Employer of Record Pros and Cons

Hiring a new team member from a different country could be the best next step for your team. Recruiting and managing global employees, however, throws new tax and labour laws into the mix.
You could go it alone, but EORs are far more effective at tackling the complexities of global employment.
In this article, we’ll explore the Employer of Record benefits and risks and whether their services are your golden ticket to hassle-free hiring abroad.

Understanding Employer of Record Services

What is an Employer of Record (EOR)? An Employer of Record is a third-party organisation that takes on the legal responsibilities of employing staff in different countries.

If a business is interested in remote onboarding internationally, they’d need to set up a legal entity with the government and endure the fees and time frames attached.

Instead, businesses use EORs to more quickly expand internationally while remaining safeguarded against the complexities and liabilities of local employment law and practices.

While EORs have been around for a while, they've recently surged in popularity with the rise of remote work. In fact, the global Employer of Record market size is projected to reach $6.6 billion by 2028.

So, how does an Employer of Record work? Here’s the rundown:

They attract and keep international talent – An EOR provider takes on international hiring to craft compelling and compliant employment packages for the employees you seek. Their focus on employee satisfaction and well-being also encourages loyalty—meaning once you secure an international employee, you have the best chance of keeping them.
They interface with authorities – The bureaucracy surrounding legal entities can be a drain on your internal resources. EORs circumvent the red tape and get you authorised to employ as quickly and inexpensively as possible.

They make sure you stay compliant – Staying on the right side of the law when it comes to hiring internationally is not a one-and-done job. With tax and labour regulations constantly evolving, an EOR provider keeps your business compliant and out of trouble.

The Benefits of EOR Solutions

What exactly can companies and HR professionals gain from adopting an EOR solution?

Better candidates

You’ll have a better shot at landing talent because an EOR knows how to connect your job to desired candidates. They have the intelligence on employee compensation and benefits, market trends, competitive employment contract terms, and the local nuances that compile an attractive deal.

Faster Onboarding for International Employees

Welcoming a new person to the team is exciting, but onboarding can also be pretty time-consuming for HR. This is particularly true if you hire internationally because the processes can be different for every country. You have to create locally compliant employment contracts, collect various country-specific documents, and add them to a local payroll system.

Fortunately, an EOR can do all that for you. They’re responsible for the compliance side of onboarding. This makes the process quicker and smoother. That way, you can focus on integrating your new hires into the team so they can hit the ground running.

Peace of mind

An EOR takes the guesswork out of global labour laws, so you can rest assured your business is operating under the best practices of every different country. Whether it’s a complex global payroll requirement or an unfamiliar 30-page tax document, your EOR has you covered.

Time and money savings

With the air-tight system of an EOR, you dodge leaky payroll systems, reduce the need for specialised in-house teams, and avoid costly legal fees (or even fines) for the foreign country you’re hiring in.

By taking over repetitive administrative tasks like payroll, compliance, and benefits processing, EORs allow HR teams to concentrate on crafting initiatives that improve employee engagement and retention.

They also reduce the need for in-house specialists or additional technology investments, cutting overhead costs and streamlining processes.

Tax Filing & Compliance

EORs ensure that taxes are calculated and filed correctly according to local regulations, sparing HR teams from navigating intricate tax codes across different jurisdictions.

A quality EOR makes sure you understand what’s required in each of your hiring countries. They tell you about upcoming changes that affect your international team members, and they can help you plan ahead for new hiring markets.

Happy employees

EORs uphold your duties to your staff to a T. That means accurate and on-time payment and delivery of employee benefits, addressing concerns promptly, and ensuring clarity and contentment toward their role—all of which make an international employee happy for the long haul.

Real-Life Scenarios Where EORs Shine

Wondering where an EOR fits into your business model? Consider these real-life scenarios:

Rapid Market Expansion: A tech startup wants to enter three new markets simultaneously but lacks the time or resources to set up legal entities. With an EOR, they onboard local talent within weeks while remaining compliant with local labour laws.
Diverse Benefits Management: An established company aims to attract top-tier talent in Europe, where employee benefits differ significantly by country. The EOR crafts region-specific packages to secure competitive candidates.
Temporary Global Projects: A company secures a project requiring international consultants for six months. An EOR handles short-term contracts and compliance, ensuring the project stays on track.

Cons of EOR Solutions

As any responsible global employer does, you want to be aware of both the benefits and the potential risks. Some are inherent to employing abroad, and others can be avoided by partnering with a competent EOR solution.

Inherent risks that you won’t want to overlook include:

Insufficient flexibility – Under many countries' regulations, the EOR model may impose tenure limits, employment contract obligations, and restrictions on the tasks a seconded worker can perform. That can negatively impact your workforce’s overall utilisation.
Operational limitations—Operating through an EOR can impose restrictions on business operations and affect project management, resource allocation, and employee communication. This could damage your team's agility.

Moving forward with a less experienced EOR also poses Employer of Record risks. Two of the most pressing concerns include:

Data protection and legal disputes – You're putting a lot of trust into a third party to manage sensitive employee data. Be certain that your EOR has robust data protection measures in place. Otherwise, you may end up at risk of data breaches or regulatory non-compliance.

Poor employee management – Some EORs boast rapid setup times but end up rushing employee onboarding to a fault. That leaves the door open to the risk of leaving out crucial details. They may also neglect other key HR tasks that can erode trust and deter future candidates.

Weigh the Employer of Record pros and cons while selecting your EOR. Partner with an EOR you trust to uphold your organisation’s reputation and legal stature abroad.

How to Determine if EOR Services Are Best For You

Determining whether Employer of Record services is appropriate for your business requires a detailed evaluation of your company’s needs and goals. You’ll also want to assess your capacity for managing international workforce complexities.

Here are a few aspects to consider:

Business objectives – Align the Employee of Record service with your broader business goals and assess how they can support (or potentially limit) your international expansion strategies.

Risk tolerance – Evaluate your company’s capacity for risk toward the potential legal, operational, and data security challenges that can come with EOR partnerships.

Cost-benefit analysis – Conduct a thorough cost-benefit analysis, weighing the financial implications of EOR fees against the potential savings and advantages offered.

Reflecting on these factors should shed some light on whether the advantages of employing an EOR outweigh the potential risks.

How to Choose the Right EOR Partner

Not all EORs are created equal. Selecting the right partner requires careful evaluation of your company’s needs and the EOR’s capabilities. Here are key factors to consider:

Expertise in Target Regions: Ensure the EOR has in-depth knowledge of labour laws, tax regulations, and cultural practices in the countries you’re hiring in.
Robust Technology Platform: A modern EOR should offer a user-friendly platform that integrates payroll, benefits, and compliance tracking for efficient management.
Transparent Pricing Models: Look for an EOR with straightforward pricing structures that align with your budget without hidden fees or unnecessary costs.
Proven Track Record: Request case studies or references to verify the EOR’s experience and reliability in handling global employment.

Focusing on these criteria will ensure a partnership that supports your expansion goals and safeguards your business.