Over the past couple of years, the business landscape has globalized, with hiring managers seeking talent beyond borders looking for better payment rates compared to the US salaries. This shift towards international employment has led to two primary compliance options for companies employing remote international workers - establishing an entity and registering as an employer in the employee's jurisdiction or using an Employer of Record (EOR). Engaging independent contractors on a long-term basis is not recommended.
For businesses looking to expand globally, hiring international talent can provide access to new markets. The use of a global EOR can facilitate this growth trajectory. An EOR assumes all employment-related responsibilities, tasks, costs, and liabilities, providing an alternative for businesses unwilling or unable to manage these obligations.
Is an EOR the Same as a Staffing Agency?
There are a few key differences between an EOR and a staffing agency, but in short, a staffing agency is a company that recruits and hires workers for temporary or short-term assignments. The workers are employed by the staffing agency and assigned to work for different clients on a project-by-project basis.
An EOR is a company that hires and pays workers for permanent or long-term positions. The workers are employed by the EOR but work exclusively for one client on a continuous basis.
What Does it Mean an Employer of Record (EOR)?
An Employer of Record (EOR) is a third-party organization that becomes the legal employer of a company's workforce. This EOR takes over all job-related responsibilities such as human resources tasks, payroll, and managing employees, but doesn't interfere with the company's daily operations or project-related work.
An EOR is particularly useful for businesses expanding internationally, as it can handle the complexities of foreign employment laws and procedures. It ensures a company can employ workers in other countries legally and efficiently without needing to establish a local entity or risk breaking local employment laws.
Moreover, an EOR helps in customizing employment contracts to suit the company's specific needs, including the protection of intellectual property rights.
How does an Employer of Record work?
An Employer of Record (EOR) enables businesses to hire global talent legally and efficiently, eliminating the need to establish a foreign entity or risk breaking local employment laws. As the legal employer, the EOR handles immigration, employment, payroll, and benefits requirements for your distributed workforce, while you maintain control over daily management tasks like job duties, projects, and performance management.
Services provided by a global EOR include drafting and maintaining compliant employment contracts, managing payroll and tax withholdings, ensuring timely payments to employees, offering statutory benefits, overseeing compliance with terminations and offboarding, and providing continuous updates on local labor laws and regulations.
These services are typically accessible via a software platform, allowing clients, employees, and recruiters to manage their communication regarding the work assignment. This software can also offer insights and analytics on employees, costs, and other factors.
The EOR model, which minimizes the risk of compliance violations, leaves businesses in charge of an employee's day-to-day operations while the EOR handles administrative tasks. This model has gained popularity with the rise of remote work as it helps companies tackle the challenges of remote work compliance across various countries.
Onboarding
The EOR takes care of all the onboarding processes for the employee, such as:
- Obtaining all the necessary documents and information from the employee
- Verifying their identity, background and qualifications
- Applying for their visa, work permit and other immigration requirements if needed
- Providing them with an employee handbook, code of conduct and other policies
- Setting up their payroll account, bank details and payment method
The EOR also ensures that the employee receives a proper general orientation and training on their role and expectations from the client company.
Payroll Management
An EOR manages a variety of duties such as overseeing payroll, ensuring tax compliance, and coordinating benefits registration when hiring staff in a new country. They also supervise international payments in their role of managing employee remuneration, thereby ensuring your team is compensated in a timely, accurate, and lawful manner, irrespective of time zone and geographical differences. Moreover, the EOR assures that employees' salaries align with local market rates and living costs, fostering competitive and fair compensation.
International Benefits
Providing benefits is a key strategy for attracting and retaining top-notch international talent. An Employer of Record plays a crucial role in facilitating this for international employees, whose benefit needs may vary based on their location.
The EOR collaborates with benefits providers worldwide to manage both mandatory and optional employee benefits. These can encompass a range of offerings, from health insurance, including medical, dental, and vision coverage, and social security, to unemployment insurance, sick leave, wellness programs, work-from-home allowances, and financial benefits like international pension plans and 401(k) retirement plans.
How Much Does an Employer of Record Service Cost?
The cost of an Employer of Record service depends on several factors, such as:
- The country where the employee is located
- The number of employees hired through the EOR
- The level of service and support required by the client company
- The complexity and risk of compliance in the host country
- The exchange rate and currency fluctuations
Generally, the cost of an EOR service consists of two components:
The employee's total cost: this includes their gross salary, taxes, social security contributions, benefits and other employment costs
The EOR's service fee: this is a percentage or a fixed amount that covers the EOR's administrative, legal and operational expenses
The EOR's service fee can range from 10% to 30% of the employee's total cost, depending on the factors mentioned above. For example, if the employee's total cost is $1,000 per month, the EOR's service fee could be $100 to $300 per month.
The client company pays the EOR a monthly invoice that covers both the employee's total cost and the EOR's service fee and it’s usually a fixed fee. The EOR then pays the employee their net salary and remits their taxes and benefits to the authorities.
Global Employer of Record: The Benefits of South American Workforce
South America is a continent of diversity, richness and potential. It has a population of over 430 million people, spread across 12 countries that vary in size, culture, language and development. South America also has abundant natural resources, such as oil, gas, minerals, agriculture and fisheries.
South America’s workforce is one of its most valuable assets. It is young, educated, skilled and motivated. According to the World Bank, the average age of South America’s population is 31 years old, and the literacy rate is 93%. South America also has a large pool of professionals in various fields, such as engineering, IT, finance, marketing, design and more.
Many companies are looking to hire talent from South America for several reasons, such as:
- Cost savings: hiring workers from South America can reduce labor costs by up to 50% compared to hiring workers from the US or Europe. This is because the cost of living and the average wages in South America are lower than in other regions. For example, according to Numbeo, the cost of living index in Colombia is 32.62, while in the US it is 71.05.
- Time zone alignment: Colombia and Peru are in the same time zone as Eastern Standard Time (EST), while Argentina and Chile are only one hour ahead of EST. This makes communication and synchronism much easier than with other countries in southeast Asia with around 12 hours difference.
- Cultural affinity: workers from South America foster a positive and productive work environment, as they share similar or compatible cultural values and work ethics with workers from the US or Canada. For example, South American workers are known for being friendly, respectful, flexible, creative and hard-working.
- Language skills: South America countries are known for their high level of english proficiently, Argentina being the on with most fluent English speakers in the region. Many South American workers also speak Portuguese, French or other languages.
The Future of Work for Accounting Firms
In the United States, there's a noticeable shortage of skilled accounting professionals. As per the Bureau of Labor Statistics, employment of accountants and auditors is projected to grow 7 percent from 2020 to 2030, faster than the average for all occupations. Combined with an aging workforce and fewer graduates choosing the accounting profession, the demand for skilled accountants outpaces the supply. Hiring offshore can fill these gaps, providing access to a larger pool of qualified professionals.
That’s why accounting firms are increasingly looking towards offshore hiring through different virtual staffing solutions like EORs to counteract several significant challenges they're currently facing. The shortage of qualified accountants and a competitive local job market are creating a complex recruitment landscape that these firms must navigate.
