Employer of Record (EOR)

Employer of Record is a third-party organisation that hires and pays employees on behalf of your company. This is possible thanks to the EOR’s legal entities worldwide, which eliminate the burden of establishing one yourself.

For example, your UK organisation needs to hire a developer in Germany. Once you’ve found the perfect candidate, you can hire them through the EOR’s legal entity in Germany. They get a regulated employment status and benefits just like a local employee while still working remotely for your organisation.

Moreover, the EOR acts as the legal employer of your employees while you remain in full control over daily operations and management. Essentially, the EOR provider takes on all employment liability, ensuring you’re compliant no matter where you hire.

A partnership with an EOR means that the administrative tasks related to global employment, like HR, payroll, and benefits, are off your plate. The first step involves the EOR hiring your already-sourced employees in the target country under its legal entity.

The employee enters into a locally tailored employment contract with the EOR instead of your organisation. When the documents pass the signing phase, the EOR takes care of salary distribution, tax withholding, and benefits administration. On top of that, it makes sure your global hiring is compliant with local labour laws and regulations.

Finally, the employee can start working and contributing to your organisation while being compliantly employed through the EOR. 

EOR’s responsibilities differ between providers. That said, there are some services that most EOR providers offer.

Payroll processing

One of the core EOR services is payroll processing. This involves accurately calculating and distributing employee salaries, managing currency conversions, and ensuring timely payment across different countries and regions. The EOR also manages the accompanying aspects of payroll, such as taxes, bonuses, and overtime. Plus, it maintains records and provides payslips for complete compliance with labour laws. 

Tax compliance

Each country has its own tax system, and the EOR possess the legal knowledge for each. Once you partner with an EOR, it will calculate, withhold, and remit the correct tax amounts for every employee. Since labour laws regarding taxes change regularly, the EOR stays up-to-date and helps you avoid any legal fines and penalties for non-compliance. 

Benefits administration

In order to attract and retain the best global talent, you must offer benefit packages that stand out. And the EOR can help you to design, implement, and manage them. The EOR negotiates with local insurance providers so that the compensation package is competitive and compliant with regional employment standards. The package can include anything from private health insurance to wellness options.

Employment contracts

The EOR creates legally sound, localised contracts that comply with each country's specific labour laws and regulations. These contracts outline key employment terms such as job responsibilities, compensation, working hours, termination conditions, and other critical employment provisions. In that way, your organisation, as well as the employee, are protected in case of a misunderstanding or lawsuit. 

Work permits & visas

Relocating employees starts with the work permits or visa application process. You’ll first need to check the type of visa your employee is eligible for and then start collecting the necessary paperwork. One missed deadline to submit documentation makes the whole process fall into the water. The EOR handles the application for you — whether that’s preparing and submitting necessary documentation, tracking visa expiration dates, or managing renewals. 

Here are some benefits that come with using an EOR for your global expansion.

Faster global expansion

With an EOR, you can bypass the lengthy process of establishing legal entities, which can take up to a year to complete in some countries. You can test a new market in just a few days and capitalise on market opportunities. This rapid deployment gives you the flexibility to scale up and down as needed. For example, if the current market doesn’t meet your requirements, you can switch your efforts towards a new one without spending time and money on closing an entity. 

Legal compliance

The EOR has an in-house team of legal, tax, and employment experts who ensure compliance with each country’s unique labour laws and tax regulations. If legal issues arise, the EOR provides protection. This is because the EOR takes full responsibility for any non-compliance penalties as the employee’s legal employer. Your organisation stays safe from a damaged reputation and costly penalties.

Cost efficiency

Setting up entities in multiple countries requires significant effort and resources. The EOR eliminates the need for significant upfront capital and ongoing administrative expenses. By using its existing infrastructure and economies of scale, you reduce overhead costs regarding legal setup, HR admin, and compliance management. As a result, you get more funds left, which can be used towards the growth of your business.

Streamlined HR management

EORs provide a centralised and efficient approach to managing global HR operations. They handle various administrative tasks, including payroll processing, benefits administration, tax compliance, and employment contract management across different countries. This centralisation eliminates the complexity of maintaining multiple HR systems.

Improved employee experience

Partnering with an EOR enables companies to deliver a professional, consistent, and supportive employment experience for international talent. EORs ensure employees from different countries are unified on one platform, where they get support to navigate complex tasks like taxes and employment. 

EOR services are suitable for any business that wants to hire in new countries but doesn’t have a legal entity. They’re especially beneficial for startups and SMEs that want to scale quickly without tackling the red tape and legal complexities.

In addition, the EOR presents a compliant way to hire globally for remote-first companies that embrace distributed teams. Enterprises which want to test out new markets without making large investments up front also stand to benefit from EOR. 

The main difference is that the EOR can hire employees in other countries on your behalf, while a Professional Employer Organisation (PEO) can’t always do that. If you want to hire a new employee from abroad without a legal entity, you'll need to use an EOR service. If you need help with HR, admin, payroll and such in a country where you already have a business entity, then you'll need a PEO.

Simply put, a PEO offers the same services as EOR but doesn’t provide legal employment for employees in other countries. 

Another difference is that with a PEO, you enter into a co-employment relationship. This means that you, the business, and the PEO share employer responsibilities and liabilities. So, in case of legal fines, you’ll also participate in covering the damages and costs.

Staffing agencies help you cover temporary, seasonal, or contract-based roles. They don’t act as the team member’s legal employer, so the client company is responsible for managing taxes, payroll, and benefits. On the other hand, the EOR enables you to hire employees on a full-time basis permanently. Unlike a staffing agency, an EOR allows you to retain your talent even if you leave the provider or switch to another. 

This section will cover key considerations you need to keep in mind when choosing an EOR provider. 

Geographic coverage

It’s important to check if the EOR has legal entities in the countries where you plan to operate or expand. Plus, consider not just the current countries you need coverage in, but also potential future expansion plans. In addition, the EOR should have a deep understanding of regional employment and a proven track record of expanding into the targeted countries. 

Compliance expertise

The right EOR must demonstrate extensive knowledge of local labour laws, tax regulations, and employment standards in each jurisdiction. This goes beyond surface-level understanding – seek a partner who knows the ins and outs of every labour law. Check their approach to staying updated with changing regulations and their ability to provide detailed guidance on local employment requirements.

Payroll & benefits offerings

Evaluate the depth and flexibility of the EOR’s payroll processing capabilities, including their ability to handle multiple currencies, manage complex tax calculations, and ensure timely payments. When it comes to benefits offerings, the EOR should have a broad partner network that gives discounts to localised benefits, like gym membership or health insurance. 

Yes, Native Teams provides EOR services across 85+ countries. Through our EOR services, you can hire and onboard global talent in a few days, pay them in their local currency, and provide world-class benefits. We help you stay GDPR-compliant and take on employment liabilities, so you don’t have to worry about compliance ever again.

With over 70K satisfied employers and legal expertise, we’ve propelled businesses to achieve their global aspirations. Check out one of our many success stories, revolving around how L33T was able to hire globally and mitigate compliance risks with Native Teams:

“With Native Teams’ EOR services, we were able to enter new areas without the need for separate entities, which saved us time, resources, and unnecessary paperwork. Native Teams are distinguished by their comprehensive assistance, freeing us of the pressure.”

— Neven Roginic, CEO at L33T