The accounting and finance sectors in America are experiencing a noticeable talent shortage. The rapid increase in demand for individuals skilled in accounting exceeds the supply of professionals to fill these roles. This issue is heightened as smaller CPA firms must compete with the dominant Big 4 accounting firms for talent, leading to a rise in wages. Many business owners are forced to source from this talent pool to secure accounting professionals, even when their needs might be less extensive.
However, an emerging solution to this persistent challenge for businesses is remote talent. The employer of record (EOR) market is expected to grow by 6.8% annually and reach $6604.4 million by 2028. This shows that more and more businesses are choosing to collaborate with EOR vendors to expand their global presence and hire talent abroad.
What is an Employer of Record?
An Employer of Record (EOR), also known as a Professional Employer Organization (PEO), is a third-party company that handles recruitment, payroll, HR, and compliance functions for businesses, particularly those that have employees in different locations.
When a company hires an EOR, the EOR technically becomes the legal employer of the company's employees. This arrangement is primarily on paper; the original company still manages and controls the employees' day-to-day tasks, while the EOR handles administrative tasks such as:
- Processing payroll and handling tax filings.
- Providing benefits, including health insurance and retirement plans.
- Ensuring legal compliance with labor laws across different jurisdictions.
- Managing risk and handling workers' compensation and unemployment insurance claims.
- Helping with hiring, onboarding, and offboarding processes.
This arrangement is particularly useful for companies that want to expand their operations into new geographical areas, as it allows them to bypass the complexities and legalities of setting up operations in different countries or states. By hiring an EOR, a company can focus on its core business operations and leave the administrative and compliance tasks to the experts.
Why Do Accounting and Finance Firms Need an EOR?
Accounting and finance firms are facing a talent shortage in the US market. According to the Bureau of Labor Statistics, the median salary for accountants and auditors is $77,250, compared to $94,160 for financial analysts and $102,380 for financial managers. This makes accounting less attractive for young professionals who are looking for higher-paying careers in finance.
One major factor contributing to the talent shortage is the decline in students choosing to major in accounting. According to AICPA, there was a 10% decrease in accounting graduates from 2012 to 2020. Furthermore, only 3% of college students plan to pursue a career in accounting, despite the high demand for these professionals in the job market.
This problem is exacerbated by an increasing number of people leaving the accounting profession and an aging workforce. The Wall Street Journal reports that since 2019, over 17% of accountants and auditors nationwide have left their positions. As the current workforce, primarily made up of baby boomers and millennials, is getting older, many CPA firms are struggling with succession planning due to the lack of professionals available to assume leadership roles.
6 Benefits of Hiring an EOR for Remote Accounting
Working with Employer of Record (EOR) vendors is a typical strategy for global companies. Having a middleman company that liaises between businesses in different countries and local governments is a game-changer. It can help reduce risks, cut down management costs, and boost team efficiency. Let's dig a bit deeper into why getting an EOR onboard could be a smart move:
#1. Breaking through global market entry barriers
Setting up shop overseas can offer great perks like cost-effective labor, a larger talent pool, and increased diversity. But for many, the thought of registering a business entity in another country, especially where there are loads of bureaucracy like Ukraine, Argentina, or India, can be a bit daunting.
How EOR helps: An EOR is an officially recognized company with the green light to hire and pay employees. So, by getting an EOR on board, you can start looking for overseas talent and kicking off projects without worrying about red tape.
#2. Complying local laws
Ignorance of local trade and labor laws can land international businesses in hot water. For instance, European companies are required to offer female employees a 14-week maternity leave, a mandate that doesn't exist in the U.S. An unaware American business owner could end up in legal trouble for not complying with EU legislation.
How EOR helps: EOR agencies are well-versed in labor and business laws and can help you run your teams in a legally-compliant way. If there's a legal hiccup, the EOR, not the business owner, will shoulder the responsibility.
#3. Time-saving
Dealing with paperwork, managing benefits, running payroll, and handling contract terminations can eat up a lot of time. Juggling these administrative tasks often takes business owners' focus away from core activities like product improvement, strategy building, and nurturing client relationships.
An EOR takes over the mundane tasks of tax payments, employee payroll, and more, freeing up valuable time for managers. This lets business owners focus on what they do best instead of burning the midnight oil studying international laws and procedures.
#4. Risk management
Employing an EOR is a smart way for business owners to transfer the burden of responsibility from their organization to a vendor. As the EOR is the official employer on paper, they'll be the ones held accountable if something goes awry.
#5. Reducing the costs of going global
Setting up an overseas office can drain your wallet. Between establishing a subsidiary and hiring legal and financial advisors, creating a foreign team can be a costly endeavor.
How EOR can help: With an EOR, you can save on hiring financial, HR, and legal consulting firms. The flexibility offered by EOR agencies also allows for testing new markets without the worry of handling costs associated with maintaining and closing global offices.
#6. Improving Employee Benefits and Retention
One of the challenges of operating in multiple jurisdictions is providing a consistent, competitive package of employee benefits. Different countries have different norms and legal requirements when it comes to things like health insurance, retirement contributions, and vacation time.
The question a lot of business owners have is, "Why would I hire an EOR in another country when I can just hire contractors?" While this line of thinking is common, many overlook that in many countries, blurring the lines between contractors and full-time employees can lead to legal penalties.
In the U.S., these fines can be steep – up to 20% of all paid wages, along with all FICA taxes for both employers and employees. The severity of penalties varies from country to country.
The tasks a contractor can perform and the level of supervision they can be under are often limited. To build a high-performing team, you'll likely want to invest in training, hardware, and productivity monitoring, which generally requires full-time professionals.
However, with full-time hires comes paperwork and compliance with local laws. To avoid worrying about keeping up with legal changes or missing tax paperwork deadlines, many company managers find it easier to hire an EOR.
How to Choose an EOR: 5 Things to Pay Attention To
If you are considering hiring an employer of record, it’s important to take some time to screen and compare vendors. Since the organization you choose will represent your company and handle your payroll, it’s important to choose a reliable service provider.
While we have prepared a thorough list of tips to hire employees through EOR, here are some factors to consider when choosing an EOR vendor:
- Experience: how long has the vendor been operating in the market? How many clients do they have? What are their reviews and testimonials?
- Expertise: how well does the vendor know the local laws and regulations? How do they handle compliance issues? Do they have qualified staff and advisors?
- Services: what kind of services does the vendor offer? Do they cover payroll, taxes, benefits, contracts, visas, etc.? Do they offer any additional services such as recruitment or training?
- Fees: how much does the vendor charge for their services? Are there any hidden fees or extra charges? How transparent is their pricing structure?
- Communication: how easy is it to communicate with the vendor? Do they have a dedicated account manager?
References:
What Does the Accounting Talent Shortage Mean for Your Business?. https://allianttalent.com/what-does-the-accounting-talent-shortage-mean-for-your-business/.
Why There's a Shortage of Accountants and We Should Be Worried. https://www.businessinsider.com/shortage-accountants-we-should-be-worried-recruit-young-talent-2023-2.
Fixing the Crisis in Accounting - The CPA Journal. https://www.cpajournal.com/2022/11/25/fixing-the-crisis-in-accounting/.
