Updated: Sep 26, 2022
In recent times, Employer of Record (EOR) has taken the world by storm. As international markets open, courtesy of technology and the work-from-home
phenomenon, employers have started to benefit from tapping into labour markets across the world. It is now entirely possible to employ workers from across the globe, irrespective of where the employer’s main legal entity is registered. In effect, this means, for example, that a company wishing to operate in Africa may employ locals without having a registered legal entity in Africa. This has been made possible by EOR service providers who employ these workers on behalf of international companies.
The EOR service provider ensures that they hold the legal entity and license to employ on behalf of their clients. However, there are still many misconceptions about EOR, something that tends to frighten away international operators, and they inevitably end up incurring the costs and risks of setting up their own legal entities in foreign countries. This is unfortunate, as the costs of doing so are often exorbitant and extremely risky unless they work with accountants who are intimately knowledgeable about the in-country regulations governing the registration and accounting requirements that prevail. In addition, they run the real risk of falling foul of the local taxation and labour laws.
Here are some of the major misconceptions around EOR:
EOR is for big business only: today most EOR providers offer services to companies irrespective of their size or the number of workers they wish to employ. More and more, we are seeing international operators onboarding one or two employees or independent contractors at a time. Given their economies of scale and the fact that they have already recovered the cost of the initial set-up, they are able to offer these services to small business at very efficient rates.
EOR is for contractors only: in the early days, we saw EOR services being used almost exclusively for project-type work to deploy technical staff working on large projects in foreign territories. However, the use of an EOR to employ permanent workers in off-shore destinations is rapidly catching on and there is no longer any distinction between the fixed-term, temporary, and permanent employees. Modern EOR companies can cater for all types of employees equally.
EOR is best for projects: following on from the previous point, EOR companies now provide third-party employment services for both long and short-term projects. This could be for as little as a few weeks at a time to indefinite employment arrangements, depending on the incountry laws prevailing in the place of deployment.
EOR is for foreign workers only: in the early days, EORs provided a platform to allow for foreign workers or expats to work in offshore destinations where the client company did not have a legal entity. However, locals can also be employed through the EOR service provider. Similarly, companies may use an EOR to employ
people in their home country should circumstances dictate that they do not wish to
employ these workers directly. This is subject to in-country regulations.
EOR results in loss of control of the workers: probably one of the most misunderstood aspects of EOR is the fear that the client company will
lose control over their workforce employed via an EOR. Indeed, most EOR companies have no desire, and lack the expertise, to manage the workforce in the completion of their day-to-day tasks. The management of the workforce is left entirely to the client company and the EOR only gets involved when there is a potential breech of
contract arising out of the misconduct of the employee.
Their involvement in such matters is required to avoid contraventions of local labour laws. The EOR is afterall, the legal employer of record and the state will typically look to that entity to enforce the laws and recover penalties for contraventions.
The EOR company is solely responsible for contravention of labour/tax laws: this is not entirely true and, in some countries, and in certain circumstances, the state will look to both the EOR and the client company for reparations concerning taxation law and labour law contraventions. Companies wishing to use EOR companies are well advised to ensure that they take adequate measure to defray such risk.
This is typically referred to as “deeming provisions” that result in joint and several
responsibilities for breaches of the laws.
Employees don’t like being employed via a third party: this may have been the case in the past as people were accustomed to being employed directly by the client company and sometimes argued that they were being prejudiced in favour of direct employees. This is no longer the case as employees, today, often prefer to work through a third party, especially when that party is well versed in local customs
and employment practices. In recent times, people are far more mobile and open to international opportunities and are less intent on the supposed job security offered by direct employment.
Exposure to hidden costs: unfortunately, unscrupulous EOR operators have exploited
clients with hidden costs and charges either willfully, or through a lack of transparency. This has tarnished the reputation of the industry. The good news is that many of these operators are no longer in business and there are now many new entrants to the market who operate completely above board and are fully transparent in their pricing and the charges levied.
EOR is an expensive option: in the past, EOR was considered expensive because there were relatively few operators offering these services, and especially ones that offered such a service in multiple destinations, and the demand exceeded the supply. In recent years, a plethora of new operators have entered the market, bringing down the prices. While it is not an inexpensive option, it certainly is a much more cost-effective way of employing people abroad compared to setting up and running your own in-country entity in a foreign country. If you are paying more than USD350 per employ, per month, you should shop around for more competitive offers.
I can only use one EOR provider: some clients have been told that they can only use one EOR service provider for deployment of their workforce across the world and/or in any one destination. This simply is not true as many client companies are now using more than one EOR service provider depending on whether the service provider is able to offer a reliable service in specific destinations. Choices are made in favour of those providers who have deep domain knowledge of a specific country to ensure that their people get the best possible protection and support. Indeed, some clients now offer the choice of EOR to the individual employee or
For more about EOR services, please contact OUTprof at email@example.com, or visit our website at www.outprof.com.