How employer of record services work and the benefits of using them to manage global workforces
Managing a workforce can be challenging, especially with tasks like payroll, taxes, and labor laws to consider. This is where an Employer of Record (EOR) helps. An EOR takes care of all these responsibilities so businesses can focus on their work instead of dealing with complex rules and paperwork.
This blog post explains what an EOR does, why it's important, and how it can make managing a contract workforce easier for companies.
An EOR, or employer of record, is an agency that takes on the role of the legal employer for workers on behalf of another company. This means that the EOR handles all employment tasks, such as payroll, taxes, benefits, following labor laws, and providing human resources (HR) support.
When a business uses an EOR, it can pass these administrative tasks and legal responsibilities of employment to another agency. This gives a lot of time and energy back to the business, which can be used for other priorities.
The main job of an EOR is to legally employ workers for the client company. Here’s what that includes:
In short, the EOR takes care of the legal and administrative work, while the client company focuses on managing the day-to-day tasks and performance of its workers.
There are many scenarios in which businesses greatly benefit from using an Employer of Record. Here are a few benefits that allow companies to rest easy in the asurance that their EOR has them covered.
With global business operations and remote work becoming more common, companies often need to hire workers in different countries and regions. This can be tricky because each location has its own set of labor laws and regulations.
An EOR helps businesses hire and manage workers in multiple locations without needing to set up legal entities or handle complex international employment laws themselves. This allows employers to avoid compliance issues, misclassification of contractors, and the complexities of local payroll and employment laws.
One big advantage of using an EOR is flexibility. Companies can easily adjust their workforce up or down based on project needs, seasonal demands, or new market expansion. This flexibility is very helpful for businesses that need to adapt quickly without getting stuck in the complexities of onboarding and offboarding workers.
Reducing Legal and Financial Risks
Hiring workers comes with legal and financial risks, such as misclassifying workers, making tax errors, or facing employment-related lawsuits. An EOR takes on these risks by ensuring that all employment practices follow local laws. This reduces the chance of legal issues and financial penalties for the client.
Administrative Support
An EOR makes it easy to handle administrative tasks that come with managing a contract workforce. This includes handling the process for onboarding new workers, offboarding those who leave, and managing all HR documents throughout the employment lifecycle.
The EOR ensures all tasks are done correctly and follow legal requirements, reducing the administrative load on the client.
Besides handling payroll and compliance, an EOR also takes care of employee benefits like health insurance and retirement plans. The EOR provides ongoing HR support, helping workers with any questions or issues they might have. This support ensures that they have a positive experience during their time with the company.
Engaging an EOR is a fairly straightforward process. Here is a step-by-step look at how working with an EOR typically goes, from initial consultation to offboarding.
The process of engaging an EOR generally starts with a consultation between the client and the EOR provider. During this meeting, they discuss the client’s specific needs, goals, and workforce requirements. The EOR provider takes the time to understand the client’s business, industry, and compliance needs.
This needs assessment helps the EOR identify where they can add the most value and solve any challenges the client might face in managing their workforce.
After the initial consultation, the client and the EOR work together to finalize the details of their partnership. This includes negotiating a contract that clearly outlines the responsibilities of both parties. The contract will cover key areas such as the services the EOR will provide, performance expectations, pricing, and legal obligations.
The goal is to ensure that both the client and the EOR are aligned on what to expect, and that there is clarity on all aspects of the agreement.
Once the contract is signed, the EOR begins the onboarding process for the workers who will be employed under their services. This involves collecting necessary documents, like employment agreements, tax forms, and identification, from the workers. The EOR also helps with orientation and training sessions to ensure that the workers understand the company’s policies, procedures, and expectations. This step is important for creating a smooth and compliant employment relationship.
Throughout the workers' employment, the EOR takes care of all the administrative and legal responsibilities. This includes processing payroll, managing benefits, ensuring tax compliance, and handling any other employment-related obligations.
The EOR acts as the legal employer, but the client still manages the day-to-day tasks and performance of the workers. The EOR provides ongoing support to both the client and the workers, helping to resolve any issues and making sure everyone has a positive experience.
When the time comes for a worker to leave the company, the EOR handles the offboarding process.
This includes processing final payroll, ending benefits, and managing any necessary paperwork. The EOR ensures that the departure is smooth and complies with all legal requirements. They also take care of any final tasks related to the worker’s separation, such as providing notices and required documentation.
A PEO, also known as a Professional Employer Organization, is a full-services human resources company that helps businesses tackle common administrative responsibilities like payroll and benefits through co-employment.
Like an EOR, PEOs vary from company to company, and no two are exactly alike. In a co-employment setup, both parties share responsibilities.
In a co-employment setup, a professional employer organization typically handles tasks like payroll processing, managing payroll taxes, maintaining workers’ compensation coverage, administering employee benefits, and providing human resources guidance.
This leaves the partner company to manage other business operations. This includes responsibilities around day-to-day business operations and managing their workforce.
While the functions of EORs and PEOs can seem similar, there is one stark difference. While the relationships can be similar, an EOR is the legal employer of a workforce.
For companies looking to quickly and compliantly hire top talent from around the world, an EOR partner handles any market. This gives the company peace of mind, knowing they can build a distributed workforce without being bogged down in compliance issues.
Sometimes EOR vendors will outsource tasks to third party service providers to do work under the EOR’s brand name.
These outside providers take on tasks for the EOR, but the clients or employees usually don’t ever know another company is involved. This practice is called white labeling, and it’s surprisingly common in the industry.
Knowing who the actual EOR is—whether it's the original company or a third-party provider—is very important for several reasons.
Legal and Compliance Obligations: The true EOR is legally responsible for things like following labor laws, handling tax obligations, and administering employee benefits. Knowing who that is helps ensure clients stay compliant with any pertinent regulations and avoid potential liabilities.
Financial Responsibilities: The EOR is in charge of processing payroll, withholding taxes, and managing other financial responsibilities related to employment. Correctly identifying the true EOR helps make sure financial resources are properly used and reduces the risk of financial errors or misclassification of workers.
Employee Relations: Employees depend on the EOR for important aspects of their job, like getting paid on time, receiving benefits, and resolving work-related issues. Recognizing who the real EOR is helps maintain clear communication and trust between the employer and employees.
Challenges and Risks of White Labeling: In some industries white labeling offers flexibility, but with EOR there are challenges and risks to consider.
Lack of Transparency: One of the biggest issues with EOR white labeling is the lack of transparency. Employees might not know that a third party is involved, which can lead to confusion or mistrust about their employment situation. This can negatively affect employee morale and overall satisfaction.
Compliance Risks: Using a white-labeled EOR service can introduce risks related to compliance with labor laws, tax obligations, and other regulations. If the relationship between the original EOR and the third-party provider isn’t clear, the organization might unintentionally break the law or breach contracts, leading to legal and financial penalties.
Declining Service Quality: When EOR services are white-labeled, the original company might lose some control over how services are delivered. This can result in inconsistent service quality and affect the experience of both the client and the workers. Strong communication and clear service-level agreements can help reduce these risks, but they are still a concern.
Managing a contract workforce used to involve coordinating with multiple service providers to handle sourcing, recruiting, and employment. Working with so many different vendors made the process complicated and inefficient.
The HireArt platform is a comprehensive workforce management solution with EOR capabilities built in. This allows every aspect of contract workforce management to be run from one place, creating a seamless experience for worker engagement, management, and other transactions. It's a big change compared to how things used to work, and it comes with unparalleled benefits.
HireArt is the first and only platform that brings together all the essential data, tools, and services needed for workforce management into one unified system. By using this platform, companies can manage their entire workforce without having to rely on multiple outside providers, such as managed service providers, staffing firms, or other tech companies.
Traditionally, managing a contract workforce meant gathering data from multiple, disconnected sources, making it hard for companies to get a clear and complete view of their entire contract workforce. The HireArt platform solves this problem by serving as both the system of record and the employer of record, acting as a single source of truth for all contract workforce data. The platform provides unmatched transparency and real-time access to data.
With the rise of global and remote work, companies often need to hire workers across different regions and countries. Software can be a powerful tool to automate compliance with laws and regulations in any state, locality, or international setting. This ensures reliable and consistent compliance no matter where the company wants to hire.
A software platform with built-in EOR capabilities centralizes resources in ways that were previously not possible. Instead of working with multiple vendors, the platform serves as a single point of contact for managing the contract workforce, resulting in several valuable benefits.
An EOR offers many benefits when managing today’s workforce. By acting as the legal employer, EORs take care of day-to-day administrative tasks and ensure compliance.
When companies work with an EOR, they gain access to a global talent pool and enjoy workforce flexibility. EORs allow companies to focus on their core activities while all the responsibilities of employment are handled by a trusted partner.
HireArt takes the role of EOR even further by combining employment with a complete software solution for managing contract workers. This gives clients clear access to employment data, automates compliance, and is backed by unmatched customer support from a dedicated account management team—all without needing multiple technology solutions or outside service providers.
EOR services are a strong solution for today’s workforce challenges. As the contract workforce keeps growing, EORs will play an even bigger role in shaping the future of work.
HireArt is a contract workforce platform that lets companies source, employ, and manage top-performing contract workforces. We provide our clients with the tools and visibility needed to easily manage their contract workforce and staffing vendors in a single seamless, instantly-deployable platform.
Schedule a demo today to learn more!
