Why identifying the true employer of record is important and what can happen if you don’t
White labeling refers to the practice of one company purchasing a product from another company and then rebranding it as its own.
In the context of employer of record (EOR) services, it pertains to the outsourcing of EOR services to third-party providers who operate under the brand name of the contracting organization. In essence, the third-party provider delivers EOR services on behalf of the contracting company, often without direct visibility or recognition from the end client or employees. This can also represent when an EOR service outsources EOR services to another provider for support or coverage in a region or country where they do not yet do business, which is sometimes referred to as sub-vending of EOR services.
Any organization that engages with EOR vendors should be knowledgeable of who the true EOR is, as well as the challenges that might arise from white labeling.
In situations where white labeling is possible, it is important to accurately identify the true EOR. Understanding who the true EOR is ensures compliance with legal and financial obligations, promotes transparency, and upholds employee rights and relations.
Legal and compliance obligations - The true EOR holds legal responsibility for employment-related matters, including compliance with labor laws, tax regulations, and employee benefits requirements. Identifying the correct EOR ensures that the organization remains compliant with all relevant regulations and avoids potential legal liabilities.
Financial implications - The EOR is responsible for payroll processing, tax withholdings, and other financial obligations associated with employment. Accurate identification of the true EOR ensures proper allocation of financial resources and prevents financial risks associated with misclassification or non-compliance.
Employee relations and rights - Recognizing the true EOR is essential for maintaining clear lines of communication and accountability regarding employee relations and rights. Employees rely on the EOR for timely payment, benefits administration, and resolution of employment-related issues. Identifying the correct EOR promotes transparency and trust in the employer-employee relationship.
White labeling EOR services introduces significant challenges and risks, particularly in terms of transparency, compliance, and service quality. Without clear visibility into the true EOR relationship, organizations risk compliance violations and loss of control over service quality, which can ultimately undermine employee trust and organizational performance.
Lack of transparency - One of the primary challenges associated with white-labeling EOR services is the lack of transparency in the employment relationship. Employees may be unaware of the involvement of a third-party EOR provider, leading to confusion or mistrust regarding their employment status and rights.
Potential compliance risks - White-labeling or sub-vending EOR services may introduce compliance risks related to misclassification of workers, tax liabilities, and regulatory obligations. Without clear visibility into the true EOR-provider relationship, organizations may inadvertently violate labor laws or contractual agreements, exposing themselves to legal and financial penalties. Proper due diligence and oversight are essential to mitigate compliance risks associated with white-labeling EOR services.
Loss of control over service quality - White-labeling or sub-vending EOR services may result in a loss of control over service quality and customer experience. Organizations relying on third-party EOR providers may have limited insight or influence over the delivery of services, leading to inconsistent standards and performance. Maintaining strong communication channels and establishing service-level agreements (SLAs) can help mitigate the risk of service quality issues in white-label EOR arrangements.
While white labeling EOR services can offer certain advantages, organizations should be cautious and fully aware of the potential challenges. Properly identifying the true EOR and addressing the associated risks are important steps to ensure compliance, maintain service quality, and foster a trustworthy environment for employees.
HireArt’s embedded employer of record gives managers and contractors self-serve software, instant access to data, and an excellent user experience with automated onboarding, background screening, expenses, PTO, and offboarding.
To learn more about how HireArt can help your organization get the most out of its EOR experience, schedule a demo today.
