What Is an Employer of Record (EOR)?
Sending your employees – or yourself – to work remotely in a foreign country can be complicated business, involving paperwork, legal compliance, and complicated payroll procedures. Until recently, it meant opening a local entity or subsidiary in a foreign country.
Nowadays, many companies are using employers of record (EOR) to deploy their team members in a foreign country. EOR services allow companies to avoid the bureaucratic hurdles of overseas employment, comply with local labor laws, and lessen the overall burden on legal and HR.
What is an employer of record (EOR)?
An employer of record is an organization that employs and pays full-time employees on behalf of another company. Global EORs enable you to send your employees – or yourself if you run your own company – almost anywhere in the world without having to set up a foreign subsidiary.
However, there is an important difference between EORs that focus on overseas relocation vs. overseas hiring. The former helps you relocate your current employees or yourself to work remotely in a new country. By contrast, the latter recruits and onboards foreign talent already in the country to work remotely for your company.
In this article, we will look at the former – EORs that focus on overseas relocation.
Scope of services
EORs handle nearly everything, which is why the solution has become a common choice for companies and solo entrepreneurs looking to send their staff or themselves to work abroad.
Outsourced foreign employment
An EOR allows you to send your full-time employees to work remotely in a foreign country, so that you don’t need to hire contractors or set up a local entity. Employers of record have legal entities in that country to hire employees on your behalf, without you incurring the financial or compliance risk.
While you still manage employees and supervise their day to day work, the EOR assumes full legal responsibility for their contracts, payments and employee benefits.
Drafting of employment agreements
If you set up an entity on your own, you must create employment contracts that are compliant with the labor and tax laws of each country into which you expand. It takes time to understand and ensure compliance in another country.
This task is taken care of by EORs. The contract is drafted by the local employer of record, ensuring compliance with all local regulations, including taxes, social security, and employee benefits.
Visa and work permit sponsorship
Importantly, EORs sponsor your visa and help you obtain a work permit in the country, allowing you live and work there legally. They can help you navigate the myriad rules and regulations surrounding your employees’ immigrant status abroad.
Tax and social security payments
Companies can make mistakes in tax laws that could lead to serious financial and compliance problems. EORs can help you save time and ensure accuracy. They also keep your records organized and neat.
International payments require complex payroll processing because of the different payment methods, bank fees, and currency changes for your global team. EORs manage employee payments in accordance with your payroll schedule. EORs manage payroll taxes, deductions and returns. EORs can also send pay slips to employees, allowing them to choose from a range of payroll methods.
Different employee benefits are required for foreign employees depending on where they live. EORs work with global benefits providers to provide mandatory and optional employee benefits such as health insurance, social insurance, unemployment insurance, sick time, wellness programs and pension plans.
Relocation assistance and onboarding
EORs offer employee onboarding as part of their services. EORs assist employees in getting everything set up fast by drafting contracts, obtaining signatures, collecting required documents, and assisting the employee in basically every aspect of relocation.
How does EOR service work?
EORs allow you to deploy your team members internationally. Let’s look at the inner workings of EORs which make it possible.
Global infrastructure model
Two infrastructure models can be used by employers of record to create local entities in countries around the world: an aggregator and a wholly-owned company.
An umbrella company that has subcontractors in a specific country is called the aggregator model. This model may not be scalable, and could indicate that the EOR does not have the local legal expertise or presence necessary to manage your employment and hiring.
On the other hand, EORs with a wholly-owned model are those that own and manage independent subsidiaries around the world. A wholly-owned infrastructure model EOR is more reliable because they are in complete control of the local entities that you use to employ workers in those countries.
The EOR’s team creates local compliant contracts and ensures correct employee classification. The EOR’s team will add the new employee on your payroll and set up the mandatory and optional employee benefits. This ensures that the employee has the right health insurance, social security rights, and other benefits.
Many EORs have partnerships that can boost your employee benefits package. Shelter works with partners from around the world to offer top-quality healthcare and perks. This means that you may be eligible for benefits you wouldn’t otherwise be able to access.
Freedom of work
While the EOR legally has responsibility for your or your employees’ work, you still retain total freedom and responsibility for managing the work schedule and daily tasks.
Payroll and tax
Employers with employees from different countries don’t have to be closely familiar with their obligations as employers, such as tax withholdings or employee benefits.
EORs are responsible for processing international payroll accurately and timely, and collecting all tax documentation. Your EOR can provide support for you and your employees at any time.
What are the benefits?
Save time and money
You can save your time by not spending so much time on tasks you can outsource to an EOR. Instead, you can focus more on fostering positive employee experiences and meeting other business needs.
EORs can save companies a lot of money. Setting up an entity on your own, you must train your HR staff and recruiters on legal matters, outsource legal counsel, and obtain legal permits to hire foreign employees.
Reduce compliance risk
EOR can be relied upon instead of having to learn new rules and regulations from a different country. EOR outsourcing allows you to hire internationally without worrying about local regulations, tax laws, benefits or work permits. You are protected if a legal problem should arise: The EOR assumes full responsibility for any non-compliance penalties, as the employee’s legal employers.
Mobilize your team
The world is shifting to hybrid and remote work models, and rapidly building international teams. The number of people who work in different regions has nearly tripled. Latin America saw a 286% increase in its hiring rate in 2021. This was in addition to the 250% growth in international hiring in Europe, Africa, and the Middle East.
Employees and employers are in agreement about flexible work options. 73% of employees would like remote work after the pandemic. Nine out of ten leaders of companies say that the hybrid model of work will be part of their future strategy.
An EOR allows you to keep up with the latest era of employment and reduce stress, costs, time, and effort required to deploy international staff.
Frequently Asked Questions
Is the EOR setup legal?
Yes. Employers of record usually have strong legal teams to handle all aspects of contracts, benefits, and taxes. Because local contracts can be complicated and confusing, hiring through an EOR reduces your legal risk.
Is there a DIY method?
Yes. You can open a local subsidiary in a foreign country, which allows you to hire employees in that country. However, this option is less cost-efficient and takes more time than having an EOR handle your employment, as the processes are longer and require much more paperwork.
When is an EOR necessary?
There are a wide range of situations in which EOR service can become necessary:
- Your company is looking to relocate some of their employees to work remotely in a foreign country
- You work remotely for a company and would like to live and work remotely abroad
- You own an online business and would like to live and work remotely abroad
- You are a freelancer or digital nomad looking for a path to tax residency in a foreign country
- You are working online illegally in a foreign country and looking for a path to tax residency
How long does setup & onboarding take?
Typically EORs can have you or your employee(s) visa-ready to fly abroad within a couple of months. Shelter can ship your paperwork within 10-15 business days.
Do EORs help move families, too?
Yes. Most EORs will be able to provide dependent visas for spouses and/or children. Shelter prepares visa application paperwork for dependents free of charge.
What are the most popular countries for remote work relocation?
The most popular remote work destinations tend to be those with the lowest living costs, allowing workers to leverage the cost difference between two regions (geoarbitrage). Thailand, Hungary, Georgia, Indonesia, Brazil, Mexico, and Portugal are cited most often in online lists.
How do I choose between EORs?
When comparing EOR solutions, it is important to keep a number of things in mind. First, what is the infrastructure model – are they an aggregator or wholly-owned company? As described above, EORs with a full stack, wholly-owned infrastructure are more reliable as they are in complete control of the local entities used in those countries.
In contrast, aggregators are essentially middlemen for various subcontractors and may not have the requisite local legal expertise or presence to effectively manage your overseas employment.
Additionally, you want to identify the true scope of services provided. A good EOR will handle everything outlined above, so be sure to ask.
It bears noting here that cheaper is not always better. Many providers offer a lower price point than competitors, neglecting to mention additional fees or the legwork that falls on the client. For example, you may have to hire a local accountant to file your taxes, or complete immigration check-ins by yourself.
Ideally, everything should be included in a flat fee.
Shelter can be your employer of record in Thailand
Shelter makes it easy to relocate your team or yourself to work remotely in Thailand – the most popular destination in the world for remote workers and digital nomads.
We handle all of the EOR services described above for a flat fee, so our clients can focus on their business and enjoy their new home. Our wholly-owned infrastructure ensures local expertise, legal compliance, and effective management of your employment in Thailand.
Contact us to learn more about our Thailand EOR service.