If you are looking to expand your business into another country, you have probably considered incorporation within your target location.
However, for many companies, there is a faster and more affordable way to establish a business presence, hire employees, and ease the HR process in another country – by partnering with a Professional Employer Organization (PEO) or engaging with an Employer of Record (EoR) services.
In this guide, we will provide you with everything you need to know about these options, including how they work, their benefits and drawbacks, and if they are the right fit for your business.
Key takeaways
- A EoR becomes the legal employer for your employees, taking over tax, compliance and payroll responsibilities.
- Benefits of a EoR include reducing time and costs, removing global barriers, complying with local laws, managing employees.
- Companies may choose to use EoR services for international expansion, short-term projects and compliance and risk management.
What is a professional employer organisation (PEO)?
A professional employer organisation (PEO) is an organisation specialising in handling HR outsourcing requests for its clients. It also serves as the workforce’s legal employer, on behalf of a client company. While services provided by PEOs may vary between different providers, services typically include the following three core main services:
- Contractor & freelancer management services
- Employer of record (EoR) service
- Payroll outsourcing service
What is an employer of record service?
Employer of Record (EoR) is an employment service that manages and facilitates the onboarding and recruiting of employees on behalf of your company in other locations. An EoR ensures that the client acts compliantly with the labour law requirements by providing necessary information on employment. It is also the employee’s registered employer even though it does not have management responsibilities.
What does an employer of record do?
An EoR handles legal and regulatory obligations for employment, payroll, immigration and benefits. Despite the fact that the EoR is the employee’s registered employer, you remain in control over the day-to-day management activities, such as job responsibilities, performance management and projects.
Some of the EoR services include:
- Onboarding your staff
- Registering your employee(s) on local social contributions statutory systems
- Organising the initial payroll setup, salary calculation, labour contract and staff handbook
- Paying out approved monthly salaries to employees using your implemented policy
- Organising and paying all required social insurance contributions and individual income tax
- (Optional)
- Processing work permits and other immigration matters for foreign employees
- Recruiting the employee via an in-house or trusted partner – RPO (Recruitment Process Outsourcing)
What are the benefits of using EoR?
Using an EoR service is a common practice for companies which are planning to grow and expand globally. Reaching out to a firm that can act as an intermediary between a business located in a different country and the local government aids business owners to minimise risks, improve team efficiency and reduce management costs.
Below are some of the main benefits:
Simplified global expansion
EoR services provide companies with a streamlined process for entering new markets and expanding their operations internationally. They handle all legal and administrative complexities associated with hiring and employing workers in foreign countries, saving valuable time and resources.
Compliance and risk mitigation
EoR providers possess extensive knowledge of local labour laws, regulations, and tax requirements. By engaging their services, businesses can ensure compliance with local employment laws, minimize the risk of penalties, and maintain a strong reputation in each jurisdiction.
Eliminating the need to set up a subsidiary
Using an EoR service allows your business to hire employees without going through the process of registering a subsidiary. EoRs are already legal entities and can legally handle employee functions on your behalf.
Saving time
A reliable EoR provider that takes care of employee payroll, tax payments, and other formalities saves company owners a lot of productive time.
Complying with local laws
EoR providers have a firm grasp of business and labour legislation and will ensure all the processes within the company are compliant. Even in the unlikely case of a breach of law, the business owner will not have to take responsibility — the EoR will be held accountable.
Managing employees
EoRs can manage work permits, visas and other HR-related issues to speed up the onboarding process. EoRs are also responsible for handling employment agreements, conducting background checks and terminating/transitioning employment.
Tax and payroll administration
EoR prepares payroll according to local regulations, manages tax withholding from employee wages, and distributes payments to the appropriate authorities. EoRs are provided with the necessary modern technology and sufficient knowledge of the payroll system.
What are the drawbacks of employing EoR services?
While there are no significant drawbacks to using EoR services, there are several instances when it may not be the best option for your business. Some of the potential challenges are:
- Loss of Direct Control: When using EoR services, the employer relinquishes direct control over HR and employment-related decisions to the EoR provider. This lack of control may limit customization options and potentially impact the company’s ability to align HR policies with its specific needs and culture.
- Cost Considerations: Engaging an EoR service comes with associated costs, which can vary based on factors such as the number of employees, the complexity of the engagement, and the geographical locations involved. Businesses should carefully evaluate the financial implications and compare them with the potential benefits before committing to EoR services.
When to employ an EoR service?
There are many benefits from using an EoR service for your company and it can help ease any HR challenges you may be facing. The following lists three use cases your company can benefit from an EoR:
- International expansion: EoR services are particularly beneficial when entering new markets or expanding operations overseas. They offer a compliant and hassle-free approach to navigating the complexities of international employment, allowing businesses to establish a presence quickly and efficiently.
- Short-term projects or temporary staffing needs: Employing an EoR service can be advantageous for managing short-term projects or engaging temporary staff in foreign locations. It eliminates the need to set up legal entities or manage complex employment contracts, enabling companies to maintain flexibility and adaptability.
- Compliance and risk management: If a company lacks in-house expertise or resources to handle complex legal and compliance requirements, engaging an EoR service can ensure proper adherence to local labour laws, minimize compliance risks, and mitigate potential penalties.
How Acclime can help
EoR services are particularly advantageous for companies pursuing international expansion, managing short-term projects, or seeking compliance and risk management support. By evaluating their specific needs and weighing the pros and cons, businesses can make informed decisions on whether and when to employ EoR services.
Acclime can act as your administrative co-employer, relieving you of HR responsibilities such as talent acquisition, payroll, benefits, compliance, and tax issues, bringing you peace of mind and allowing you to concentrate on the development of your business. You should focus on your work and not on the paperwork. If you have any questions, feel free to contact Acclime at peo@acclime.com our experts will be delighted to support you in your expansion plan via our in-house EoR solution across the entire APAC region.
