What is an EOR (Employer of Record)?
An Employer of Record, or EOR, is a third-party entity or service provider that takes on the responsibilities of being an employer for the workers identified by the host employer.
When a company uses an EOR, it becomes the legal employer of the workers, handling tasks such as payroll processing, benefits administration, onboarding and offboarding, compliance with employment laws and tax withholding. This arrangement allows the client company to benefit from the services of the workers without having to directly employ them and assume the associated employer responsibilities and risks.
How to get started with an EOR?
In the EOR vendor selection process, it is important to understand the cost- and time-savings benefits potential EOR partners bring up front, but companies should also consider the strength of a potential EOR partner’s legal compliance as well to ensure protection from legal risks. Mistakes with employment law compliance such as correct employee classification and compliance can be costly as employers are ultimately responsible for non-compliance.
Once selected, EORs should ensure adequate onboarding processes like reviewing identification documentation, I-9 forms and 1099 forms processing, and that proper payroll taxes are applied. An EOR partner should also serve as an extension of the host employer, managing onboarding processes, including providing client-specific policies and supporting new hire integration.
Ideally, EORs should also manage the gamut of HR hiring functions including employee relations items and offboarding activities like exit interviews, as well as continuous employee feedback that gets funneled in a useful way back to the employer. A trusted EOR partner should be as transparent about the health, performance and well-being of the workforce they manage throughout the employment cycle as they are about markups up front.
What Are the Benefits Of An EOR?
EORs remove the legal employment burden associated with managing a contingent workforce entirely from the employer, including timekeeping payroll processing, proper employee classification, administering health insurance coverage, sick time, vacation time, onboarding and offboarding, as well as managing compliance with employment laws and tax withholding.
Examples of onboarding tasks EORs perform include reviewing identification documentation, I-9 forms and 1099 forms processing, as well as providing employees with orientation or background materials on the employer. EORs also typically manage offboarding activities including exit interviews.
Additional benefits to employers who use an EOR:
- Frees up the employer’s HR and legal teams’ time to work on more strategic projects.
- Custom payrolling software from the EOR partner simplifies and provides more transparency into the performance and cost of their contingent workforce.
- Cost-effective international employee hiring in countries in which employers do not have a presence rather than forming a new legal entity abroad for the purpose.
Why Should My Company Use an EOR?
Companies seeking to outsource legal employer responsibilities of their existing contingent workforce onto a third party may consider engaging an employer of record (EOR) to take them on. The new EOR takes on all the responsibilities an employer would perform on behalf of the end company including timekeeping, payrolling, taxes, risks, legal responsibilities, as well as onboarding and offboarding. This frees up managerial, administrative and legal resources to focus on more strategic projects.
Additionally, for employers that do not have a presence in a state or country into which they wish to expand, EORs are a simple and cost-effective means of acquiring international contingent talent. This can be done either through the EOR itself or internationally, through one of its subsidiaries. In either case, this is simpler, faster, and more cost effective than the employer founding a new legal entity in a new country simply to hire new contingent employees.
Do your employees work for you or for the EOR?
The contingent employees employed as part of an EOR program and employees of the EOR provider, not the end company at which they work.