When a business hires an employee, it assumes responsibility for all employment tasks, costs, and liabilities associated with having that employee on staff. But not all businesses want to deal with that responsibility. There is another option: using an Employer of Record service.
What is an Employer of Record (EOR)?
An Employer of Record is a third-party organization that serves as the employer for tax purposes while the employee performs work at a different company. The EOR takes on the responsibility of traditional employment tasks and liabilities through offering EOR services
An EOR service handles all personnel functions, including:
- Processing and funding payroll
- Depositing and filing taxes
- Handling unemployment
- Handling workers’ compensation
- Issuing Tax Forms like W-2
- Collecting and processing time sheets
- Employment contracts
- Employee onboarding
- Maintaining certificate of insurance (COI)
- Completing and storing Forms I-9
- Complying with E-Verify
- Doing background checks and drug screenings
- Benefits Administration
- Terminating employees
EOR Platforms
These features are usually available through a software platform. The platform allows clients, employees, and recruiting partners to handle their aspects of communication for the work assignment. The software also provides insights and analytics on the employees on assignment, costs, and more.
Benefits of an EOR
1. Mitigate Employment Risks:
Employing contingent or full time employees comes with a myriad of employment risks. Partnering with an EOR enables organizations to benefit from an increased labor pool without taking on the employment risks. The EOR becomes the legal employer of workers that clients would like to hire, while the worker still performs tasks on behalf of the client.
2. Scalability:
Hiring workers quickly, and in large quantities, can be difficult for traditional employers or staffing firms. Leveraging an Employer of Record service enables clients to tap into the EOR’s economies of scale and hire workers quickly and efficiently. This scalability allows staffing firms and enterprises to be agile and get talent to the right places at the right time.
3. Worker Experience:
Delivering a quality worker experience is critical for staffing firms and enterprises so that they can reduce turnover and increase tenure. Turnover costs can cripple enterprises and prohibit staffing firms from meeting client needs. Partnering with an EOR can help organizations deliver a quality worker experience with modern technology, health benefits, and end to end support. This experience can improve turnover and keep workers on assignment longer.
EOR Responsibilities:
The business and the Employer of Record have different roles. The business, where the employee works, manages the day-to-day operations and ensures the workplace is safe and follows regulations. On the other hand, the Employer of Record becomes the legal employer of the work and handles employment-related issues, manages payroll, and manages tax compliance.
How Does an EOR Differ from a PEO?
An EOR becomes the legal employer of the workforce, taking on all liabilities related to employment, including compliance with local labor laws, payroll, taxes, and benefits administration. In contrast, a Professional Employment Organization (PEO) enters into a co-employment arrangement, where the PEO and the client company share employer responsibilities.
How Does an EOR Differ from a Staffing Firm?
An Employer of Record service company manages all aspects of employment for the client’s workforce, including hiring, payroll, compliance, and benefits. The EOR takes on the legal responsibilities of employment, making it ideal for companies looking to hire permanent employees, especially in international markets. Conversely, a staffing firm focuses on recruiting and placing temporary or contract workers for short-term projects or to fill immediate staffing gaps. The staffing firm handles the recruitment process and may manage payroll for the temporary staff, but does not provide the comprehensive employment services that an EOR does.
Use Cases
1. Staffing and Recruiting
When applied to recruiting agencies offering contract staffing, the employer of record serves as the legal employer for contract employees. The responsibility of the employer of record often falls onto a third party known as a contract staffing back office. Recruiters can take on the back office responsibilities themselves, but recruiters can also outsource the responsibility to a contract staffing back office. If you choose to add contract staffing to your recruiting business, you need to decide who will be the employer of record for your contractors. Also, if you decide to run the back office yourself, you need to make sure you have the time and resources to do so. Lastly, if you don’t want to run the back office yourself, a contract staffing back office provider can take the responsibility from you. The employer of record service will handle staffing agency (recruiter) payroll funding, pay the workers, and handle all payroll and employment responsibilities.
2. Direct Sourcing
Enterprises across the globe are beginning to take control of their contingent workforce. One common key initiative among enterprises is the launch of Direct Sourcing Programs, which enable enterprises to attract and hire contingent labor without the help of traditional staffing and recruiting partners. Although these organizations are taking control of the recruitment process, they still commonly use EOR vendors the employment duties for their temporary and contract workers.
3. Global EOR
Other non-recruiting businesses can also use employers of record. When a business wants to hire an employee from another country, but has no entity in that country, the business can use an EOR. The employee still works for the business, but the employer of record handles payroll and HR issues in that local country.
This enables the business to expand globally, without having to establish an entity or worry about local employment laws and taxes. With the rise of remote work trends, global EORs are poised to be a vital part of the global employment ecosystem for companies that want to hire anyone, anywhere.
Pros and Cons of using an EOR
If you’re still wondering if an Employer of Record is for you, below is a quick pros and cons list that helps to summarize what you may experience while using an EOR.
Pros:
- EORs handle local employment laws, tax compliance, and payroll processing. This reduces the administrative burden on companies.
- They allow businesses to quickly and legally hire employees in new regions without establishing a legal entity
- EORs ensure compliance with local labor laws, minimizing the risk of legal penalties.
Cons:
- Less control over employment practices and cultural integration within the company.
- It might also lead to higher costs compared to managing payroll and compliance in-house, especially for larger organizations. Check out this blog post to see the most common EOR pricing models: How much would an EOR cost me?
- Some companies may find the EOR’s services too rigid, which limits their ability to customize employment terms and benefits.
Partnering with an Employer of Record Service
Whether you’re a staffing organization or a business leader looking to outsource the burdens of employment anywhere in the world, you need to make sure workers are classified correctly, paid accurately, and employment issues are handled. Otherwise, there can be compliance consequences.
FoxHire provides comprehensive Employer of Record solutions for staffing agencies and enterprise customers. Learn more about FoxHire’s Employer of Record platform.
