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Companies are realizing the advantages of hiring workers internationally, but it can be difficult to hire, pay, and manage workers in countries without a local legal entity. Working with an employer of record is the easiest way for companies to leverage a global workforce while minimizing the risks of expansion. What does working with an employer of record actually mean, though?

What is the definition of an employer of record?

An employer of record, or EOR, is a company that helps you employ workers in other countries by acting as the local employer on your behalf. Typically, your EOR will handle human resources administrative work as well, including local payroll, benefits administration, and tax compliance. With a reliable EOR partner, you can quickly and safely hire and pay workers globally without going through the expensive and difficult process of opening your own legal entities in multiple countries.

See also: Learn more about Remote employer of record services

What are the benefits of using an employer of record?

There are many benefits to using an employer of record. These benefits save money, mitigate risks, and simplify HR. An EOR can be a powerful partner for businesses with distributed teams.

  • No need to set up a local legal entity to employ global workers.
  • Local experts on tax law and regulations
  • Comprehensive understanding of local statutory benefits
  • Fast onboarding of new workers
  • Intellectual property protections
  • Decreased classification risks
  • Reduced paperwork
  • Accelerate your global expansion plans

Five key steps to using an employer of record to hire international employees

1. Research EOR providers.

There are a lot of EOR providers out there, so choose the one that aligns best with your needs and budget. Practice due diligence and investigate a variety of EOR providers, their offerings, and their price points.

See also: How to compare EOR providers

2. Analyze customer reviews.

No one tells the truth quite like a customer. Seek reviews and feedback from existing customers of the EOR you want to use. In particular, value feedback from reviewers with needs similar to those of your own business, as your experience with the EOR will likely be similar.

See also: How Swell saves time with stress-free international hiring

3. Consider the experience of your employees.

Since the EOR will handle your employees’ payroll, benefits, and other HR tasks, you will want to work with a partner you not only trust to get it right, but also a partner who treats your team with respect. These interactions include onboarding, getting paid, and dealing with tax season.

See also: What is it like for your employees when you choose Remote?

4. Pay your workers appropriately.

Make sure you are paying workers appropriately given the local market and their role in your company. A good EOR can guide you in determining the right salary for your employees in regions where you may not have much experience.

See also: How to calculate compensation for remote employees

5. Safeguard your intellectual property

Your intellectual property is the lifeblood of your business. Without protections for your IP, you could end up fighting costly legal battles in foreign courts with laws you may not know. Avoid the hassle by making sure you work with an EOR that provides the maximum protection for your intellectual property and invention rights.

See also: Intellectual property and invention rights for companies with remote workers

What are the responsibilities of an employer of record?

EORs handle human resources activities, payroll, tax and legal issues, compliance, and benefits for your employees in other countries. Those responsibilities can vary from company to company, as can the ways in which your EOR may handle these duties on your behalf. The most common responsibilities of an employer of record include the following:

  • Paying your employees in local currencies
  • Administering employee benefits packages
  • Withholding taxes
  • Filing tax forms
  • Making contributions to government programs (like social security)
  • Onboarding employees
  • Maintaining compliance with evolving local labor laws

For more information on the functions of an employer of record, see our guide to understanding what an employer of record can do.

How do I set up global payroll?

Global payroll is a complex process that varies from country to country. If you are looking to pay workers in other countries, follow these steps:

  1. Identify the person you wish to hire (or the existing employee who will be relocating).
  2. Determine whether your new worker will be a contractor or an employee.
  3. Select a global payroll provider, also known as an employer of record, or EOR.
  4. Confirm the worker’s salary and benefits package.
  5. Provide the worker’s information to your provider to set up payroll.
  6. Work with your global payroll provider to create an employment agreement.
  7. Sign the employment agreement with your employee.

Setting up global payroll may seem like a daunting task, but with the right partner, global payroll can be as easy as clicking a button.

See also: Remote’s Global Payroll Management Guide

What are the different types of employer of record service providers?

There are two main types of EOR service providers: owned-entity and partner-dependent. 

Partner-dependent EOR service providers

As the name suggests, partner-dependent EOR service providers do not provide their services directly to you. Instead, they resell the services of local third parties in countries where they operate — either in all countries or only in certain countries. This structure allows the EOR to charge more money, but it comes at the cost of less control. Partner-dependent EORs do not have final say over their own fees, which means your monthly bills can be unpredictable, or the experience provided to your employees, which means problems can take several days to solve. Avoid partner-dependent EORs at all costs.

Owned-entity EOR service providers

Owned-entity EOR service providers do not rely on third parties. Instead, they fully own their local legal entities, which means they can exercise full control over their own billing and the experience of your employees. Whichever EOR you choose, make sure the EOR owns its own entity in the countries where your employees will be working. Remote only operates in countries where we fully own and operate our own local legal entities to save you money, provide a great experience for your employees, and guarantee maximum protections for your intellectual property.

See also: The difference between owned-entity and partner-dependent EORs

What's the difference between an EOR and a PEO?

A professional employer organization (PEO) is fundamentally different from an EOR, although some people use these terms interchangeably to refer to global payroll providers. From the outside, they can look very similar. After all, both handle HR tasks including, global payroll, benefits, withholding, and reporting.

However, these are a few key differences:

  • A PEO does not employ workers on your behalf like an EOR does.
  • You must have a local legal entity in a country in order to use a PEO.
  • With a PEO, the burden of compliance with local labor laws falls to you.
  • A PEO may be cheaper than an EOR if you already have a local legal entity.
  • If you do not have a local legal entity, it is usually more affordable to work with an EOR.

See also: The differences between an EOR and a PEO

When should you use an employer of record?

There are several situations when it may make sense to work with an employer of record:

  • When you don’t want to establish a legal local entity in a country where you wish to employ workers. Establishing a legal local entity is both expensive and time consuming. It can take months or longer and cost upwards of $100,000. Unless that makes financial sense for your business, an EOR is a simple, cost-effective solution to hire international workers quickly and easily. You can have employees ready to work within days for a simple flat fee per worker.
  • When you need to employ international workers and the work they do cannot be classified as contract work. Although it’s possible to use international contractors, not all jobs can be classified as contract work. Misclassifying employees as contractors opens you up to serious consequences such as fines and penalties. In these cases, an EOR is a great choice.
  • When an existing employee relocates. As remote work becomes more commonplace, employees are less tied to one physical location. Workers today can move freely around the world without giving up their jobs. An EOR is a quick and easy way to retain employees who choose to relocate without having to open entire new legal entities in multiple countries. With an EOR, you can even employ digital nomads moving from country to country.
  • When you have concerns about worker classification. More and more countries are cracking down on employee misclassification. Employers must be careful and ethical about properly classifying employees. However, definitions and enforcement vary from country to country. A reliable EOR partner will have local expertise to help you classify employees and contractors properly, thereby reducing your misclassification risk.
  • When you need to protect your IP globally. Working with international employees and contractors can expose your intellectual property to novel risks if you are not careful. Owned-entity EORs offer superior IP protection, which can give you peace of mind as you expand your global team.
  • When you lack expertise in tax and employment law in a given market. Hiring an employee in a new country means understanding how taxes work in that country, as well as complying with a whole new set of employment laws. Given how complicated these laws can be, it’s unrealistic to expect to navigate all of them without outside help. An EOR understands these laws on your behalf and can help you navigate new employment markets with ease.

What is included in an employer of record agreement?

An employer of record agreement includes several components:

  • Assignment of the worker’s legal employment to the EOR
  • Transfer of intellectual property created by the worker from the EOR to your business
  • The employee’s salary
  • The employee’s benefits
  • Any required social contributions to the country’s government, like social security
  • Terms of payment
  • Length of agreement

Some employers of record may ask you to sign an exclusivity clause, locking you into a contract with a single provider for multiple years. These exclusivity clauses could significantly harm your business if your chosen provider does not meet expectations, as they would prevent you from switching to a new provider. Remote never includes exclusivity clauses or long-term commitments in its employer of record agreements, giving you the freedom to make the right choice for your business.

Does an employer of record manage payroll?

Yes, an employer of record manages payroll for your international employees. Your EOR handles everything related to payroll for your employees, including deducting taxes and mandatory social contributions, as well as contributions for benefits like private health insurance. In addition to payroll, EORs also manage benefits, local tax filing, and compliance.

How much does an employer of record cost?

Most EORs use either a flat fee or a variable pricing model.

Flat fee EOR pricing

A flat fee model charges a single fee per employee, usually on a monthly or annual basis. Paying annually is typically more cost effective, while paying monthly offers greater flexibility.

Flat fee pricing for EORs has several advantages. For example, you can employ as many people as you want at any salary, and your bill will never change based on how much you pay your employees or what benefits you choose to offer. This is the preferred option for most companies.

Remote offers low flat-rate pricing in every country where we operate. We are committed to transparency, which means we never charge you hidden fees or percentages. To learn more, see our guide to the Remote Fair Price Guarantee.

Variable EOR pricing

A variable pricing model charges a percentage of your employee’s salary. Under this model, the amount you pay depends on how much your worker earns. If you have low-paid employees, this solution might be cheaper than a flat pricing model. However, as your employees earn more, your EOR expense increases. This model discourages wage increases, which can make your company less competitive for top talent in the area.

In addition, variable pricing means your fees are subject to change based on the whims of your EOR provider. In general, this model is less predictable and less desirable than a flat pricing model.

What are the alternatives to using an employer of record?

If you don’t want to use an employer of record to hire international workers, you have two choices. You can either work with contractors instead of employees, or you can establish your own local legal entity.

Hire global contractors

If you don’t have a local legal entity and do not wish to use an EOR, you can still hire global contractors. However, you cannot simply begin referring to your employees as “contractors.” Doing so would expose your business to a host of misclassification problems. If you respect the independence of the contractor, however, working with global contractors can be a great way to grow your business or handle time-sensitive tasks without onboarding a new employee.

See also: How to hire independent contractors

Establish a local legal entity

If you wish to hire full employees in another country without an EOR, your only other option is to establish your own local legal entity. To do so, you must file the proper paperwork with local authorities and prove your case as a registered business, which may include establishing a physical presence in the country or having a certain number of employees.

Establishing a local legal entity can take several months or longer and cost tens of thousands of dollars. However, doing so may still be in your best interest, especially if you plan to open a new office in the country in question. Establishing a local legal entity may not make sense for a handful of employees, but if you want to open an office and hire a hundred workers, then opening a local legal entity is likely your best option.

If you do choose to open a local legal entity, an EOR can help you accelerate your plans by allowing you to start employing local workers without waiting. You can employ your team members through the EOR until your local entity is ready, then transfer the employee agreements to your newly established company.

Remote’s employer of record services

Remote offers comprehensive employer of record services in countries all over the world, with new countries opening every month.

Remote’s EOR services include onboarding workers, managing payroll, handling tax withholding and reporting, and creating and administering locally compliant benefits packages. Our software provides easy access and reporting for all your global employees and contractors. Plus, Remote IP Guard guarantees the strongest intellectual property protections in the industry. If you ever have questions, our local tax and legal experts are always happy to assist.

Ready to start employing workers in other countries using Remote’s employer of record services? Sign up now to begin onboarding employees and contractors in minutes!

Not sure whether Remote is right for your situation? Contact us to speak with one of our global employment experts, and we will help you make the right choice for your business.