Establishing a business entity overseas is a powerful opportunity for business owners. It gives you access to new markets, broadens the talent pool, and lowers the costs of project development. To ensure that bureaucracy hoops don’t hold you back from exploring the potential of foreign markets and talent, it’s time to think about hiring an employer of record (EOR). 

In this article, we’ll take a closer look at what the EOR concept means and the benefits of partnering with an employer of record. 

What Is an Employer of Record?

Simply put, an employer of record is a company that takes responsibility for financial and legal procedures needed to create and run an office abroad. An EOR firm handles payroll, the administration of employee benefits, as well as tax documentation. 

When it comes to project-related work, the EOR company doesn’t intervene in workflows, offering business owners full management freedom.

Responsibilities of an Employer of Record

o understand the importance of EOR for companies ready to open global headquarters, let’s take a closer look at the responsibilities an employer of record carries. 

In most cases, EOR organization perform the following critical tasks:

  • Represent a company as a proxy entity registered as a legitimate employer in the region and controlling payroll. 
  • Ensure compliance with local labor and tax legislation (e.g. drafting valid contracts and agreements). 
  • Fill in tax and insurance forms on the employer’s behalf (W-2, I-9, and other documents). 
  • Arrange visa-related documents and work permits in case the relocation of an international employee is necessary. 
  • Offer consultant services to the company regarding the best practices of employee onboarding, severance pay, or contract termination in the region.

When to use an employer of record

If you’re involved with your organization’s international expansion planning, you know there’s a lot to consider. When a lack of speed or local expertise are among your organization’s top concerns, an EOR may be the best option for achieving your global growth objectives.

Here are some common situations in which organizations like yours have turned to an EOR provider to help their global expansion efforts.

As a vehicle for exploring new markets. 
An EOR lets you evaluate the readiness of an international market by hiring workers for you in your target countries. You can “test the waters” in the country by starting operations with your new workers, without having to commit the time and money required to establish an entity.

To guard against independent contractor noncompliance. 
If you rely on international independent contractors as part of your growth plan, it’s possible that the work they’re performing is too similar to what the local government prescribes for employees. These contractors could be putting you at risk of employment and tax violations. An EOR can hire your contractors on your behalf, in accordance with all local requirements, to prevent noncompliance penalties.

As an entity stopgap. 
Perhaps your organization has identified a new growth market and decided on entity establishment as the best course of action. But you need to begin operations quickly, and the entity setup process is long and complex. With an EOR, you can have workers up and running in the new country in a matter of weeks while your organization does the work of entity setup in parallel.

To facilitate an acquisition. 
If your organization has recently acquired a workforce in a new country but doesn’t have a way to compliantly pay the new employees because the deal didn’t include the legal business entity, an EOR can pay the employees compliantly on your behalf—indefinitely, or until you set up your own in-country entity.