What is an Employer of Record (EOR)? A Complete Guide to EOR

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Today, operating a business in a foreign country isn’t necessarily a cost-intensive and time-consuming process. With the globalized economies and availability of advanced technologies, a foreign company can easily access global talent and hire remotely from multiple countries or a target location at reduced costs.

Before the COVID-19 pandemic, only a few players could take advantage by relying on international employees as a key workforce. The pandemic has brought a drastic change in the ideas and practices of international employment. Irrespective of how big or small, every business adopted cost-cutting measures to stay afloat in the cut-throat global market. One significant transformation that the pandemic brought in the business world was the rising acceptance of remote work setups.

With the increasing adoption of remote work across industries, it is believed by analysts that the remote work culture will stay relevant in the coming years. As Forbes mentioned, many companies would prefer working remotely, or at least in a hybrid mode to align with their employees’ preferences for work design. Also, one major development seen during the pandemic is the increasing remote hiring by small & medium enterprises (SMEs) for their business operations. It’s safe to say that the pandemic has a major role in accelerating the practice of hiring remote workforce for business needs.

Now, you may ask, “Is that easy to assemble a remote team and start operations quickly in another country?” The answer is “yes” if you know the market thoroughly and have all the necessary support to ensure a successful business operation. However, not every business has the same answer.

We’d say that hiring international employees today is relatively easy compared to a few decades ago. Technological advancements, favorable government initiatives, and rapidly evolving business ecosystems have helped ease international hiring. But, hiring remote professionals and employing them today still have several complications and challenges.

One major challenge of international hiring is businesses must ensure compliance with the existing employment regulations in that foreign jurisdiction. Setting foot in a foreign market requires adherence to various legal and compliance norms. It becomes more complex if a business aims at hiring remote talent from multiple countries as employment regulations differ significantly from one country to another.

This is where employer of record (EOR) services come into the picture and play a crucial role in your team expansion and operation strategy. EOR, as an expert service provider, offers compliance assurance and support to allow smooth hiring and seamless operations in the remote local market. It means that EORs enable a company to set foot in a foreign jurisdiction with zero complications.

For instance, EORs help Western companies hire the best professionals globally and employ them remotely in compliance with the employment laws of that specific country. This facilitates easy team expansion and smooth operations in a foreign country. The best part of employer of record (EOR) services for Western businesses is that the services play a crucial role in filling talent gaps and shrinking talent availability in the West. Talent deficit is currently a major threat in the Western corporate world.

Things you’ll learn from this blog

In this blog, we’ve explained every major aspect and fundamental of employer of record (EOR) services. It consists of 13 key areas, covering the meaning, evolution, benefits, and challenges of EOR services. Moreover, you can learn the difference between an employer of record (EOR) and other competitive business models helping you build a successful remote team in a foreign country.

Also, the blog has a detailed approach and study to showcase how India is a major destination for team building and operation expansion. It explains why EOR is essential in Indian expansion, the cost of using EOR services in India, and how to select the best Indian EOR service providers. Last but not least, the blog explains why Remunance can be your EOR partner in your Indian team-building journey. Let’s begin exploring EOR services and key aspects of EOR services.

Employer of Record (EOR) Meaning

What is employer of Record (EOR)?

An employer of record (EOR) is an organization that provides legal support and compliance assistance when a foreign company wants to employ a group of remote professionals internationally. Entering a new market, a foreign company often faces challenges in navigating a complex set of employment regulations. EOR  makes it easy for foreign businesses.

In addition to compliance support, an EOR takes full responsibility for managing administrative services such as payroll, taxes, and benefits for your international employees. It means an employer of record provides an all-in-one service package that helps you hire international employees compliantly and get your human resource (HR) services done on your behalf.

In short, an employer of record (EOR) is an organization that legally employs a team of local professionals on behalf of foreign businesses. Thus, EOR acts as the local guardian of employees who work for a foreign company. On the record, it’s an employer of the local employees and handles all legal and administrative responsibilities related to the employees. Simply put, with EOR support, a foreign business can easily hire a team of remote talent in another country and employ them successfully.

Evolution of Employer of Record (EOR) as a Business Model

Evolution of Employer of Record (EOR)

Employer of record (EOR) emerged as one of the most refined business models in the evolution of employment arrangements. Till today, EOR is the most economical employment arrangement model that has transformed the ideas and practices of international recruitment. The birth of EOR as a business model resulted from the interconnected world, characterized by a globalized economy and technological advancement.

The rise of staffing services in the 1960s drastically changed the traditional employment processes and became popular in the West. Hiring third-party agencies specialized in recruitment was a profound transformation. Businesses learned they could save time and energy by relying on an expert service.

In the early 1970s, the world witnessed a rapid proliferation of third-party expert agencies. A professional employer organization (PEO) emerged as a new business model in the United States that provided expertise in HR services. With the advent of PEO services, many small companies could easily manage their employees’ administrative functions without keeping an in-house HR team. Partnering with PEO services proved more cost-effective than keeping an in-house HR team.

With the wide prevalence of a globalized economy in the 2000s, global companies started looking for various opportunities beyond their home countries. Initially, many skilled professionals were brought back to the West from different parts of the world and were employed onsite. However, one major challenge of the onsite model was that, in the long run, it wouldn’t be cost-sustainable for businesses employing international workers in their home countries.

In search of cost-effective alternatives, businesses in the West now wanted talent who could work from their own countries rather than bringing them to the West. The rising demand for offsite or offshore business engagements has laid the foundation for outsourcing as a business model. With the increasing popularity of remote work setups, businesses started hiring contractors abroad for short-term projects.

However, hiring outsourcing services and contractors was associated with challenges such as the lack of flexibility and issues with legal compliance. These problems demanded a solution, resulting in the rise of employer of record (EOR) as a robust business model.

Employer of Record (EOR) Evolution: A Case Study of India

India presents a good example of how the globalized economy and the interconnected world have transformed international employment, leading to the wide acceptance of Employer of Record (EOR) services. With the rising popularity of the offshore model, developing economies such as India and China became key destinations for a range of outsourcing and contracting services.

Global businesses started outsourcing HR services in India mainly due to the availability of skilled talents and cost-efficiency services compared to the West. Due to certain challenges associated with outsourcing, many companies prefer hiring Indian contractors. Although hiring contractors has certain advantages such as better control for businesses, easy to downsize or upsize workforce, and cost-saving; it has several shortcomings too.

employer of record (EOR) services emerged as a solution to various problems associated with outsourcing and contracting. With EOR service support, a foreign company can easily navigate the legal complexities when entering the Indian market and operate compliantly, with better control over employees and reduced costs.

Benefits of an Employer of Record (EOR)

Employer of Record (EOR) services offer several benefits, including compliance support, risk mitigation, access to global talent, operational efficiency, and cost savings. As global businesses increasingly compete to tap skillful resources internationally, an EOR provides diverse benefits for small and large companies. Let’s explore the major benefits of using EOR services for businesses.

Benefits of an Employer of Record

Compliance Support & Risk Management

employer of record (EOR) services offer compliance support for companies expanding their business operation internationally. When using EOR services, foreign companies can enter a new market and operate their business without worrying about compliance issues. Being a legal employer, EOR companies mitigate compliance risks by shielding your business from potential tax liabilities, legal disputes, and non-compliant activities.

Access to Global Talent

EOR services allow companies to access a diverse talent pool without establishing a legal entity in a different target country. Companies can hire skilled professionals quickly and compliantly regardless of geographical barriers with employer of record (EOR) support. Small companies can compete globally by accessing specialized skills readily unavailable locally. Accessing and leveraging a global talent pool is key to staying competitive in a rapidly evolving global marketplace.

Reduced Administrative Burden

EORs help reduce the administrative burden of businesses as your EOR partner is solely responsible for handling HR services related to your international employees. On your behalf, EOR companies handle payroll, tax filing, and benefits administration, freeing up your valuable time and enabling you to focus on your core business tasks. Also, employer of record (EOR) services help improve the overall employee experience and productivity.

Saving the Cost of Setting Up a Legal Entity

Due to the unique nature of the EOR model, a global enterprise can work with dedicated full-time employees and operate its business without establishing a legal entity in the target country. Using EOR services saves businesses from spending hefty sums and making the upfront capital investment required for setting up a legal entity in a foreign country. It’s a major EOR benefit for small & medium enterprises (SMEs) aiming to set foot in a new market with minimal investment.

Know More: What Are the Employer of Record Benefits for Small Businesses?

What are the Services Provided by the Employer of Record (EOR)?

EORs provide a range of services related to legal, financial, and HR functions. By using employer of record services, a business can get the advantages of compliance support, payroll processing, benefits administration, and local tax filing. Let’s explain each solution provided by the employer of record.

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Emily Fernandas