What is an Employer of Record (EOR)?

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Atlas Team

Atlas helps innovative companies like yours to expand, onboard, manage and pay international teams in 160+ countries.

Published: 31 Mar 2022

For most organizations, global expansion is a long-term goal, but the path toward global success is burdened with risks, costs and delays. Typically, to expand into a new market or hire global talent, an organization is required to open a local entity there—a complicated and costly process. 

For example, establishing a new entity in China can take as long as 18 months. In Brazil, it can cost as much as USD 35,000. That’s where an Employer of Record (EOR) steps in to make the process faster and more affordable.   

An EOR removes the complexity of expansion, making it simple to enter a new market and hire international talent.   

What an EOR Does 

An EOR is an organization that manages the legal, HR, tax and local compliance responsibilities of your employees in a country where you don’t currently have an operation. It acts as the legal employer, onboarding, managing and paying staff on your behalf. At the same time, the day-to-day tasks remain your responsibility. An EOR hires the employees in the new country under its local business entity and takes on all the legal risks without interfering with the client’s daily operations. 

The EOR is responsible for: 

  • visa, immigration and work permits, 

  • Country-compliant payroll and taxes, 

  • advice on cultural and language awareness, 

  • adhering to local labor laws, and 

  • advice on required notice periods and termination rules. 

Entity and Payroll 

Some countries require an entity to have a local physical office or real estate lease, and often mandate a significant amount of capital placed in a local bank account. Most companies are also legally required to have a local business entity to pay employees when expanding into a new country. It’s an expensive and lengthy process. 

Once an entity is established, it’s often compulsory to handle payroll locally to ensure that social security contributions and taxes are compliant. Employees must be paid in their local bank accounts in the correct currency, according to local tax laws. Managing the global payroll is a complex web of legalities and compliance issues that only become denser with each additional new country and market. 

When you work with an EOR, you don’t have to open an entity. You retain control but avoid the risks of tax and labor compliance. 

Employment Contracts and Compliance   

Every contract must consider each local employment law, as well as statutory requirements and country-specific norms, because each country has different employment contract regulations

Contracts typically cover local working hours, parental, annual and sick leave and regulations about termination. An EOR stays abreast of all local changes to these regulations and informs the client organization of them. This saves time, administrative work and the risk of noncompliance. 

Visa and Global Mobility 

Immigration laws, visa and work permit requirements vary greatly depending on the country and the employee’s nationality. As a result, visa and work permit issues often delay operations and cause administrative headaches. However, with dedicated global visa and mobility expertise, an EOR simplifies this process

As the legal employer, the EOR is responsible for visa sponsorship applications and will advise on all the necessary requirements to accelerate an otherwise lengthy process. 

Cultural Considerations 

A significant challenge during global expansion is adapting to new cultures. A lack of cultural awareness or language skills can lead to rifts and foil an attempt to expand.  

China, for example, considers respect and politeness as cornerstones of business culture. An unintended gesture can knock a fledgling business relationship off-course and has been a challenge for even the biggest and most sophisticated companies.

It can take years to understand a new culture and country. However, an EOR can advise companies on how to create communication strategies for their international presence as well as being their local language and English-speaking country advisor.    

Increasing Speed to New Markets 

The time required to create a legal entity in a new country can be prohibitive and often requires multiple vendors. Some countries are notorious for bureaucracy, and, with poor public administration processes, finalizing a contract for entity setup can take longer than anticipated. 

Expanding to new markets using an EOR alleviates all the delays because the legal entity is already available. With the experience and expertise of a dedicated visa and global mobility team, the timeline can be significantly reduced. 

A Direct EOR, such as Atlas, is a quick and cost-effective way of hiring and paying global employees. As a Direct EOR, we have entities in over 160 countries and hire employees under our local entity, acting as the legal employer on your behalf. As the legal employer, we can onboard and manage talent and take care of essential payroll and HR administration tasks.  

The direct approach eliminates the need for third-party vendors, reduces costs and increases speed to market. This is different from an Indirect EOR, which does not have an entity in the country it provides services. Indirect EORs use multiple vendors, which builds up significant costs and slows down the process.  

Why Choose an EOR 

It’s challenging for fast-growing businesses to remain legally compliant when hiring globally as there are ever-changing regulations on employment and taxation laws. 

Using the Direct EOR model, hiring and managing employees overseas is streamlined and simplified. The EOR already operates locally and can simply add more people to an existing payroll. 

Global Expansion, Compliant Success 

For many organizations, the prospect of expansion can be overwhelming. Creating a new local entity in an unfamiliar country is a long, stressful and costly process without any guarantee of success. And that’s why many businesses choose to postpone global expansion plans. 

It’s also why Atlas' CEO coined the term “Employer of Record,” and is a perennial leader in the industry. 

More businesses are tapping the EOR solution to take their first global steps as a low-cost and risk-free way to enter new markets quickly. You no longer need to worry about the abundance of legal and HR matters. Instead, you can bypass the time-consuming distractions of global HR law and concentrate on growing your business.