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What Is an Employer of Record and How Does It Work?

what is an employer of record

What Is an Employer of Record and How Does It Work?

As businesses expand globally, they often face complex challenges in navigating different employment laws, regulations, and tax systems across multiple countries. Enter the employer of record (EOR) – a solution that simplifies international hiring and enables companies to tap into global talent pools while effectively addressing the intricacies of workforce management. But what is an employer of record, and how does it work? Well, let’s break this down further.

What is an Employer of Record?

An employer of record is a third-party organization that acts as the legal employer for a company’s international workforce. The EOR takes on the responsibility of onboarding, payrolling, and managing compliance with local labor laws and regulations, allowing the client company to focus on its core business operations.

The Demand for Global Talent

According to a report by Valuates, the global Employer of Record (EOR) Platform market was valued at US $4.45 billion in 2022 and is projected to reach US $6.6 billion by 2029, exhibiting a compound annual growth rate (CAGR) of 6.8% during the forecast period of 2023-2029.

Considering the economic impact of the COVID-19 pandemic, the Aggregator Model accounted for 67.55% of the global EOR market in 2021 and is expected to be worth US $4.62 billion by 2028, growing at a revised CAGR of 7.31% in the post-pandemic period (2022-2028). EOR customers include small and medium-sized enterprises (SMEs) and large enterprises. SMEs accounted for 69.75% of the market share in terms of revenue in 2021.

The ease of international market expansion, low human resource costs, elimination of local incorporation requirements, immigration compliance assistance, guaranteed local compliance adherence, and the absence of additional payroll tax obligations are all expected to contribute to the growth of the Employer of Record market.

How Does an Employer of Record Work?

An EOR establishes legal entities globally to employ workers on behalf of client companies. The EOR handles all local compliance, payroll, taxes, and HR administration. Client companies maintain operational control while the EOR serves as the legal employer. This co-employment model enables companies to rapidly hire international talent without setting up local entities themselves.

Under this arrangement, the employer of record takes on several key responsibilities. The employer of record performs the following functions:

  • Simplifying Compliance: An EOR ensures compliance with local employment laws, tax regulations, and statutory requirements in each country where the client company has employees. This includes handling payroll, insurance, benefits, and termination processes.
  • Co-employment Model: The EOR becomes the legal employer of the client’s international workforce, while the client company maintains operational control over the employees. This co-employment model allows businesses to expand their global reach without setting up local entities.
  • Streamlined Onboarding: The EOR handles the recruitment, onboarding, and offboarding of international employees, providing a seamless experience for both the client company and the employees.
  • Mitigating Risk: By taking on the legal responsibilities of employment, an EOR helps businesses mitigate risks associated with non-compliance, misclassification of employees, and other legal issues that can arise when hiring globally. 

This comprehensive approach, addressing regulatory compliance and operational efficiency, highlights the significant advantages of partnering with an Employer of Record. 

The Benefits of Partnering with an Employer of Record

Partnering with an experienced EOR offers several advantages for businesses seeking global expansion:

  • Faster Market Entry: EORs facilitate rapid entry into new markets, enabling companies to hire and onboard international talent without the need to establish legal entities in each country.
  • Cost Savings: Outsourcing employment responsibilities to an EOR can be more cost-effective than setting up local entities or navigating complex regulations.
  • Scalability: With an EOR, businesses can scale their global workforce up or down as needed, providing flexibility to adapt to changing market conditions, a key aspect of business process outsourcing strategies.
  • Expertise and Local Knowledge: EORs bring extensive expertise in global employment regulations and local labor market knowledge, helping companies navigate the complexities of international hiring.

As the demand for global talent continues to rise, the role of employer of record benefits becomes increasingly crucial. By understanding what an EOR is and how it works, businesses can leverage this solution to expand their global reach, access top talent, and stay competitive in the international marketplace.

Tap into Global Talent Pools with an Employer of Record Solution

Now that you have grasped the concept of ‘what is an employer of record,’ recognizing its significance is crucial. Expanding into new international markets presents a unique set of complexities that require the guidance of an experienced team. As your global employer of record (EOR) partner, Procloz ensures the highest level of support for you and your distributed workforce. Our global capabilities across multiple countries, unparalleled expertise, and dedicated service enable you to quickly and compliantly hire top talent.

We offer a comprehensive suite of global workforce solutions that address risk mitigation, local labor requirements, and compliance, allowing you to focus on growing your business.

Eager to build your dream team? Procloz is ready to assist. Contact us today.

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By Robbin Roy

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