Nowadays, boundaries between nations are no longer a hindrance for any businesses looking to grow internationally. Many organizations, such as Employer of Record, were founded to facilitate this expansion. Firms that can not afford a new entity in another nation may benefit from this business form. So what is an EOR? We will provide you with an in-depth explanation in this article
What Does EOR Mean?
Employer of Record, or EOR, is a third-party company that assists a corporation in hiring employees abroad. They essentially serve as external HR departments since they have to ensure legal compliance for foreign employment.
Due to the Employer of Records’ duty to ensure legal compliance in those nations, organizations collaborating with EOR might reduce risks by recruiting foreign workers.
In Vietnam, any company, who want to officially provide EOR service, have to follow the Labor law 2022 and Decree 145/2020/NĐ-CP.
Why Is an EOR Important?
EOR is necessary for a business that wants to expand internationally with low cost and less risk. These are the following benefits that an Employer of Record can bring to a company:
- Streamlines the hiring process: The normal hiring process is complicated with many steps: recruiting, screening, interviewing, onboarding, etc. With EOR, you just need to work with them to get the best candidate onboard.
- Lower compliance risk: Establishing a legitimate corporate entity in a foreign country without understanding its regulatory environment is challenging and occasionally dangerous.
- Manages the most delicate hiring areas: including helping with immigration and managing onboarding, payroll, and terminations. Those more specific functions include
- Reduce the difficulties and expenses associated with starting your own business.
- Hire more quickly so that you don’t pass up on talented people.
- Create employment contracts that are legal in your country.
- Handle local taxes, pensions, and statutory benefits to streamline payroll.
- Make competitive perks available to your full-time international staff.
Which Industries Use Employer of Record?
Employer of Record solutions can benefit many industries. It can help energy companies who have short term projects to save time and money. It also assist educational institutions to expand internationally without building a new physical location. Or Healthcare service can use EOR to access areas with more professionals who have the necessary skill sets for development and research.
The Employer of Record is also useful in Tech and IT industries. Using EOR is particularly beneficial in this sector because these businesses frequently want to grow internationally following a Series B raise. Make sure a company is agile and mobile because many Series B announcements feature international expansion.
In Vietnam, there are 20 jobs that can provide and use EOR as mentioned in the regulation:
- Secretary/Administrative Assistant.
- Sales support.
- Project support.
- Programming of production machines.
- Manufacture and installation of television and telecommunications equipment.
- Operation/inspection/repair of construction machinery, production power system.
- Cleaning and sanitizing buildings and factories.
- Document editing.
- Marketing/Customer Care over the phone.
- Handling financial and tax issues.
- Repair/Check operation of cars/
- Scan, draw industrial engineering/Interior decoration.
- Management, operation, maintenance and service on board ships.
- Management, supervision, operation, repair, maintenance and servicing on oil and gas rigs.
- Piloting, serving on board/maintenance and repair of aircraft and aircraft equipment/schedule, flight operations/flight supervision.
What Are the Advantages And Disadvantages Of an Employer of Record?
EOR can bring considerable benefits to a company. In contrast, it also has some drawbacks that you need to consider.
Facilitate your business’ expansion internationally.
All businesses undoubtedly desire to expand into as many markets as possible.
However, only a few companies can afford to open a new office or branch in all the targeted countries or provinces, especially for international calls. Using EOR is a helpful method in this situation.
Without forming a subsidiary to access global markets, an Employer of Record allows you to employ workers from all over the world easily.
Additionally, whether you own a small or large firm, an employer of record hiring will give you access to HR specialists. They will handle administrative duties and employment arrangements without costing you thousands of dollars. Before making a full-time HR division investment, you will have ample time to boost your sales.
Handle every labor issue for you.
Employers of record hiring will take care of and handle everything for you, including remote employee hiring, the onboarding process, payroll, and contract termination.
An EOR also provides payroll software to assist you in managing your remote workers’ payment processes.
If an employee is underperforming or not a good match for the position, you can fire them using the EOR solution.
Adapt to your work culture
Another essential advantage of the Employer of Record is consistently implementing suitable working cultures or practices when hiring remote personnel. You can attract more potential applicants with a safe space and a conducive working atmosphere.
Besides, the hiring procedure will be significantly more straightforward for the staff because EOR integrates at the local level. They will still talk to you about your wants and preferences, though.
More importantly, you can decide what kind of employee your business requires with the aid of the EOR. They outline the benefits of hiring an employee over a contractor.
Guarantee full compliance with local labor laws.
You can not understand all the local labor regulations when you do not set up in that country. When using EOR for hiring employees abroad, they will comply fully with all local labor and employment regulations.
EOR will help you launch and take on all employment duties. These obligations include providing benefits to employees (such as paid time off for pregnancy, healthcare, and vacation), insurance, and workers’ compensation.
Help you save costs.
The cost of an EOR already includes the taxes you’ll have to pay when hiring remote workers. Additionally, EOR services will take over the filing taxes for each nation and be in charge of paying any fines associated with incorrectly submitted reports and paperwork. Although you might anticipate spending hundreds or even thousands of dollars on an EOR service, the reality is that it is cost-effective.
Reduce your influence.
Employer of Record services might not be appropriate if you want to actively involve in staff onboarding and training. Using EOR services, you might not establish close relationships with your employees, particularly during their training phase. Employer of Record has HR professionals who are professionally and expertly qualified for doing those things. You may feel like you have less control over your employees.
Have dissimilarity in goals and standards.
Your standards and those established by the EOR may be at odds. Their varying determination might affect your organization because they oversee the employment and recruitment procedures. Choosing an EOR service provider with a similar vision and objectives to your business is the best course of action.
How Much Does Employer Of Record (EOR) Cost?
The cost of EOR hiring will depend on many factors, including the number of hired employees, the EOR’s services, and EOR’s pricing structure. EOR pricing structures typically have two types
- Percentage rates: The cost of percentage rates derives from the wages of your employees. With a few staff, it is an acceptable alternative. However, keeping experienced personnel around through promotions, rewards, and pay increases may be more expensive.
- Flat rates: The flat rates only charge you for the service used by each employee. The monthly cost of an Employer of Record varies typically from $250 to $500 per employee based on actual needs. The fixed fee may cost more upfront, but it will save you money. By being aware of this, you may have additional chances to allocate your resources or fund more successful company ideas.
How To Choose an EOR?
You will need to consider many factors when choosing an Employer of Record. We can list some main points as follows:
The employer of record has to provide clear pricing. There should be no surprise charges or fees. And the cost should be within your distributed workforce budget.
An employer must consider all the social contributions as health insurance, social security, and paid time off when determining payroll. Your EOR partner must give you the correct prices on these criteria since they vary for different markets.
Worldwide coverage in your needed markets
Try to work with a partner who has extensive knowledge and experience in the markets where you are hiring people. It is a waste of time and money to work with a partner who lacks competence. You will run the danger of not adhering to local labor laws.
Responsiveness and supports
You need to choose a responsive partner who can react to your and your team’s needs immediately. Your EoR partner is available to communicate regularly with your current staff and new hires on your behalf. Therefore, make sure that they assign a separate client account manager who can promptly respond to your team’s inquiries, onboard new supported personnel, and take regional time zones and languages into account.
Independent 3rd-party validation
You should choose a partner named a leader in the business by reliable and pertinent outside sources. Industry experts’ impartial validation findings are based on in-depth analysis and consumer knowledge. Examining these reports enables you to choose trustworthy EOR leaders that provide the most beneficial options for developing and sustaining your worldwide workforce rapidly.
Is Employer of Record (EOR) legal?
Yes, EOR is legal in most cases. However, there are some limitations on how long you can use EOR to pay your employee in some countries, such as Germany. They set the duration for a person to be employed by an EOR, and then he or she must transfer to the client company’s payroll.
What is the best EOR?
There are many Employers of Record companies over the world. Each of them has its strengths and weakness. ERA offers EOR services and you can check the details here.
PEO vs. EOR: What Are the Differences?
The primary distinction is that an EOR enables you to hire abroad without an entity or co-employment status. In contrast, PEOs demand that you own a local organization and enter a co-employment agreement.
On paper, an EOR serves as your company’s official employer. In the case of a PEO, your business, the employee, and the PEO all share employment.
In short, what is an EOR? It is a hiring service that will bring you huge benefits as well as some drawbacks. Hiring an Employer of Record is a big decision your company must consider. Before making any move that may significantly change your business, carefully evaluate the circumstances. You may choose the best course of action for the benefit of your organization by doing a SWOT analysis.
Ms. Tracy has worked in human resource consulting for over 15 years. A driven entrepreneur focused on business expansion and people development. She previously worked as Country Manager for an international Australia firm that specializes in global workforce management, as well as several key roles as Business Growth Director and Executive Search Director for both large local firms to effectively drive their business growth. A strong emphasis is placed on aligning organizational priorities/objectives with business needs. She has a large network of local business leaders and a thorough understanding of the local market.