOR company handles all of the local payroll and compliance matters while the employee works entirely for another company.

Definition of employer of record

The responsibilities of an employer of record

All employer of record companies provide local tax and compliance support. This includes activities such as:

  • Paying salaries and benefits on time
  • Filing payroll taxes
  • Social security and insurance
  • Issuing termination notices in accordance with local regulations

Most global payroll companies focus on building EOR software while outsourcing work to local service providers. Emerhub’s approach is different – instead of offering employer of record services anywhere in the world, we focus on the markets most sought after by our customers and build our own in-house operations there.

This allows us to provide the additional employer of record services such as:

  • Regular check-ins with your remote employees to find out if they have any concerns that you should be aware of
  • Support in onboarding your team
  • Advising you on cultural differences of hiring employees from a foreign market
  • Providing (temporary) physical workspace

The difference between independent contractors and employer of record employees

The key difference is that independent contractors are essentially service providers. They don’t get the same level of benefits or job security as full-time employees.

This might sound like a good thing when hiring remotely but it has a downside – independent contractors are free to work also for other companies and they tend to switch companies much more frequently.

By being able to provide full-time employment, you are also able to attract more candidates. Many employees value aspects like having a credit score, paid days off secured by the government, etc.

On the other hand, employees that prefer total control over their working time and the freedom to take on many projects prefer to provide services as independent contractors. Which choice is better for your company depends on the nature of your work and how committed you want your staff to be to your company.

Employer of record vs. staffing agency

One of the key misconceptions of employer of record service is that it’s the same as a staffing agency or a business process outsourcing company.

The key difference is that with an employer of record service, the EOR company’s responsibility is to make sure all the HR and payroll matters are done correctly. An EOR company does not take responsibility for the performance of your employee.

Essentially, an EOR company is your overseas HR department without all of the overhead. You choose who you hire and how they work.

 Benefits of using an employer of record

There are two main reasons to hire beyond one geographical location:

  • Get access to a bigger talent pool
  • Save costs by hiring in countries with a lower cost of living

An employer of record is a way to hire remote employees, provide them full-time employment, and not be burdened by the local payroll and compliance issues.

No need to register overseas companies

One of Emerhub’s core services for the past 10 years has been registering foreign companies so we don’t say it lightly. If you don’t have to set up a foreign company, don’t do it. While we can help you navigate through things like foreign ownership restrictions, capital requirements, etc., the real cost of having overseas companies is managing them.

Register a company when you plan to earn revenue in the market. If your plan is to hire employees, using an employer of record is a more cost and time-effective way.

Have local HR support

How well do you know the cultural differences of managing a software developer from Pakistan, a customer service agent from the Philippines, or a graphic designer from Indonesia?

Emerhub’s EOR service means that all of those employees have an HR person to talk to – about how to take time off,  issues with laptops or internet connection, clarity of job description, etc.

Having a good HR department means that you and your team can focus on their core tasks and leave the local HR issues to a dedicated professional.

Scale and downsize as needed

The only constraint of growing or downsizing a team using the employer of record service is that you must meet the local manpower requirements when it comes to terminating employees. This mostly means that you need to give an appropriate notice period and provide clear reasoning of why the employee is let go. Exact requirements differ per country.

Common positions hired by using an employer of record

Technically most job positions can be filled using an employer of record. It’s most commonly used for positions that are remote and/or when the company is doing business in a country where they don’t have a legal entity at. Based on Emerhub’s experience, the most common positions employed using an employer of record are as follows:

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