There are many ways to hire international employees. But which one is best?
By 2025, about 22% of U.S. workers, or 36.2 million people, will be working from home. Many businesses are hiring people from all over the world to work for them this way.
If your business wants to hire people from other countries to work from home, there are a few ways you can do this. You can use a company that specializes in this kind of hiring, an outsourcing company, or hire them directly.
It can be hard to know which option is best for your business. But if you understand the differences between them, it can make your decision easier. In this article, we'll explain the differences between these three ways of hiring.
Outsourced staffing and employer of record are two common ways of hiring employees in foreign markets. Both methods have their advantages and disadvantages, depending on the needs and goals of the business. In this article, we will explain what outsourced staffing and employer of record are, how they differ, and which one is best for US businesses.
What is an Employer of Record (EoR)?
An Employer of Record (EoR) is a company or organization that is legally responsible for paying employees, including handling all the employer's responsibilities for tax, insurance, and compliance with labor laws, even though the employees might be doing all their work for another company.
In other words, an EoR hires employees on behalf of another company. This is especially useful for companies that want to hire employees in other countries, as the EoR will handle all the complex legal and administrative aspects of employment in that country.
For instance, if a company in the U.S. wants to hire a worker in Germany but does not have a legal entity in Germany, they can hire an EoR service in Germany to employ the worker on their behalf. The EoR then takes care of all the local employment responsibilities, while the worker performs their duties for the U.S. company.
What is an Outsourced Staffing Firm?
An Outsourced Staffing Firm, also known as a staffing agency or recruitment agency, is a company that helps other businesses find and hire employees. Instead of the business having to do all the work of posting job ads, reviewing resumes, conducting interviews, and managing other aspects of the hiring process, the staffing agency does it for them.
These firms often specialize in specific industries or types of jobs, and they usually have a pool of pre-vetted candidates ready to fill positions. This can make the hiring process faster and easier for businesses, especially if they're looking for temporary workers, contract workers, or specialized roles that are hard to fill.
An outsourced staffing firm provides temporary or permanent workers, this means its primary focus is on the recruitment process as it recruits, screens, trains, and manages the workers, who perform specific tasks or projects for the client company. The outsourced staffing firm is responsible for the quality and performance of the workers, as well as their payroll and benefits.
The client company pays a fee for the services provided and does not have a direct employment relationship with the workers, who are employed by the outsourced staffing firm.
9 Key Differences Between Outsourced Staffing and Employer of Record
Outsourced staffing and employer of record have some similarities, but also some important differences. Here are nine key differences between them:
Employment Responsibilities
An Employer of Record (EoR) takes on the responsibilities of employment, including payroll, taxes, benefits, and compliance with labor laws. On the other hand, an outsourced staffing firm mainly focuses on recruiting and hiring employees, leaving the management of employment responsibilities to the hiring company.
Legal Compliance
An EoR ensures compliance with local labor laws and regulations in the country where the employee is based. This includes managing everything from employment contracts to labor law compliance. A staffing firm doesn't typically handle this aspect, focusing more on the recruitment process.
Global Hiring
An EoR is particularly useful when hiring employees in other countries, as they manage all local legal and administrative requirements. An outsourced staffing firm might help you find candidates internationally but wouldn't handle the complex aspects of international employment law.
Employee Benefits
An EoR manages and administers employee benefits, which can include health insurance, retirement plans, and more. An outsourced staffing firm doesn't typically manage these ongoing aspects of employment.
Contract Length
EoRs are often used for long-term or permanent employment situations because they can manage ongoing employment responsibilities. Outsourced staffing firms are commonly used for short-term, temporary, or contract positions.
Risk Management
An EoR bears much of the employment-related risk, as they are the legal employer. In contrast, when using a staffing agency, the hiring company assumes the risk once the candidate is hired.
Employment Relationship
The worker is technically an employee of the EoR, even though they perform their work for the client company. With an outsourced staffing firm, once the worker is hired, they are an employee of the client company.
Cost
The cost structures are different for EoRs and staffing firms. EoRs usually charge a percentage of the employee's salary to cover their services, while staffing firms might charge a flat fee or a percentage of the first year's salary as a placement fee.
Onboarding and Training
While the specifics can vary, an EoR often assists with onboarding and training, particularly when it relates to compliance or administrative procedures. A staffing firm, conversely, may provide initial candidate screening and introduction, but any subsequent onboarding or training is typically the responsibility of the hiring company.
Which Is Best for US Businesses?
There is no definitive answer to which method is best for US businesses, as it depends on various factors, such as the size, scope, and nature of the business, the location and market of the workers, the budget and timeline of the project, and the legal and regulatory environment of the country. However, some general guidelines are:
- Outsourced staffing may be more suitable for US businesses that need to hire workers for a short-term or project-based assignment, that do not require a high level of control or integration over the workers, that are willing to pay a higher fee for convenience and risk reduction, and that operate in a stable and simple legal and regulatory environment.
- Employer of record may be more suitable for US businesses that need to hire workers for a long-term or ongoing basis, that require a high level of control or integration over the workers, that are looking for a cost-effective and scalable solution, and that operate in a complex or uncertain legal and regulatory environment.
Why Accounting Firms Don't Hire Internally Anymore?
Accounting firms are increasingly relying on outsourced staffing and employer-of-record services to hire employees in foreign markets. Some of the reasons why accounting firms don't hire internally anymore are:
- Access to a larger pool of talent: Accounting firms need to expand their global footprint and serve clients in different countries and regions. Outsourced staffing and employer of record allow them to access a larger and more diverse talent pool, without having to invest in setting up local offices or entities.
- Competitive market: Accounting firms face intense competition from other firms, as well as from new entrants such as technology companies or consulting firms. Outsourced staffing and employer of record enable them to reduce their costs, improve their efficiency, and offer more value-added services to their clients.
- Cost-effective Regulations: Accounting firms have to comply with various laws and regulations in different jurisdictions, such as tax, labor, data protection, anti-money laundering, etc. Outsourced staffing and employer of record help them to navigate the complex and changing regulatory landscape, by providing them with local expertise and guidance.
- Innovation: Accounting firms have to keep up with the latest trends and developments in the accounting industry, such as digital transformation, automation, artificial intelligence, etc. Outsourced staffing and employer of record allow them to access new skills and technologies, by hiring workers who have specialized knowledge or experience in these areas.
