10 Questions to Ask an Employer of Record Service Provider
What is an EOR?
Before we jump into the questions at hand, here’s a quick explainer of what an EOR is:
An Employer of Record, also known as an EOR, is an organization that manages the legal, HR, tax, and local compliance responsibilities of your employees in any country where you don't have an operation.
An EOR can onboard, manage and pay staff on your behalf. Consider it the legal employer while you, the client, retain the role of managing employer, looking after the day-to-day management of the employees.
In other words, you call all the shots on hiring, compensation, assignments, duties, and termination. The EOR is simply an HR service that helps keep your business compliant with local employment laws and tax laws.
When to Use an Employer of Record
Most businesses won’t be ready to partner with an EOR during their early stages of growth. However, if you’re considering global expansion, or if you’re looking to close a foreign entity and retain your staff, partnering with an EOR makes perfect sense.
Here’s how you can be certain that it’s time to use an Employer of Record:
If your business is ready to break into new markets and pursue global expansion, an EOR may be necessary to help you hire, onboard, and manage a distributed workforce. However, for some, the challenges of international expansion outweigh the prospects of going global.
By using the direct EOR service model, the process and paperwork of hiring and managing employees overseas becomes simple.
For example, say you need to hire a team across various European countries — you provide the EOR with information about who and where, along with the remuneration details, and then the EOR then navigates the local laws and handles all the paperwork for onboarding the employee.
What to look for in an Employer of Record provider: 10 questions to ask
Choosing the right Employer of Record (EOR) software is an important decision for any business. Here are 10 questions customers should consider before choosing an EOR solution:
1. How much does an EOR typically cost?
Price is one of the first questions that come to mind when shopping for software, and your EOR is no exception.
Your EOR should have their pricing available publicly on their website or privately via a sales demo. However, before you base your purchase decision based on the price tag, it’s helpful to weigh the cost of purchasing an EOR solution vs. setting a local entity in multiple regions.
For example, creating a local business entity has many costs such as fees for entity registration, which varies greatly depending on the country. Additional costs include:
• Employment registration
• Entity tax compliances
• Bank setup
• In-country capital requirements
• Legal and financial council
• Internal staff costs and
• Payroll processing
In comparison, the costs of purchasing an EOR are just a fraction of what would be otherwise needed to incorporate a business in a new country.
2. Which countries does your EOR operate in?
You should have a full understanding of which countries your EOR operates in before making a purchasing decision. If your EOR doesn’t operate in a country or region that you’re looking to expand into, then you’ll need to establish your own legal entity to manage payroll or hire employees and independent contractors.
3. Are they a direct or indirect EOR provider?
An indirect Employer of Record uses local third-party providers to spread their reach. This model struggles when a global employee encounters issues and time is at a premium. In contrast, a direct Employer of Record like Atlas has their own entities and avoids outsourcing.
A direct EOR is tasked with supporting your employees so that when a problem arises, they can speak immediately with local, in-house support.
4. What labor benefit packages does the EOR offer?
Not all EOR solutions offer the same labor benefit packages to your employees. To make things more complicated, some EOR solutions even allow you to customize your benefits packages for different countries or regions.
The benefits offered by EORs can vary from service to service. However, some of the benefits offered by EORs include health insurance, retirement plans, time-off policies, parental leave, and workers compensation insurance.
Ultimately, it’s most important to ensure that your EOR offers the benefits that are valued by your employees and your business.
5. Does the EOR offer any learning resources?
Even if you’re a seasoned HR professional, it’s likely that you don’t fully understand the nuances of global employment laws, regulations, and compliance requirements. The good news is you don’t need to.
A reliable EOR solution should offer a variety of webinars, trainings, and online support to help you understand best practices for hiring and managing a global workforce.
6. What level of support do they offer to global employees?
Your EOR should provide your global employees with local, in-house support in their country or region. While indirect EOR solutions delegate this work to third-party entity owners, a direct EOR provides support directly to your employees.
7. What level of compliance and risk management do they offer?
Each country has a host of laws, which can change abruptly, and as these regulations are mandatory you will need to remain ahead of the changes. Whether it’s data protection or tax and employment laws, your business will need to comply with the latest requirements or face criminal penalties.
When you use an EOR, you are not responsible for staying informed about ever-changing employment regulations or local labor regulations. The EOR keeps you informed and ensures that you are legally compliant locally.
8. What is their internal staffing capacity?
EORs are responsible for managing a wide range of HR and payroll functions on behalf of their clients. Therefore, it’s important to ensure that the EOR has the internal staffing capacity to handle the needs of your business. Some questions to consider when evaluating the internal staffing capacity of an EOR include:
How many employees do they have on staff?
What is the experience level of their staff?
Do they have dedicated teams for different functions (e.g. payroll, compliance, benefits)?
What is their track record for delivering services on time and accurately?
Do they offer localized support? Localized support can range from accommodating local languages, working in a shared timezone, and requiring support staff to complete cultural sensitivity training to better accommodate international employees.
9. Are there any hidden charges you should be aware of?
EOR pricing models can vary depending on the services provided, the number of employees managed, and the location of the employees.
Some EORs may charge a flat fee per employee, while others may charge an hourly rate or a percentage of the employee's salary. It’s important to understand the pricing model and any additional fees that may be charged for services such as insurance and benefits administration. By asking about hidden charges, you can ensure that you have a clear understanding of the costs associated and avoid any surprises down the line.
10. Do they have a proven track record of success?
Think of this last question as insurance for your investment. Global expansion is an expensive and consuming process, so you’ll want to make sure you’re working with an EOR that has a proven track record of success. You can quickly vet your EOR by looking for relevant success stories or case studies that match your business profile.
What’s the difference between an Employer of Record and a PEO?
Employer of Record, EOR, Professional Employer Organization, Global PEO — there are so many similar-sounding terms for just two types of employment service.
A PEO — more commonly known as a co-employment agreement — supports a business by handling its HR where the business already has a local entity. It undertakes tasks such as benefits enrollment and payroll but splits the risk with the client.
On the other hand, an EOR manages the legal, HR, tax, and local compliance responsibilities of your employees in any country where you don’t have a legal entity. By acting as the legal employer, the EOR assumes the legal risks of an employer on your behalf, while you maintain control over your employees and business operations.
As the legal employer 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
• Advice on required notice periods and termination rule
The advantage of EORs over PEOs
Put simply, PEOs cannot entirely protect companies from legal and compliance risks.
On the other hand, an Employer of Record partners with businesses by employing staff in countries where the business lacks a local entity. The EOR takes on all the risks for any local or international fiscal or labor laws and allows the client to focus on their business strategy and day-to-day goals.
What are the benefits of an Employer of Record?
Does it make more sense to set up a business entity on your own or have an EOR do it for you? If you value accuracy and efficiency, an EOR is the way to go. Here are some more benefits of partnering with an Employer of Record:
Running payroll internationally
An EOR negates the need to create a new business entity because your staff will be employed by the EOR. You retain control but avoid the risks of tax and labor compliance wherever you wish to work.
Additionally, it’s often compulsory to handle payroll locally to ensure that social security contributions and taxes are compliant. An EOR handles all of this so you can pay global teams with ease.
Attract and Retain Top Talent
An EOR gives you all the tools you need to become a global employer. EORs often have access to better benefit packages due to their scale, which can help attract and retain top talent. Additionally, EORs can help businesses expand their talent pool of international workers by providing access to global talent markets.
People operations compliance
It’s often required to have written employment contracts or offer letters detailing all the conditions of employment. An EOR ensures that all legal requirements are met, and the employment contracts are compliant, while still protecting both the business and the employee.
Increased speed to new markets
The time required to create a legal entity in a new country can be prohibitive and requires using multiple vendors along the way. Some countries are notorious for bureaucracy and with poor public administration processes, finalising a contract for entity set-up can take longer than anticipated. However, using an Employer of Record alleviates all of the delays when expanding to new markets.
Pursuing global expansion with a trusted EOR
For many companies, the prospect of expansion can be overwhelming. Creating a new local entity in an unfamiliar country is frequently a long, stressful, and costly process without any guarantee of success. Fortunately, choosing the right EOR gives you a low-cost and risk-free way to test and speed up time to new markets.
Ready to expand into new markets? Contact us to see how Atlas helps growing companies manage their global workforce.