An employer of record service enables you to employ people before establishing a legal entity thereby handling background checks, tax filing & payroll services.
Today’s digitally advanced society unlocks tremendous opportunities for doing business. Namely, outsourcing non-core business processes.
In this article, we focus on the employer of record service which is part of the ‘next-generation operating model’. We also explain, why you might want to consider using it in order to improve your business.
Employer of record definition
An employer of record (EoR) is a service provider that hires employees who will be on their payroll, but work for other companies.
For instance, let’s say that you have a company in the United States, but you wish to expand to Southeast Asia. Employer of record enables to employ people before establishing a legal entity there. They will handle the hiring and the international global payroll process for your foreign employees.
Employer of record also works if you do not aim to operate in Southeast Asia at all and would only like to outsource some processes like customer support or IT services.
Among other personnel functions, EOR will handle:
- Recruitment and background checks
- Employment contracts
- Payroll services
- Tax filing
Employer of record vs PEO (professional employer organization)
In brief, the main idea of an EoR and a PEO is the same – to handle staff for other companies. However, an employer of record is responsible for all legal matters regarding your employees. A PEO, on the other hand, becomes your staff’s co-employer and you would still hold liabilities.
You may view someone’s education, previous job, criminal records, social media profiles, and much more with a simple background check by this link. An online background check can help you acquaint yourself with the surroundings, whether you’re applying for a new job at an unfamiliar company or looking for an apartment in a new area.
Why companies use employer of record services
#1 Cost-efficiency
One of the main rewards you gain from using an employer of record is the significant cost reduction, regardless of whether you outsource employees from another company in your own country or choose to contract employees from neighboring or offshore countries.
Outsourcing employees from a professional organization will optimize your cost-benefit ratio. An employer of record is a recruiting specialist who has experience with professionals in various fields. Therefore, they have the knowledge on where and how to look for skilled experts.
Plus, an EoR already has the necessary tools for such employees, e.g software, office space, equipment. You also wouldn’t need to waste your money nor time on hiring and training these employees either.
What comes to using an employer of record from another country, the most important win by far is the difference in salaries. Many companies choose to outsource employees from developing countries such as Indonesia, Vietnam, or the Philippines where the salaries are much lower.
#2 Faster international expansion and access to new markets
In most Western countries, companies can be registered within a few days, or even within hours. In emerging markets such as Indonesia, Vietnam, or the Philippines, the time of a company setup is longer and more arduous.
#3 Test the market
Using an EoR also dissolves many risks that accompany business expansions. In particular, an employer of record enables to test the market and learn whether there is a demand for your products or services before making any initial investments whatsoever.
After gaining enough confidence you can proceed to company registration (if you wish to incorporate at all) with an already existing client base.
#4 Compliance with local laws
Emerging markets are known for their myriads of regulations which, moreover, can sometimes even change overnight. Therefore, there’s a chance that by the time you have enough local knowledge to comply with all the employment and tax laws, some of them might already be outdated.
An EoR, however, has up-to-date information. Moreover, there is no need for you to worry about compliance at all since you don’t bear any responsibilities regarding these employees.
#5 Focus on your core business
Another perk of using an employer of record which might not come to mind at first is that having a third party manage your staff will enable you to focus on your main business.
Instead of dealing with time and energy consuming staff administration – recruiting, payroll, compliance – you will only receive an invoice once a month from your employer of record who has already taken care of all respective matters. Thus, you will have more time to focus on your core activities.
