By: Hamzah Bettah
Overview
The last few years witnessed a shift in the way people work and companies hire. An increasing number of employees desire the freedom to work away from corporate offices,[1] while companies want to have access to talent across the globe.[2] This has caused an increasing need for Employers of Record (“EoR”).[3] This article defines what an EoR is, the benefits, and a potential drawback of EoRs, as well as the recent trends with regards to EoRs.
What Is An Employer Of Record?
An EoR is a third-party company that employs and manages a client corporation’s workers. The EoR is the legal employer of the client company’s workers, making it legally responsible for the employees. While the EoR is the legal employer, they employ and manage the employees on behalf of another company.
As the legal employer, an EoR has the same responsibilities as a traditional employer. EoRs are responsible for employment contracts, payroll, benefits, tax deductions, and pension deductions. In addition, EoRs must ensure compliance with all applicable tax, employment, labour, and other laws and regulations.
What Are The Benefits Of An Employer of Record?
The use of EoRs can have many benefits.
Facilitating Global Hiring
First, EoRs facilitate global ‘hiring.’ The last decade has seen the rise of remote work across the globe. The development of telecommunications technology, the push for remote work due to the COVID-19 pandemic, and the increasing number of countries that welcome remote workers, have fueled the increase in international remote work. By hiring EoRs, companies can have access to talent in jurisdictions where they do not have a physical presence.
Ensuring Compliance with Foreign Laws
Indeed, EoRs provide companies the benefit of hiring workers abroad while bypassing the need to incorporate a subsidiary in the target jurisdiction, the need to research and comply with local laws and regulations, and the administrative burden to employ abroad. EoRs hired by companies bear the burden of ensuring compliance with all relevant local laws and regulations. As such, companies can save time and resources, and avoid the risk of dealing with unfamiliar foreign laws.
Convenience
In addition to ensuring compliance, EoRs will also handle the administrative aspect of foreign employment. EoRs will handle payroll, tax, benefits, and employment contracts. Again, this saves the client company time and resources.
Legal Protection
Further, EoRs provide legal protection to the client companies. The EoR, as the worker’s legal employer, bears all legal burden. Accordingly, a company can hire workers abroad without worrying about legal repercussions if the EoR fails to comply with the jurisdiction’s laws.
Overall, EoRs are a great way for companies to use talent abroad while ensuring compliance with local laws and regulations, reducing their administrative burden, and protecting themselves from legal repercussions.
Drawback Of Employers Of Record
Although EoRs provide many benefits, they also have some drawbacks. An important drawback is the lack of control that client company has over its workers. Indeed, as the EoR is the legal employer, but a client company might find it difficult to regulate the workers as it sees fit.[4]
Trends
With the rise of globalisation and remote work, the need for EoRs has been increasing. Consequently, the market for EoRs has been rising steadily and is expected to continue doing so.[5] A recent report estimates the EoR market to grow from US$4 Billion in 2022 to almost US$7 Billion in 2028.[6] This represents an Annual Growth Rate of almost 7%.[7]
Conclusion
EoRs are a great tool for companies that want access to talent abroad but do not wish to deal with compliance and administrative issues. EoRs hire and manage workers abroad, allowing client companies to bypass the need to incorporate a subsidiary in the target jurisdiction, the need to research and comply with local laws and regulations, and the administrative burden to employ in a foreign jurisdiction. However, client companies must consider that they might find it difficult to regulate workers hired by EoRs as the EoR, not the client company, is the legal employer of the workers.
Disclaimer: The information provided in this response is for general informational purposes only and is not intended to be legal advice. The content provided does not create a legal client relationship, and nothing in this response should be considered as a substitute for professional legal advice. The information is based on general principles of law and may not reflect the most current legal developments or interpretations in your jurisdiction. Laws and regulations vary by jurisdiction, and the application and impact of laws can vary widely based on the specific facts and circumstances involved. You should consult with a qualified legal professional for advice regarding your specific situation.
[1]Jessica Howington, “Remote Work Statistics & Trends: The Latest in Remote Work”, online: FlexJobs <https://www.flexjobs.com/blog/post/remote-work-statistics/>.
[2]“10 Global Talent Acquisition Trends for 2023” (10 Feb 2023), online: Globalization-Partners <https://www.globalization-partners.com/blog/global-talent-acquisition-trends-2023/>.
[3]“Employer of Record Market : Share, Industry Size, Opportunities, Analysis and Forecast to 2028 with Top Countries Data” (6 Jan 2023), online: MarketWatch <https://www.marketwatch.com/press-release/employer-of-record-market-share-industry-size-opportunities-analysis-and-forecast-to-2028-with-top-countries-data-2023-01-06>.
[4] Anja Simic, “The Pros and Cons of Employer of Record (EOR) Hiring” (17 Sep 2021), online: Deel <https://www.deel.com/blog/pros-and-cons-of-employer-of-record-hiring>.
[5]“Employer of Record Market : Share, Industry Size, Opportunities, Analysis and Forecast to 2028 with Top Countries Data” (6 Jan 2023), online: MarketWatch <https://www.marketwatch.com/press-release/employer-of-record-market-share-industry-size-opportunities-analysis-and-forecast-to-2028-with-top-countries-data-2023-01-06>.
[6]“Global Employer of Record Market Insights and Forecast to 2028” (Jan 2023), online: Valuates Reports <https://reports.valuates.com/market-reports/QYRE-Auto-7D9395/global-employer-of-record>.
[7] “Global Employer of Record Market Insights and Forecast to 2028” (Jan 2023), online: Valuates Reports <https://reports.valuates.com/market-reports/QYRE-Auto-7D9395/global-employer-of-record>.