An EOR (employee of record) is the easiest way to hire and manage a global workforce on behalf of your business in foreign countries. It undertakes all the legal and regulatory compliance obligations while you focus on your business and relationship with those employees.
So, how does this work?
In this guide, we’ll explain what an EOR employee is, the benefits of hiring one, and how to manage an EOR employee effectively.
Who is an EOR Employee?
An EOR employee is an individual who is legally employed by the EOR organization, not the organization itself. While the EOR organizations are responsible for handling employment contracts, payroll, and compliance, the EOR employees work on their roles for the company.
EOR ensures that the client company complies with local labor laws and does not violate the rights of its EOR employees.
However, when it comes to projects and tasks, EOR can’t intervene in decisions, workflows, and business processes.
Key Features of EOR Employees
EORs can handle many organizational tasks, including payroll, expense management, tax benefits, and others. These tasks may vary depending on the organization’s needs and location.
Here are the key features of EOR employees:
Offers Legal Employment Guidance
EOR guides businesses through the nitty-gritty of compliance and employment laws in foreign countries. They assist them with employee contracts, set up employment terms, and enforce all the legal terms and conditions in their jurisdiction.
So, instead of your internal teams, an EOR will update the terms of minimum wage laws, overtime rules, leave policies, and other labor-related regulations.
Payroll Management
Payroll management is a complex task for a business that hires a workforce across different geographical locations. Tax deductions, employee benefits, currency conversions, etc.
EOR employees simplify the payroll process by offering assistance with tax calculations, currency conversions, and assisting with deductions. They also handle paid leaves and terminations and track time on and time off to create timesheets.
Offers Employee Benefits
EORs can also assist your business in managing employee benefits and a whole range of perks. For instance, a company operating in the US might be aware of local insurance policies, medical insurance, and retirement plans such as 401k and IUL.
However, they can’t offer the same policies to Spanish employees. Thus, EOR employees in Spain can frame benefits to cover medical coverage, life and health insurance, paternity and maternity leave, and other plans.
Calculating Tax Deductions and Filling Tax Forms
EOR employees engage in taxation activities, including completing tax forms related to geographical employment laws, such as income tax, social security, and unemployment taxes. This also ensures that the correct tax fees are applied and businesses don’t need to pay any late submission penalties.
Benefits of Hiring EOR Employees
Employer of record service allows businesses to focus on their most important tasks without worrying about their liabilities in the jurisdiction where they want to hire.
Considering the responsibilities under their hood, here are the benefits of working with EOR employees.
Ensures Compliance
Businesses can find it challenging to navigate compliance and employment laws across geographical locations. EORs are responsible for handling every legal, compliance, and HR process that may arise in their jurisdiction. They also manage changing laws and tax regulations, so businesses don’t conflict with the authorities.
In case of discrepancies, EOR advocates on behalf of the business and safeguards it from compliance-related conflicts, tax issues, law breaches, and fines.
Gives Access to Global Talents
Companies may find it challenging to attract the right talent pool because of cultural and linguistic barriers. Similarly, employees might need further information about the company’s work culture and responsibilities.
EOR serves as the bridge between the two parties. It assists companies in the international hiring of top talent and onboarding candidates with excellent skills. Since EOR engages in the entire hiring process, the companies can feel free from the burden of compliance, tax regulations, administrative issues, and other HR processes.
In case of employee relocation or visa sponsorship, EORs may act on behalf of the company to provide immigration support and visa processing facilities.
Simplified Payroll and Tax Filing
Businesses that hire talents from around the globe might need streamlined payroll services to avoid confusion about tax deductions and payments. An EOR operating in a certain jurisdiction is also accountable for payroll processing and tax management.
This brings more transparency into the business’ accounts since they can segment the employee compensation based on location.
Mitigates Classification Risks
Businesses may run into classification woes by incorrectly classifying employees as independent contractors or vice versa. EOR employees specializing in that jurisdiction have better knowledge of classifying employees as contractors or full-time workers.
Using the right classification of employees keeps businesses in line with the regulations so they don’t face penalties.
Challenges of Managing EOR Employees
Using EOR services to manage overseas employees can be fruitful for managing business compliance and taxes, but it comes with certain challenges.
Limited Control Over HR Processes
Businesses may have limited control over HR processes since most tasks, such as payroll administration, compliance, and employee benefits, are tasked with EOR. This can limit how much it can directly oversee or customize these processes.
Therefore, businesses lack the authority over certain processes and will have to wait for the EOR provider if they want to change them.
Employee Experience
The quality of service the EOR provides can greatly impact the employee experience. If the EOR doesn’t deliver good service, it may lead to problems like delayed paychecks, poor communication about benefits, or slow responses to employee concerns. This results in frustration or dissatisfaction among employees, as they may feel their needs are not being fully supported.
A poor employee experience may lead to lower retention rates and could affect your business.
Data Security
EOR requires businesses to share sensitive information with them, such as security numbers, bank details, and personal contact information. Sharing such data with a third party poses a high risk of data breach and misuse.
If the company ceases the contract with the EOR provider, it will have to revisit security data such as bank details, security numbers, and other information.
Companies need to ensure that the EOR follows strong data protection practices to keep employee information safe, as a data leak could harm both employees and the company’s reputation.
How to Manage EOR Employees Effectively?
While EOR is solely responsible for hiring, managing, and paying employees on behalf of a business, it is crucial to keep a check on its operations. Hence, businesses should follow these steps to manage EOR employees effectively:
Establish Clear Communication
Before you start working with EOR, clearly communicate your goals, expectations, and deadlines. The EOR must have a target to achieve within a prescribed timeline.
Conduct regular meetings and use messaging apps like Slack to communicate with your EOR about possible updates and issues.
While the EORs can help you hire and manage these employees, the company must ensure that its employees are clear about their responsibilities. Businesses should consider regular meetings and leverage work silos to organize the tasks.
Leveraging project management tools can be an effective solution for tracking work progress and keeping everyone on the same page.
Monitor Employee Satisfaction
EOR providers might come and go, but your employees contribute majorly towards the business’s growth and sustainability. Make sure to establish a joyous work culture for your overseas employees.
Conduct weekly meetings to establish relationships with your employees. You can also develop programs to exchange cultural values and connect your teams across different geographical areas.
Another good practice is to send encouraging emails to the employees and share their achievements with your team. Lastly, consider talking to your EOR provider about any issues they encounter.
Track Compliance and Performance
Regular performance evaluations are key to the success of any employee, including those under an EOR. Establish a system to keep track of the EOR’s activities, including compliance practices, HR processes, and payroll management.
Before you start working with an EOR provider in a foreign country, know the compliance laws, tax compliance, and other insurance policies so that EOR doesn’t mislead you.
You can also use an employee management platform to track the employee activities and evaluate their performance.
Differences Between EOR Employees and Direct Employees
In the context of cross-border hiring, companies may either prefer an EOR employee or a direct employee. While EOR employment is a modern approach to global workforce management, direct employment involves a company directly hiring international employees.
Here is how EOR employees and direct employees differ:
Legal Responsibility
EOR employees are legally tied to the EOR, meaning they must abide by the local authorities’ regulations and be compliant. The EOR assumes legal responsibility for employment compliance, tax filings, and employee benefits. This reduces the administrative burden on the companies and ensures that business operations are streamlined.
Direct employees are directly employed by the company and answerable to them. The company is responsible for compliance with employment and taxation laws within that jurisdiction.
HR Management
In EOR employment, the EOR manages the entire HR process, from talent hunt to employee onboarding and payroll management. It establishes communication with the EOR employees and tracks their work progress.
In direct employment, the company’s internal HR department handles payroll rules, benefits, compliance, and employee management. This gives the company direct control over its HR policies and the ability to communicate with clients.
Employee Experience
EOR employees are connected with the company through EORs. Therefore, every communication related to compliance, the onboarding process, and payroll passes through the EOR.
Direct employees typically experience a more unified company culture and closer engagement with company values and policies. Employees can directly communicate with the company about any issues they encounter.
Final Words
Setting up your business in a new jurisdiction requires you to learn the intricacies of local laws, understand taxes, and establish a robust HR process. This can divert your focus from the core objectives and incur higher costs.
However, partnering with an EOR (Employer of Record) provider is a better option since it prevents you from establishing a separate legal entity in that country. It allows you to streamline the global workforce and remain carefree of adherence to laws and the hiring process.