Employer of Record (EOR)
What is an EOR?
An Employer of Record (EOR) is an 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. EOR is sometimes referred to as Global Employment Outsourcing (GEO). Companies use an EOR as a vehicle for exploring new markets, or as a means to safeguard against non-compliance. Businesses typically consider an EOR as a stop-gap opportunity when they are trying to facilitate an acquisition. An EOR can save companies costs, but the real value is in speed and flexibility to expand to locations without having to make the startup investment.
The critical difference between an EOR and PEO is an Employer of Record is the full legal employer of a company’s distributed workforce, while a PEO remains a co-employer. A PEO is more of a services provider than a partner for global expansion. An EOR, on the other hand, immediately allows companies to employ workers around the world. The key difference between an EOR and a PEO is the entity requirement and shared legal responsibility. Unlike with a PEO, the burden of entity establishment and legal responsibility falls solely on the EOR.
An EOR solution is perfect for organizations planning international expansion. Typically lack of speed or local expertise are among an organization’s top concerns, an EOR may be the best option for achieving your global growth objectives.
Here are some common situations in which organizations would consider an EOR provider to help their global expansion efforts:
Vehicle For Exploring New Markets
An EOR enables organizational readiness of an international market by hiring workers in target countries. Companies can “test the waters” in the country by starting operations with new workers, without having to commit the time and money required to establish an entity.
Safeguarding Against Independent Contractor Non-Compliance
If reliance on international independent contractors as part of the growth plan, it’s possible that the work to be performed is too similar to what the local government prescribes for employees. These contractors could put companies at risk of employment and tax violations. An EOR can hire contractors on a company’s behalf, in accordance with all local requirements, to prevent non-compliance penalties.
An Entity Stopgap
Perhaps an organization has identified a new growth market and decided on entity establishment as the best course of action. If a company needs to begin operations quickly, and the entity setup process is long and complex. With an EOR, companies can have workers up and running in the new country in a matter of weeks while the company does the work of the entity set up in parallel.
Facilitating An Acquisition
If an organization has recently acquired a workforce in a new country but doesn’t have a way to compliantly pay the new employees because the deal didn’t include the legal business entity, an EOR can pay the employees compliantly on the company’s behalf—indefinitely, or until the company sets up its own in-country entity.
How to Decide Between an Employer of Record and PEO Partner
Companies choosing between a U.S. Employer of Record and Domestic PEO must understand how their needs align with each solution. Businesses that need help hiring full-time, permanent employees in their local area often choose PEO partners. While working with a PEO relieves you of HR-related responsibilities, the company will still be held accountable for both legal and day-to-day operations—including registering the business in states in which they hire people.
If the goal is to quickly and compliantly hire top talent no matter where they’re located, partnering with a U.S. Employer of Record gives the flexibility to easily enter all 50 states—no business registration required. Working with an Employer of Record also gives the peace of mind knowing that experts compliantly handle every HR and employer-related responsibility, so teams can focus on their core responsibilities. As a result, Employer of Record providers reduce the time, hassle, and cost required to build a distributed workforce across the U.S.