The Must-Have Guide to Employer of Record (EOR) Services

What Is a Global Employer of Record? 

A global Employer of Record (EOR) employs workers on a client company’s behalf without requiring the client company to establish an entity, saving them tens or hundreds of thousands of dollars and countless hours. 

On paper, the EOR is the worker’s employer. But, in practice, the employee works for the client company. The EOR engages and pays the employee in local currency to align the employment contract with country-specific labor and tax laws. Employers retain full control of the employee’s workload, schedule, and overall performance. The only difference is they won’t see the employee at the water cooler. 

This solution—outsourcing the employment function—is a fairly recent solution. Before EORs and Professional Employer Organizations (PEO), international workers were essentially contractors when working for a company without an entity in another country. 

This opened the door for illegal practices and misclassifications—often unintentionally, sometimes intentionally—as employees rarely fell under specific legal jurisdictions. As remote work became more common, many countries’ definitions of what distinguishes a contractor from an employee created legal gray areas for organizations unfamiliar with foreign markets that remain murky in many markets.

However, by compliantly employing workers, global EORs eliminate misclassification risks—and expensive penalties for that misclassification. 

A global EOR makes it easy to:

• Employ foreign workers legally. 
• Navigate complex foreign labor laws, tax, and employment compliance considerations.
• Expedite hiring and operations by legally bypassing entity establishment. 

They support foreign employees through:

• Human resources services
• Answering employees’ administrative questions.
• Managing tax compliance and processes
• Handling benefits administration
• Onboarding
• Overseeing visa, immigration, and work permit.
• Executing payroll
• Processes surrounding termination, unemployment, and rehire

2.1. EOR vs. PEO

EOR and PEO are often used interchangeably, but there are some important distinctions between the two. The main difference between an EOR and a PEO is that a PEO mostly handles HR processes for companies that already have legal entities in the foreign country they want to hire in. An EOR, on the other hand, can employ workers on behalf of a company without having to establish a legal entity in-country.

 

*Global Expansion (GX) operates under a straightforward and fixed monthly fee model without charging set-up or percentage fees.

Depending on a company’s goals, either solution is useful. However, it’s important to fully understand each before opting for one.

A good rule of thumb to follow is for employers to consider how many workers they want to hire and in how many different locations. If it’s only one location, a PEO might be the best fit, whereas an EOR is the best solution when hiring both full-time and temporary workers in different territories.

Still, there are multiple types of EORs.

2.2. Types of EORs

Different EORs function a little differently from each other: Some have their own in-country legal entities while others don’t, and instead act as an intermediary.

EORs function under direct, indirect, or hybrid models, which means each provides basic EOR services, but delivers them differently with (or without) additional services.

Direct EOR model

• Provides local expertise without having to manage an in-country partner.
• Has the freedom to create its own policies, practices, and contracts without having to align with a local partner.
• Only able to assist in locations where incorporated.

Indirect EOR model

• Works with a local partner to assist businesses in growing their workforce beyond borders.
• Leverages a local partner’s in-country knowledge, experience, and business service contracts (i.e. lawyers, accountants, etc.).
• Provides streamlined services in more countries—ideal for larger expansion projects.

Hybrid EOR model

• Combination of the direct and indirect models.
• Manages local partners in-country based on need, and can incorporate entities in other markets.

2.2.1. Private equity- and venture capital-backed EORs

Private equity- and venture capital-backed EORs function on a model where the focus is on return on investment (ROI). Investors control these entities, just like pension funds, insurance companies, and sovereign wealth funds. Investors inject large amounts of funding into a company with the short-term goal in mind to increase profit (EBITDA). Private equity-backed entities are often burdened with debts as they leverage less of their own money to purchase companies—repayment falls on the portfolio company rather than the fund, which creates risk.

There are certain downfalls to private equity- and venture capital-backed entities.

Outsized influence

Investors could demand cost-saving measures that can help increase returns, but these measures could have negative impacts. Increased debt or reduced benefits for employees can weaken business operations which could be detrimental to the company’s broader community and financial stability.

Lack of transparency

Poor transparency and disclosure have received public attention in private equity- and venture capital-backed entities. Public companies must adhere to strict regulations, whereas private organizations operate under an opaque cloud with less strict enforcement. This undermines the quality of services businesses and customers receive.

2.2.2. Advisory EOR vs. Software as a Service (SaaS) EOR

These types of EORs offer either advisory or software services. Each offers standard Employer of Record services, while SaaS EORs also provide human resources software that handles HR processes such as payroll.

Advisory Employer of Record

• Serves a consultancy role; can provide necessary advice and expertise to run a company’s global workforce, but doesn’t provide proprietary software to manage employee needs.
• Offers dedicated account managers with the necessary knowledge and expertise to guide a company on country-specific elements, such as:
• Legal must-knows
• Financial considerations and implications
• Cultural nuances

SaaS Employer of Record

• Provides workforce management software that supports:
• Hiring
• Onboarding
• Tax management
• General HR services
• Benefits management
• Regulatory compliance
• Payroll management and processing

An Employer of Record management dashboard provides international employee and contractor tracking, payroll and employee expense approvals, and compliance statuses. Through analytical tools companies can get an overview of:

• The costs related to international expansion
• Cost estimates
• Cost comparisons

2.2.3. Full-service Employer of Record

A full-service EOR provides both advisory and SaaS solutions while acting as the full in-country employer on an organization’s behalf. The EOR takes care of all the employee processes so that the company can focus on scaling. These services include:

• Providing human resources software.
• Managing and drawing up employee contracts.
• Providing advice and expert insight into the hiring process.
• Onboarding and paying employees in local currency.
• Managing country-specific employment requirements, including vacation, leave, benefits, and taxes.
• Establishing and managing local entities when required.
• Managing compliance with local legislation and tax laws.
• Putting measurements in place to avoid exposure to compliance risks.
• Managing paperwork required to be compliant as well as all the necessary employee paperwork (compliance forms, etc.).

What Do Global EORs Do?

A global EOR takes care of all HR and personnel functions for employees hired in different countries. As the legal in-country employer, they manage all the administrative and logistical requirements to oversee employment compliance and ensure the employees receive their salaries as contractually agreed.

• Employ people legally in other countries
• Oversee payroll management
• Provide Human resources services
• Provide workforce management software
• Manage compliance (business and employee)
• Handle benefits administration
• Support full-time employees and contractors
• Manage and distribute stock options
• Simplify admin and other essential processes

3.1. Benefits: Using an EOR vs. doing it alone

Expanding a company’s workforce beyond its borders can be a tricky, expensive, and time-consuming process, especially without the necessary contacts and expertise to start. 

There are many steps to complete before hiring the right candidates, and it can take quite some time before a company can hire its first international employee—which might result in missing out on the best talent. 

Without the necessary in-country expertise, companies run the risk of violating local labor laws and employee misclassification which can result in expensive penalties. 

To employ international workers without an EOR, a company will need to either:

• Establish a local entity (which costs tens or hundreds of thousands of dollars), or 
• Hire employees as contractors, which could impact employee retention and inadvertently lead to employee misclassification, depending on the country’s laws. 

Before hiring abroad, employers must consider:

• Local employment laws
• Local payment laws
• Local labor laws
• Local tax laws
• National and/or state minimum wage laws
• Employee classification
• Background checks and referrals

Using an EOR mitigates risk and shares the legal responsibility to ensure employment is above the bar and that employees are taken care of.

Benefits of using a global EOR:

• Saves time: companies can hire in days
• Saves money: Costs tens or hundreds of thousands of dollars less than entity establishment 
• Reduces risk: avoids employee misclassification and mistakes with local labor laws
• Delivers in-country expertise: navigates cultural nuances and market must-knows
• Manages employee contracts
• Removes barriers to enter the global market
• Complies with local labor laws
• Ensures on-time salary and wages payouts
• Registers and files taxes on company’s behalf

3.2. Why use a global EOR?

A global EOR is the solution to hiring the right talent regardless of their location(s). If a company is considering expanding globally, partnering with a global EOR is the most efficient and cost-effective way to build a global team. 

Employing international talent is a resource-intensive process, and not every company has the expertise and workforce to make it work—and mistakes impart immense financial and operational risk. 

It’s important to ensure that everything is in place before hiring the first employee, and that can take some time; it can take up to six months to become compliant and set up an entity. And setting up an entity for employing only a few employees doesn’t justify the cost. 

EORs supply all the necessary resources, expertise, and established local entities to help companies employ and onboard international talent at a lower cost and at a quicker rate. This means less downtime while waiting to onboard new employees. 

They also simplify the hiring process as they take care of all the legal steps to ensure:

• Proper employee classification  
• Correct legal employment
• Hiring processes align with local labor and tax laws

Common misconception: An EOR takes over the role of a company’s HR department.

What EORs really do: While they manage many HR processes, they don’t take over the hiring process. 

Talent acquisition experts are still responsible for identifying, interviewing, and finding the right candidate; the EOR is responsible for HR processes to follow. 

EORs stay up to date with local laws and manage all the paperwork that comes with it. They also understand employee termination protocols, which is important for drafting employment agreements and ensuring that employers follow correct termination processes should they need them.

Why businesses need a global EOR:

• Reduces the complications related to global hiring
• Avoids employee misclassification
• Mitigates risks, fines, and penalties
• Avoids labor law and tax mistakes
• Affords intellectual property (IP) protection and transfers
• Offers centralized management of international employees
• Consolidates and centralizes all documentation and information
• Understands localization of payroll, benefits, taxes, and stock options

3.3. EOR’s responsibilities

An EOR is responsible for managing the onboarding process and providing foreign employee support. They act as the in-country partner who takes care of HR processes and compliance while the company focuses on growing their business and attracting the right talent.

The main focus of the EOR is on employee onboarding, HR, payroll, and legislation and compliance.

3.3.1 Onboarding

Onboarding is the process of integrating new hires into the organization. Since the employer isn’t “present” in the foreign country, the EOR takes over the role of guiding the new employee by ensuring all necessary preparations for the employee to start working.

This includes:

• Extending the offer of employment
• Managing the paperwork
• Getting contracts drawn up and signed
• Adding the employee to workforce management software
• Ensuring the employee gets and sets up their equipment
• Giving the employee all the information they need regarding leave applications and sick days

3.3.2 Human Resources

The EOR manages the overall HR processes in-country for foreign employees, as they have the expertise and insight into legal and cultural nuances. This includes:

• Scheduling
• Payroll 
• Benefits
• Internal relations
• Training and compliance
• Employee engagement and relations
• Performance management (for performance bonuses or when performance management processes need to be implemented)
• Absence management

3.3.3 Payroll

One of the main problems companies run into when they want to employ foreign candidates is managing payroll. Many laws make it difficult to pay employees in different countries and if the proper tax processes aren’t followed both the employee and the company can get into trouble. The EOR removes this hurdle by managing employee salaries, bonuses, and commission as the in-country full employer.

Using an EOR to manage foreign payroll ensures that employees are paid in accordance with local laws, on time, and in their local currency.

Although the company is still responsible for providing the money to pay employees, it’s the EOR’s responsibility to ensure that payments are made as agreed in the employee contract.

3.3.4 Legislation and compliance

It’s the EOR’s responsibility to follow all country-specific hiring processes, including labor and tax laws. By partnering with an EOR, companies can simplify the international hiring process by trusting the EOR to align all processes with local compliance considerations.

Beyond legislation and compliance, EORs also assist with:

Data protection and security: keeping the company’s and employees’ sensitive information safe and protecting against data breaches usually by means of workforce management software.

Intellectual property (IP) ownership: ensuring that all projects remain the property of the company by retaining copyright, trademarks, and exclusive rights.

How Long Does It Take to Hire International Employees Using an EOR?

Depending on the hiring locations, the process to set up an entity can take up to six months (sometimes longer—and it can take even longer to onboard new employees if companies don’t have the necessary resources and expertise. A global EOR can onboard new talent within 24 hours, thanks to their local partnerships and knowledge of in-country labor and tax laws.

It’s important to keep in mind that how long it takes will depend on country-specific laws and processes as well as internal processes.

How Much Does an EOR Cost?

Different EORs have different pricing and fees structures; how much a company pays for their services depends on their needs. Some EORs offer flat-fee structures and other percentage arrangements. Under flat-fee structures, an EOR bases its costs on a per-employee basis, whereas percentage-based arrangement costs come from a percentage of employees’ salaries.

Here are the expected fees and costs*:

• EOR set-up fee: a one-off initiation fee for new employees that covers the cost of onboarding.
• Deposit: an upfront fee for each employee to protect the EOR.
• Employee salary and local employer costs: The sum of employee salaries/wages and benefits that the EOR covers.
• EOR service fee: an additional fee apart from the set-up fee that typically recurs monthly per employee.
• FX fee: covers the currency exchange.

*The above is just a sample of potential EOR charges.

Global Expansion functions under a fixed monthly fee without charging set-up fees or percentage fees. Instead, there’s a single, agreed-upon fee without any hidden costs or add-ons. 

Other Ways to Employ International Candidates

Without the help of an EOR, international candidates can be hired by:

• Setting up a local entity
• Using contractors

Each has its advantages, but also comes with disadvantages.

Setting up a local entity

Commiting to a permanent establishment (local entity) is expensive and time-consuming, and requires extensive resources and expertise for it to be successful. 

If the company is under a tight deadline to hire employees in a foreign location, setting up an entity isn’t the best solution, as it can take months to meet all necessary requirements to begin the hiring process.

However, if the intention is to employ several employees, setting up an entity might be the best and most cost-effective option. It’s important to carefully consider the time, cost, and resource impacts it would have on the business before choosing this option.

In order to set up a local entity, organizations must evaluate:

• Labor and tax laws and regulations
• Social contributions
• Corporate tax structures 
• Company registration
• Payroll
• Accounting services
• Corporate compliance

Using contractors: the risk of misclassification

Contractors are the most common solution when hiring internationally. It’s a good way to engage workers for specialized projects, save time and money, and test an international market’s fit for further growth—but it comes with risks.

Contractor misclassification can lead to hefty fines, employee entitlement back pay, and legal issues, due to regulations varying globally. This risk increases when hiring international talent.

What is employee misclassification?

This is the illegal practice of categorizing employees as contractors which prevents them from receiving mandatory benefits and country-specific legal protections. Contractors are self-employed and perform tasks for companies on a short-term basis. Oftentimes, companies misclassify employees as contractors (even unintentionally) to avoid paying taxes, which can lead to stiff penalties when regulators realize the misclassification.

If employee misclassification occurs, companies may face:

• Back taxes: being liable for paying back national, state, and local taxes
• Back benefits: being liable for paying benefits owed to the employee such as worker’s compensation, medical insurance, vacation, sick pay, among any other country-specific benefits 
• Legal fines: costs from liquidated damages and attorney fees (could lead to class action lawsuits)
• Reputational damage: employers risk ruining their reputation with employees, prospective employees, customers, prospective customers, and others

How to avoid employee misclassification risks

• Understand local compliance laws.
• Draft clear contractor agreements.
• Follow classification guidelines.

How to Choose an EOR

Selecting the right EOR can be difficult, as most offer similar services. It’s important to consider the following before making a decision.

• How many countries does the EOR hire in? 
• Explore the EOR’s country coverage as early as possible.
• Is a global HR platform included? 
• For example, can the EOR automate manual tasks and mitigate human error risks? 
• Tech stack integrations: Choose an EOR with software that can connect with the apps and HRIS/HCM systems you already use.
• Data protection and digital safety: Inquire about the EOR platform’s security and reliability. It's essential to ensure that the EOR can provide secure hosting on a global scale. 
• Does the EOR include support services?
• The best EOR companies will provide guidance and support for all core HR responsibilities.

• Does the EOR follow international compliance?
• Generally, companies must meet compliance in several areas. The right EOR solution will confirm that an employer follows these (and other, country-specific) regulations.
• Nondiscrimination protections
• Many countries have anti-discrimination laws that prohibit discrimination in hiring, employing, termination, and severance.
• Compliant employment agreements
• Different countries have different contract requirements. For example, some countries require language-specific contracts.
• Minimum wage
• Many countries have minimum wage laws. The minimum wage may be nationally, regionally, or locally mandated. Some countries mandate minimum wages by industry or collective bargaining.
• Statutory benefits
• Every country has different laws regulating mandatory benefits, such as health insurance, unemployment insurance, social security or pensions, and leave entitlements. These vary drastically between nations.
• Privacy and data laws
• Privacy is paramount and data must always be secure. EORs and organizations must follow all regulations, such as GDPR, and collect data carefully and legally.
• Work hours and overtime
• Labor statutes often set employees’ work hours. For example, employees may not be required to work more than 40 hours a week. Some countries include mandatory days or hours of rest in which no employee may be forced to work. Local law may require additional compensation for any hours worked outside standard work hours.
• Termination protections
• International employees may have termination protections that include the prohibition of firing employees based on certain reasons, such as making complaints, a minimum notice period, severance pay, and even allowing the dismissed individual to take a paid day off once a week to look for new employment. An EOR can ensure compliance with all of these laws.

• Does the EOR offer a worldwide team of HR experts?
• A company should honor country-specific customs and business etiquette. The right Employer of Record will have in-country partners to personally onboard a new employee in their local language. A company that respects local culture and value systems will establish strong relationships, more productive working partnerships, and benefit from the best outcomes. 
• Does the EOR offer a robust portfolio of global benefits?
• It’s imperative that businesses offer attractive health insurance, life insurance, AD&D coverage, and other benefits to international employees while meeting business needs.

How Long Can Businesses Use an EOR?

Using an EOR is not a long-term solution to expanding internationally; it’s usually (but not always) an exploratory process to determine whether expanding into a certain territory is the right move. Once confirmed, a more permanent solution is necessary, which means setting up a local entity.

There isn’t a set amount of time to make the switch from an EOR to a local entity; it mainly depends on country-specific laws and regulations and the company’s timeline and goals. For example, according to German law, EOR arrangements can only last up to 18 months, whereafter it requires a permanent solution. Some countries don’t specify a time limit, but frown upon a long-term EOR engagement.

Companies should consider:

• Local time limits
• Employee headcount and individual roles

Many EORs also offer PEO services that help businesses establish a local entity through existing in-country partnerships, so it’s important to discuss these possibilities when looking for a more permanent solution.

9.1 About Global Expansion

• Global Expansion is a wholly-owned subsidiary of Equus Software and its multi-award-winning technology.
• Equus Software is a recognized innovator and leader in global workforce management solutions. Founded in 1999, Equus has continually been recognized by Inc. 5000 as one of the fastest-growing companies in the United States. More than 2 000 businesses across the globe are actively using Equus technology today. We are a Global Professional Employer Organization (PEO) and Employer of Record (EOR).
• With entities and local experts in 214 countries and territories, we can hire, onboard, and payroll your people anywhere in the world. This way, you can add the best people to your team, no matter where they are.
• Over the past 22 years, we’ve supported countless innovative startups and Fortune 500 companies with their global expansion.

9.2 Our offering

We offer full EOR services across 214 countries and territories, including advisory services and SaaS services.

It’s our mission to ensure that employees receive a human-centric experience—any time, any place—and that companies rest assured that their remote employees are fully taken care of.

Human-first approach

• Boutique employment solutions
  We work with companies on solutions that fit.
• Highest tenure in the EOR industry
  We build long-term relationships, both with our people and our clients.
• Single point of contact
  Always have access to a trusted person to get in touch with.
• Complete employee lifecycle guidance
  From onboarding to retirement, we focus on taking care of your people.
• Our technology
  We offer interactive and flexible technology. We’re the only EOR whose technology integrates with every major HRIS/HCM system.
• Integrated accessibility
  Get easy access to our workforce management software, GX1, from any device and across platforms.
• Intelligent onboarding
  Quickly hire and onboard new employees within days.
• 24/7 support
  In-app messaging allows for consistent communication with dedicated account managers.

Our services

We offer:

• Global HR
• Global Payroll
• Global Taxes & Social Security
• Global Immigration
• Employee Benefits
• Employment Compliance
• Employee benefits
  Providing employees flexible policy options in addition to the core benefits of the company.
• Integration
  Connects with your HRIS, payroll systems, and emails for easy access and automation.
• Compensation automation
  Calculates and reports on compensation for any number of employees in a few clicks.
• Online expense management
  Employees can enter expense reports online for routing, approvals, and payment.
• Online personal time off (PTO)
  Simple, online employee time-off tracking and recording that is tailored to your organization.
• Contract lifecycle management (CLM)
  Manage contracts from initiation through to renewal.

9.3 How we measure up to the competition

 

Global Expansion vs. Velocity Global

Global Expansion vs. Globalization Partners