Determining the Appropriate Circumstances for Employer of Record Utilization

November 7, 2023by Panda Global Work0

The workforce has undergone a significant transformation right before our eyes. In the past year, there has been a notable shift towards remote work, with increased online collaboration, reshaping not just the nature of work but also altering the hiring landscape permanently.

It is hardly surprising that leading global companies now view global hiring as a strategic business advantage, providing them with opportunities to gain insights into new markets and fostering greater diversity of ideas. International hiring has become a solution to challenges related to talent acquisition and retention, particularly in addressing the preferences of an expanding workforce seeking relocation. However, navigating the complexities and risks associated with international hiring has long been a barrier for recruitment teams seeking to expand their reach across borders.

In the face of these challenges, what is a hiring manager to do? In many hiring scenarios, the most straightforward approach involves collaborating with an employer of record, commonly known as EOR.


Jump straight to a key chapter

      • What are the reasons for employing an Employer of Record?
      • What sets an Employer of Record apart from others?
      • Opt for an EOR for secure international hiring.
      • Choosing the Ideal Employer of Record for Your Needs
      • Optimal Employer of Record for Your Global Team



What are the reasons for employing an Employer of Record?


Many recruiters have encountered the frustration of discovering an ideal candidate for a position, only to reject them due to their country of residence. Employers of record offer a solution to this challenge.


What is an employer of record?


An employer of record is essentially an entity that enables you to legally and efficiently employ desired candidates, irrespective of their location. Acting as the formal employer on paper, the EOR ensures that your hire functions as a regular team member within your business.

Typically, an EOR takes charge of tasks such as hiring, compliance, payroll, benefits, and other responsibilities for your international employees. This approach significantly reduces both the cost and complexity associated with the global hiring process.


The Essential Role of Employers of Record for Businesses


In reality, many companies lack the necessary resources and expertise to successfully navigate the complexities of global hiring, and errors in this process can entail significant risks. According to Sean Page, an expert in talent branding and hiring who has experience with leading startups worldwide, global hiring is a resource-intensive undertaking that demands careful planning and coordination across various teams. Establishing an entity in a new country, a process that can take at least six months, involves aligning IT, finance, people, talent, and legal teams. Page notes that in his previous roles, entities were typically set up only when there was a confirmed need for multiple roles in a specific country or region.

For companies with the resources, the traditional route of setting up an entity may not always be the most efficient use of time and money. Many opt to partner with an Employer of Record (EOR) that already has established entities in the countries where they intend to hire. Panda Work Global, for instance, serves as an EOR with business entities in numerous countries, offering services at transparent, flat rates without hidden fees or deposits. The advantages of EORs extend beyond cost reduction and streamlined processes; they also play a crucial role in mitigating the risks associated with misclassifying workers or violating labor laws in foreign countries.


What sets an Employer of Record apart from others?


Numerous recruitment teams are familiar with collaborating with staffing agencies, payroll companies, and professional employer organizations (PEOs). However, it’s crucial to recognize that these service providers differ from employers of record. It becomes essential to discern these distinctions when determining the most suitable solution for global hiring.


How does an Employer of Record (EOR) differ from a staffing agency?


Staffing agencies concentrate on connecting businesses with talent, often assisting with temporary or medium-term staffing requirements. They leverage their talent network to review resumes, facilitate communication between candidates and hiring managers, and gather feedback from both parties. However, unlike an Employer of Record (EOR), staffing agencies lack the authority to directly hire an employee on behalf of a client’s business.

Conversely, an employer of record oversees every aspect of the hiring process, extending to the management of the employment contract. Employer of record services encompass payroll, taxes, benefits, compliance, and various other responsibilities, distinguishing EORs as a distinct offering from traditional staffing agencies.


How does an Employer of Record (EOR) differ from a payroll company?


Payroll companies provide software services designed to streamline the processing of client payroll obligations and manage accounting for year-end taxes. Some may offer limited HR services, but they lack the capability to facilitate global employee hiring on behalf of their clients.

In contrast, the scope of services provided by an Employer of Record (EOR) surpasses what a payroll company can offer, particularly for businesses seeking international hiring solutions. While a payroll company primarily focuses on financial services, an employer of record assumes responsibility for comprehensive aspects of compliance, payroll, and benefits management in the countries where clients’ employees are based.


How do EOR (Employer of Record) and PEO (Professional Employer Organization) differ?


A PEO, or professional employer organization, essentially functions as an outsourced HR department, managing tasks such as payroll and benefits on behalf of its clients’ businesses. While these services may seem similar to those provided by an EOR, there are notable distinctions.

Unlike an EOR, a PEO necessitates that your company owns a local legal entity in the country where you intend to hire. Additionally, engaging a PEO involves entering into a co-employment arrangement, wherein both your business and the PEO simultaneously employ the worker.


Opt for an EOR for secure international hiring


Opting for an Employer of Record (EOR) is the safest and most straightforward solution when venturing into your initial global hires. Whether you are looking to fill fully remote positions, establish hybrid teams, or set up globally distributed offices, EORs act as reliable partners, safeguarding your business interests throughout the hiring process and the entire duration of your employment agreements.


Prevent misclassification and other errors related to local labor laws.


Understanding the intricacies of local labor laws can be a daunting challenge for HR or hiring managers embarking on their first international hires. This is why some companies opt to classify their workers as independent contractors instead of employees—a mistake that can prove costly.

If employees entitled to benefits are incorrectly classified as independent contractors, the business may face substantial expenses, including back payments for employee taxes and social security benefits, on top of the gross payments already made to the workers. Depending on the specific circumstances and the misclassified worker’s country of residence, fines, interest, or other penalties may also apply.

Engaging an Employer of Record (EOR) provides businesses with a straightforward and cost-effective method to transition misclassified workers to legitimate employee status, averting potential penalties.

Beyond the risk of misclassification, keeping up with evolving local labor laws in foreign countries is typically beyond the purview of most talent and HR roles. In contrast, an Employer of Record (EOR) ensures that when laws change in the countries where your employees are based, they promptly inform you and implement necessary adjustments on your behalf. This proactive approach not only safeguards your business but also provides you with the peace of mind to focus on other aspects of your operations.


Compliant Benefits Packages Aligned with Local Regulations


When contemplating international hires, it becomes crucial to factor in both statutory and supplementary benefit packages, ensuring alignment with local laws. Offering benefits that adhere to the legal requirements of each region is essential.

To attract top talent, competitiveness in the benefits you provide is paramount. This involves a nuanced understanding of the expectations of workers in different regions, including the consideration of supplementary benefits. An employer of record proves invaluable in this regard, customizing benefits packages to align with the norms and expectations in the specific country where you intend to hire.


Assistance with Termination Management


Regrettably, dealing with terminations is an inevitable aspect of hiring employees anywhere. When the employee in question is situated in another country, the dynamics change, and the repercussions of mistakes can be more severe.

Each country has its own set of laws governing termination, and non-compliance can lead to costly international legal disputes. For instance, the United States follows an “at-will employment” model, allowing termination at any time. In contrast, countries like the Czech Republic mandate a two-month notice period for terminations.

An employer of record is well-versed in termination protocols right from the initiation of your employee relationship. This knowledge is crucial when crafting employment agreements that include clauses related to notice periods and severance. Additionally, your EOR can assist in addressing issues such as safeguarding sensitive company data and intellectual property post-termination.


Ensuring Intellectual Property Protection


Companies must carefully assess risks related to intellectual property ownership when hiring employees in foreign countries. Laws governing intellectual property rights are complex even within a single country, and the complexity only intensifies when dealing with multiple jurisdictions, giving rise to questions of ownership.


Streamlined Management of International Hires


Collaborating with an employer of record, such as Panda Work Global, consolidates all essential documentation for your international hires in one centralized location. This facilitates easy and efficient management and review of employee information at a glance. Your EOR will also ensure that your recordkeeping aligns with local requirements, encompassing the maintenance of documentation for terminated employees. The simplified process of managing and maintaining records is just one of the many added benefits to consider when evaluating the value of an EOR.


Choosing the Ideal Employer of Record for Your Needs


Once you’ve determined that an employer of record is the optimal solution for your international hiring requirements, the subsequent crucial step is selecting the right EOR to fulfill those needs.


What criteria should be considered when evaluating a reliable Employer of Record (EOR)?


A reliable Employer of Record (EOR) should offer comprehensive global HR solutions, encompassing salary simulations, onboarding, payroll approvals, benefits administration, and management of local taxes, all consolidated in a centralized platform. However, these services only scratch the surface of what a top-tier EOR can deliver. Crucially, security measures, including robust data protection and compliance practices, are imperative, along with a commitment to intellectual property (IP) protection.

Beyond these fundamental aspects, it’s crucial to gain insight into how your chosen EOR manages the intricacies of your business operations. Providing your employees with a positive experience, regardless of their location, is paramount. A reputable EOR will prioritize the well-being of your employees, ensuring they feel fully valued as integral members of your team.


What makes it essential to collaborate with an Employer of Record (EOR) that possesses owned entities?


The ownership of legal entities by an Employer of Record (EOR) is a pivotal consideration when assessing different providers. It’s essential to determine whether an EOR owns legal entities in the countries of operation or relies on a network of third-party partners.

Consider a scenario where you need assistance from your EOR. In the case of a partner-dependent EOR, navigating through a chain of vendors for accurate information and execution becomes necessary. This process is time-consuming and prone to complications due to potential miscommunications among various parties. Moreover, such EOR services tend to be more costly, as numerous intermediaries seek a share of the funds.

On the other hand, an owned-entity EOR has established legal business entities in the relevant countries. This allows them to seamlessly control the entire hiring process and efficiently manage your global employees. The result is reduced friction, lower costs, and an enhanced overall experience for both you and your team.


What inquiries should be posed to an Employer of Record (EOR) prior to finalizing the contract?


Before committing to your Employer of Record, it’s imperative to pose the following questions:

Do you possess entities in the countries of operation, or do you rely on third-party entities? Exercise caution, as some EORs may own entities in certain locations but not in others, potentially leading to a disorganized experience for your employees and unpredictable pricing for your organization.

How do you manage IP transfers and ensure protection? Delve into the specifics of how the EOR handles intellectual property transfers. The most reliable ones are well-versed in understanding how local laws impact your intellectual property and can guide you on retaining your rights effectively.

Are there any third parties with whom you share our data? EORs reliant on third-party collaborations often have extensive networks of partners, creating a complex web of companies with access to your sensitive data. Clarify the extent to which your information is shared.

Is all documentation and information centralized in a single software hub? While the EOR manages the legal intricacies behind the scenes, the user experience is equally crucial. Evaluate the software to ensure that all necessary tasks can be efficiently handled in one consolidated platform.

Gaining clarity on these aspects will empower you to make an informed decision about which EOR is the right partner for your international hiring requirements.


Optimal Employer of Record for Your Global Team


Now that you are aware of when to utilize an Employer of Record (EOR) and have the knowledge on finding the optimal EOR for your business requirements, the next step involves leveraging the capabilities of Panda Work Global.

Panda Work Global simplifies the process of hiring, paying, and onboarding your global workforce with just a few clicks, ensuring compliance at every stage. Beyond managing paperwork, Panda Work Global stands out by wholly owning legal entities in all the countries where it operates. This commitment guarantees that you and your team consistently receive the highest quality experience. As your global team expands, Panda Work Global remains a reliable partner, providing assistance at every juncture of your growth journey.


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