An Employer of Record, also referred to as EOR, is a service that supports companies to hire talent internationally without having to set up a legal entity in each country where employees are located.
When businesses expand internationally, there are various challenges to be taken into consideration. One of the key complexities when entering new markets is to employ staff in different countries in a compliant and timely manner.
In other words, an Employer of Record formally becomes the employer of your employees and enables to hire local talents or contractors. Therefore, it is possible to establish a full-time team without having to cope with administrative hassle that comes along an international expansion project.
Why Engage an Employer of Record?
Employer of Records help corporations when expanding on a global scale to overcome regulatory and monetary difficulties in order to hire employees in foreign countries. As each country applies different laws and regulations on employment, payroll and immigration, handling each country’s requirements can be a major hurdle to successfully expand into new markets.
A company may consider the Do-It-Yourself approach by incorporating a local subsidiary. Nevertheless, for companies that are entering new markets, or smaller firms with limited resources, engaging an Employer of Records may be the ideal opportunity to easily facilitate global expansion.
Liabilities of the Employer of Record
When engaging global staff via an Employer of Record, the client maintains full control over its business operations as the employees report to the client directly.
However, the Employer of Record takes on all responsibilities and liabilities related to the staff’s local employment such as salary payments, individual income tax withholding, employee & employee statutory benefits, and severance obligations when terminating the staff.
By outsourcing all administrative complexities to a local expert, the Employer of Record enables its clients to fully focus on developing the business onsite rather than worrying about regulatory impacts.
Benefits of Engaging an Employer of Record
There are many distinct benefits for a company to use an Employer of Record. In many cases, the EOR has the greatest benefit when doing business in foreign countries, where the cost, complexity and compliance risk of local employment may be prohibitive.
No Incorporation Required
Establishing an entity abroad can take time and requires both extensive financial as well as administrative resources. In addition, once the incorporation is completed, a local entity will become liable to corporate taxes and annual filings.
In case the parent company decides to discontinue its operations in a specific market, closing down a foreign subsidiary requires a large effort to shut down an in-country presence.
In contrast, by engaging an Employer of Record, a local team can be up-and-running in just days, rather than weeks or months.
Full Employment Coverage
Setting up an employment structure that meets local laws and regulations can be off much hassle to a foreign company willing to onboard staff in a new countries. In practice, an Employer of Record covers all employment related requirements, including:
- Local Employment Contract
- Payroll
- Commissions / Bonuses
- Tax Declaration
- Employee / Employer Statutory Benefits
- Worker’s Compensation
- HR Liabilities
- Termination & Severance Requirements
- Unemployment Liabilities
In essence, the Employer of Record is the registered employer of the staff while the expanding company maintains the day-to-day work relationship, making all decisions on compensation, position duties, projects and termination.
Conclusion: An Employer of Record Eases Global Expansion
In an increasingly globalized world, companies are forced to extend their global footprint in order to stay ahead of their competition. Hence, putting in place a solid global expansion strategy will be key of success.
Having an Employer of Record handle a company’s staffing requirements when expanding globally can be a major advantage. Universal Hires provides Employer of Record services when expanding into Germany.
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