The Employer of Record (EOR) Decision-Making Guide
HR Tips Honeypot
The workplace as we know it has ceased to exist. Was that too dramatic? Perhaps. But we can’t deny that the last few years created a drastic shift in working conditions. And that shift opened up a new avenue of employment possibilities - one of them being globally remote.
The concept of remote work has massively gained popularity. The normalization of flexible working, paired with talent scarcity, has created an ideal environment for its rise. While the benefits are plenty, we need to admit that remote setups entail their own set of hurdles. To clear the path, service providers - known as Employers of Record (EORs) - began helping companies with hiring employees across borders. EORs allow companies to tap into the remote talent pool, without having to deal with relocation, payroll, legal, and administrative logistics. No wonder they have piqued the interest of many.
But can it really be this simple? And our short answer is: every endeavor comes with its own set of challenges. We’re all looking for quick wins, especially in times of high hiring need. We’re here to support you in making the best possible decision. So, before you commit to a service provider, we advise you to read our Employer of Record Decision-Making Guide.
What is an Employer of Record (EOR)?
Say you find a talent, a perfect match, but for some reason, you are unable to employ them. But don’t break into tears just yet, you can still hire that talent through an EOR. How does that work you ask?
An Employer of Record is a service provider that allows you to engage global talent as if they were your “own employee”. The EOR remains responsible from employment law, social security, and tax perspective throughout your service relationship. In short, an EOR becomes the full legal employer of that talent while you benefit from the services that the talent provides.
Using an EOR solution does come with a price. Generally, their services are charged either as a percentage of the employee’s yearly salary or at a fixed price per month per leased employee.
The difference between a PEO and EOR
When you are hiring globally remote, you will find two common models or concepts: the Employer of Record (EOR) and the Professional Employer Organization (PEO).
Even though the expressions might refer to two different models in some jurisdictions, they actually mean the same model in others. Therefore, it is important to focus rather on the offered services than on their label.
In general, both models support you in complying with the local employment laws (social security, and tax) when hiring globally remote. Contrary to an EOR, a PEO often just offers local HR support (payroll and legal advice) without becoming the legal employer of the talent. In such case, the responsibility for observing all employment related obligations remains with you. This is the biggest difference between both models.
What solution does the Employer of Record provide?
The main problem EORs are solving is allowing companies to hire and pay remote employees without the necessity to observe employers’ obligations.
You can expect an EOR to:
- Prepare the employment contract
- Complete the employee onboarding
- Register your talent with the local government
- Manage employee benefits
- Process the payroll for the employee
- Take care of social security and taxes
- Ensure adherence to regional labor laws
Most common use cases for an EOR
Entering a new market is a complex and lengthy process. An EOR can speed up your international expansion and act as a catalyst for widening your talent pool.
Having an Employer of Record could benefit your business when you’d like to:
- Expand to new markets without hassle: this makes it easier to validate your market before you enter “full-force” and open a branch.
- Keep an employee that is relocating: if you’d like to retain a talented worker that is determined to move to a different country.
- Employ freelancers: when the one-off project was so well done, you’d like to include the remote freelancer in your team.
- Make the switch to remote-first: if you are ready to forget about office life and enhance your employer branding.
What’s a big challenge and worry when a company starts working with an international workforce? It’s a concept called the creation of a permanent establishment (PE).
It means that a business can be subject to corporate tax in a country, even though neither a subsidiary nor a legal entity has been established there. For the creation of a PE, it is sufficient to have tax-relevant business activities in that country.
We’re telling you this because the creation of a PE might result from business activities carried out by the “leased” employees on your behalf.
And how is this connected to our topic on the global workforce? First and foremost, the biggest factor when leasing a talent through an EOR is the residency of that talent. The country your remote hire is residing could understand that you’ve created a PE - in their jurisdiction. As that might create a taxable presence in that country, you’ll want to avoid creating one by accident.
The PE risk will mainly depend on the activities and scope of business carried out by the talent. You should be especially careful if the local “leased” talent carries out any sales activities. Before hiring a talent in another country, you should always consult a tax expert.
How to stay compliant when partnering with an EOR
We firmly believe borders should not be an obstacle when hiring a great workforce. And the good news is we can visibly notice a massive change in attitude towards global hiring.
Nevertheless, globally remote is not as simple as we’d like it to be. Navigating through the realm of labor law and choosing from different EOR vendors can be overwhelming - especially during hiring urgency.
We want to aid you in making an informed decision when it comes to these employment types. That is why we suggest you read Honeypot’s EOR guide when considering hiring remotely through an EOR.
What to expect from Honeypot’s Employer of Record Guide
As already stated, the residence of your remote hire will play the most crucial role when making a hire in a foreign land. In our guide, you will find important information regarding EOR laws and requirements for 16 European countries.
Every country page follows the same framework. We have split the information into the following sections:
- EOR regulations: make sure your EOR is complying with the local laws.
- Employment T&Cs: understand T&Cs you’ll need to comply with.
- Premature termination: familiarize yourself with local termination and severance laws.
- Risks: understand the risks you could be subject to if you are not complying with the local laws and regulations.