What is an EOR? A Detailed Guide to Employer of Record Organizations

If you’re a globally-minded business owner, you’ve probably heard the question “What is an EOR?” floating around quite a bit. Opening the door to international talent is a great way to expand your talent pool, find favorable exchange rates, and grow your business — but it can often come at a cost.

In this guide, we’ll help you understand EORs, the advantages they can provide, and whether they’re the right fit for your organization.

An Employer of Record (EOR) is a third-party entity that helps businesses pay global talent by legally employing workers for them. EORs handle the administrative and legal burden of the arrangement by overseeing payroll, taxes, benefits, and compliance with local labor laws for each worker. 

While other business models like BPO call centers are lucrative, they utilize talent from one country. Once you start building a global workforce, setting up entities in each country gets expensive. That’s where an EOR can help.

Let’s delve a little deeper into how EORs work and what services they provide.

EORs operate on a co-employment model, which means that both the EOR and the business using an EOR service are responsible for managing each member of the global workforce. EORs handle payments, taxes, and compliance while the business oversees each worker’s day-to-day operations. Both EORs and businesses are responsible for their employees, but these responsibilities differ.

Businesses are responsible for: 

• Finding, selecting, and extending offers to talent

• Defining job descriptions, compensation, and long-term performance goals

• Managing employees’ day-to-day responsibilities

EORs are responsible for: 

• Acting as the legal employer for each worker

• Payroll, taxes, and benefits

• All legal and compliance responsibilities pertaining to the worker’s country

• Employment contracts and all related reporting

Let’s look at an example of an EOR to better understand this relationship.

Example: A U.S. SaaS startup is tapping into the global talent pool to hire a VP of Marketing. They have a second office in Canada, but stumble upon a candidate in Poland who is a perfect match.  

Setting up an entity with no EOR:

Without an Employer of Record, this SaaS startup would be at a huge disadvantage. They’d need to establish a legal entity in Poland, register with government authorities, open a local bank account, and stay abreast of Polish labor laws. This could all take somewhere between 6 months and a year and cost the business tens of thousands of dollars. 

Setting up an entity with an EOR:

With an EOR, the SaaS company would identify the candidate and determine the role, job description, and salary. Once hired, they would manage the workers’ day-to-day operations.  

In turn, the EOR would: 

• Issue a Polish employment contract

• Register them for health insurance, pensions, or other benefits as needed

• Run payroll in the native currency (in this case, the Polish Zloty)

• Maintain compliance with Polish labor laws on behalf of the startup

The result: 

The Polish VP of Marketing is fully onboarded in a matter of weeks. They’re also legally employed in Poland, receive payment in their native currency, and are entitled to all necessary protections they’re entitled to under Polish and EU laws. 

Now that you understand the division of labor, let’s dig into some specific services that EORs provide to the businesses and workers they work with.

While acting as a full-fledged employer for global workers, EORs provide an array of services for the businesses they work with, like: 

• Payroll processing. EORs ensure timely, accurate payments in each worker’s native currency. They also eliminate the stress of correctly calculating tax withholdings and payments by handling these responsibilities for businesses.
  
  

• Benefits administration. You won’t need to manage benefits for international workers either. EORs handle benefits like health insurance, retirement contributions, and paid leave for all the workers they employ, so you don’t have to.
  
  

• Compliance and risk management. An Employer of Record ensures that the workers they employ on your behalf are compliant with local labor laws, so you don’t have to keep up with changing global legislation. This reduces the risk of fines, penalties, and legal action that can come from compliance mistakes.
  
  

• Human Resources management. EORs can even provide services beyond basic contracts and onboarding by helping you manage performance policies, suspensions, terminations, and other areas.
  
  

• Customer support. Top EOR firms like Deel offer AI and/or dedicated support leads to help with hiring questions, pay negotiations, and other employment questions to make maintaining a global workforce easier. 

Now that you understand EORs and how they work, let’s explore how these solutions can benefit employers. Benefits businesses gain from implementing an Employer of Record service include:

• Access global talent pools

• Affordable talent

• Timely onboarding

• Cost savings (Entity creations can cost up to $150,000)

• Knowledge of country-specific laws and regulations

• Ongoing HR support 

• 24-hour support for employees in different time zones

While EORs are revolutionizing payroll management and reshaping norms surrounding the standard global business model, they’re far from the only option for teams looking to employ talent from around the globe.

Here are some popular EOR alternatives for global outsourcing: 

• Professional Employer Organizations (PEOs). PEOs work with businesses through a similar co-employment model to EORs and handle similar responsibilities like HR, payroll, and benefits. However, they require you to create an entity in the countries where you’re hiring. This can work if you’re employing workers from only one country outside your own.
  
  

• In-house HR. If you’re reading this guide, this is likely the model you’re currently using. Traditional HR teams create their own entities and utilize payroll software. This model works well if you have a team mostly based in your home country or countries where you have a branch. Otherwise, you’ll need an experienced HR team to meet legal and compliance challenges.
  
  

• Payroll Service Providers (PSPs). If you're willing to spend some money, Payroll Service Providers like Gusto, ADP, and Paychex can manage your payroll and provide customer support. Still, they’re another payment route requiring entity creation in other countries to pay global teams. You’d also be contractually required to handle tax payments and filings yourself. 
  

• Contractors and freelancers. While EORs are valuable for setting up entities to hire full-time employees, many businesses can employ contractors without entity creation. While this arrangement is a better way to hire for short-term projects, it puts businesses at risk when it comes to misclassifications, intellectual property (IP) control, and legal compliance.
  

• Business Process Outsourcing (BPOs). Like EORs, BPOs allow businesses to outsource work overseas. While EORs employ the worker on behalf of the business, employees hired in a BPO model are employed entirely by the BPO. This is a cheaper alternative than establishing an entity, but it’s less flexible than the EOR approach.  
  

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While EORs are a great way to grow your business on a global scale, they come with their fair share of drawbacks, like: 

• Decreased visibility into HR operations. Since EORs handle a lot of work for you, you may lose some visibility. Changes in how the EOR operates could negatively impact your organization if you’re not paying close attention.
  
  

• Higher costs. While cheaper than other methods that require you to establish an entity in each country where you hire employees, EOR services are somewhat expensive, with costs as high as $599 per employee per month.
  
  

• Less flexibility. Since EORs often handle benefit enrollment for insurance, retirement plans, and other perks, you’ll have less flexibility. While this can be seen as an advantage day-to-day, competitive benefit packages impact hiring top talent. In fact, 78% of employees cite benefits as an important factor when looking for work.

If you’re deciding whether or not an Employee of Record service is the right fit for your business, here are some questions that can help you come to a decision: 

• Where is your team based? Are you employing workers from one country, or are they spread around the globe? If the number of countries in which you have team members continues to grow, it might be time to consider an EOR.
  
  

• Is your team struggling with compliance? Do you have an experienced global HR team capable of handling constantly-shifting global payroll compliance and tax laws? If not, it may be worth outsourcing that work.
  
  

• How is the employee experience? EOR is more than just a way to pay employees. Employer of Record providers also handle benefits, so if your team has expressed interest in more robust or localized benefits and retirement plans, an EOR might work for you. 
  
  

• What are your hiring goals? If you’re hiring contractors for a few one-off projects, tools like Hubstaff offer time tracking with payroll that can help you make payments on multiple payroll platforms directly from the app. If you’re looking for full-fledged international employees, an EOR service like Deel could be helpful.

There are a lot of ways to approach expanding your business globally. Hiring and managing global talent with an EOR is a method best suited for businesses looking to build a team of full-time international employees. For others, the best approach may be: 

• Expanding your in-house HR team

• Exploring Professional Employer Organizations (PEO) services

• Turning to Payroll Service Providers (PSPs)

• Hiring contractors

If EOR is not the right fit for you, Hubstaff’s time tracking software with built-in global payroll management makes it easier to manage global payments for contractors and full-time employees. 

You can keep time tracking, timesheets, and payments in one place through integrations with apps like Deel, Wise, Gusto, and PayPal. Hubstaff helps you pay teams in multiple payroll platforms and currencies directly from the app.  

No matter where your global business is heading, we’re here to help. Start a free, 14-day trial today.