The Basics of Employer of Record (EOR): Frequently Asked Questions
If your company is eager to expand globally in 2024 but unsure of how to proceed, Employer of Record (EOR) services might be the solution you’re looking for.
Recently, Atlas Founder and Chairman, Rick Hammell addressed the most searched questions surrounding the EOR sector, demystifying the complexities of the solution and uncovering its advantages.
Whether you are a small, medium, or large corporation — no matter the industry or stage of global growth you are in — an EOR partner can help you go further and be more competitive anywhere in the world.
1. What is the meaning of EOR?
When companies are looking to expand their businesses and hire talent in foreign countries where they don't have legal entities, the best and most compliant way is to partner with an Employer of Record, who acts as the legal employer on your behalf.
What does that mean?
Well, you don't have a legal entity and want to be fully compliant in that country. You may think about hiring talent as contractors, but there are a lot of rules and regulations in doing business in those countries. So, an EOR will keep you fully compliant because we act as the legal employer on your behalf and are responsible for all the back office — from HR and employment contracts to payroll and tax management.
2. What is the benefit of Employer of Record?
Using an Employer of Record has several benefits, the most important ones being:
Speed to market — if you're setting up your entity, it can take anywhere from four to 12 weeks to set up, depending on the country you’re expanding into. With an EOR partner, you can onboard an employee in a matter of days.
Risk — the process of setting up an entity in a foreign country is complex. You've got to hire lawyers and accountants, you have to file taxes monthly, quarterly, or annually. With an Employer of Record, you don't have to do that. We manage all the risk because we act as the legal employer in the country you wish to hire in.
Cost efficiency — there’s also the amount of money that you would have to invest into setting up an entity in a given country — share capital, legal, and accounting. An Employer of Record, especially a direct Employer of Record like Atlas, already has that established for you. Your company will be able to use the benefits from that perspective to scale up your business more cost effectively and with speed and accuracy.
Scalability — an EOR is a large employer, so it can offer Fortune 500 level employee benefits because we aggregate all the worksite employees that we have for all of our clients when we go to market for medical, dental, vision, and pension programs. Because of that, you can use these benefits for attracting and retaining talent by partnering with an Employer of Record.
3. What are the tax implications when using an EOR?
There are always questions regarding permanent establishment (PE) exposure when using an Employer of Record. Atlas highly recommends speaking with your tax accountants where you do business.
However, an Employer of Record does take that liability from you because you’re not creating nexus as the Employer of Record as the established employer in that country.
Employment contracts are signed by the Employer of Record, so taxes, payroll, or pension plans are paid by the Employer of Record, we can shield you from PE exposure and tax implications of doing business in that country.
4. What is the difference between global EOR and PEO?
Atlas was the first Employer of Record to coin the term when the rest of the industry was still calling it global PEO. The reason why we coined the term was that the definition of PEO, which means “professional employer organization”, means that there are two legal employers employing one person in a given country.
In many countries, that is illegal because the government wants to know who was solely responsible for the employee when it comes to taxes, pension payments, or liability if anything happened to the employee. Employer of Record is the party who takes full responsibility and is the sole employer in that country.
Our clients are the managing employers, where they have the right of direction, day-to-ay action, and representation of a business. But when it comes to contracts, payroll, taxes, liabilities, the Employer of Record is the sole employer in a given country.
5. Is Employer of Record legal?
The short answer is yes, but it’s always a little bit more complicated than that. Every country has their own rules or regulations regarding Employer of Record, and if it doesn't, they tend to gear to more staffing regulations, given the closeness to staff leasing.
The difference between staffing and Employer of Record is there's no temporary employment. Employer of Record is always full-time employment, full-time benefits, and the employees are given all entitlements as a full-time employee.
Not every country has regulated it — it tends to be geared towards more of their staffing, leasing rules, and regulations. It is important that you work with an Employer of Record that understands the differences and how they navigate compliance in those different countries.
Employer of Record is still very new around the world, and as it is being defined and put into legislation, it's important that you partner with an EOR that keeps you up to date and how they're doing business in a particular country.
6. What industries use Employer of Record?
All industries can use Employer of Record, depending on how they're looking to hire and retain talent around the world. We typically see tech, bio, or any industry that's hiring a sales or account management type of role, usually the first employee in a country.
But we're also starting to see large organizations who want to retain talent using EOR services. We all know the term “the war on talent” and keeping and retaining talent has been a little bit of a struggle for many companies.
Employees want to move in 2024. They don't want to work in offices, they want to work wherever they want to work. Many companies have come to Atlas and said, “I don't want to establish an entity in a given country, but I want to retain this really important employee for us. How do I do that?”
Partnering with an Employer of Record allows that and so, all companies of all sizes, from small to mid to enterprise organizations, and in all facets of industries are finding that Employer of Record gives the benefits, the flexibility to be able to utilise our services and retain talent.
7. How to choose the right Employer of Record?
It’s very important that when choosing how to partner with an Employer of Record, you ask yourself a few of questions:
How long has this Employer of Record been in business? There's been a lot of pop-up Employer of Records that are really focused on technology, but don’t know how to do business in that given country. If global expansion was easy, everyone would do it — but it's not. Partner with an Employer of Record who really understands the rules and regulations, how to onboard and offboard, and maintain employees in a given country.
What is the scale of this EOR? Larger Employer of Record partners can give you a lot more benefits, keeping your costs down to allow you to have more flexibility to find and retain talent.
How are they operating? Are they operating just under one country? Do they have employees and talent in countries where you need them to be? Do they have language capability? Do they have technology? Do they understand the cultures that they're supporting?
The term that we like to use is the word “glocal” — global, but local. And that's very important because it's not just servicing our customers, it's servicing the worksite employees and providing employee experience that matches your expectation for your organization.
When partnering with an Employer of Record make sure you ask these questions:
How are they going to partner with you?
How are they going to support your business?
How can they help you scale?
How can they give you a great experience with your employees?
8. What is the future of Employer of Record services?
Employer of Record is here to stay. Companies are looking for flexibility in how they retain talent or find talent around the world. An Employer of Record gives them that flexibility. The most important thing is you will see small to midsize businesses become more competitive.
How is it going to evolve? Some of its going to be through technology. Some of its going to be through localization. A lot of it's going to be through service. It's important that EORs remember that it's not just about technology. We are working in a human environment. Human resources is the foundation of what we do. Service-enabled technology is the future of the Employer of Record and Atlas continues to evolve with that.
We think about how we can not only give an experience to our clients, but how do we constantly improve the employee experience when working with our clients and within our platforms? We continue to evolve as businesses evolve. And as employee relationships evolve, we continue to think about how we’ll be in 5 to 10 years’ time. It's important that businesses think about that as well.
For more information about EOR, download the handbook below.