What Is an Employer of Record (EOR)?: A Full Guide for Businesses

Many companies are recently redesigning their human resources (HR) functions. According to the Mercer Global Talent Trends Study in 2023, 96% of companies surveyed would completely overhaul their HR systems. This year, 54% of companies surveyed became more agile and 49% became more focused on long-term targets because of their improved talent models, based on Mercer’s updated study.

You may have also recognized the need to change the talent model in your company. Working with an employer of record has become one of the popular choices for global talent acquisition today. 

Find out what an employer of record is and its functions. Differentiate its strengths and weaknesses from those of other models and organizations to identify the best option. In the end, discover a more effective way of working that supports your company’s growth and bottom line.

What Is the Meaning of Employer of Record?

The Atlas Global Employer of Record Report defines an employer of record (EOR) as a service provider that helps companies hire talent in foreign countries or jurisdictions. Hiring organizations do not have branches or establishments in these overseas locations. As a result, an EOR works as the legal employer of the remote employees in the places they live in.

In other words, the remote team works for the client company. However, in local legal documents of the places where the team members are located, the employer of record is listed, not the client company. Because of this, when it comes to compliance with local labor laws and tax requirements, the employer of record will take care of these aspects for you.

What Does an Employer of Record Do?

EOR services cover a wide range of functions that support the talent processes of organizations. They offer any of the following:

• Employee integration
• Payroll
• Benefits
• Legal compliance
• Tax compliance
• Termination

What Makes an Employer of Record Different from Other Talent Acquisition Options?

Employer of Record vs Staffing Agency

Staffing agencies are common sources of talent, yet the support you receive from them is less than what you get from an employer of record. Their differences can be seen in this table:

	Employer of Record	Staffing Agency
Talent Acquisition	✅	✅
HR Support	❎	❎
Role in Employment	Legal employer	No involvement after talent hiring
Domestic or Overseas	Overseas	Domestic

Employer of Record vs. PEO

A professional employer organization (PEO) is often confused with an EOR. Some may use the terms interchangeably, but they represent two different kinds of organizations. 

You can see their differences and similarities below:

	Employer of Record	Professional Employer Organization
Talent Acquisition	✅	✅
HR and Admin Support	✅	✅
Role in Employment	Legal employer	Co-employer with client-company
Domestic or Overseas	Overseas	Overseas

Employer of Record vs Common Law Employer

A common-law employer is more of a legal term referring to the organization that controls the tasks and the manner of performance of employees. These employees may be overseas or domestic. Regardless, the common-law employer is the official employer of the team. Differentiate this from an employer of record in the following table:

	Employer of Record	Common Law Employer
Control Over Work	❎	✅
Role in Employment	Legal employer	Actual employer
Domestic or Overseas	Overseas	Domestic or Overseas

Employer of Record vs Umbrella Company

If you use a recruitment agency, you may encounter the term umbrella company. An umbrella company is a third-party intermediary between the employee and the recruitment agency. Understand what it is compared to an employer of record in this table:

	Employer of Record	Umbrella Company
Payroll	✅	✅
HR and Admin Support	✅	❎
Role in Employment	Legal employer	Legal employer

An umbrella company lacks the necessary services to maintain HR and Administrative support for your workers. You still have to dedicate talent and resources only to cover these processes.

Employer of Record vs Contractor or Freelancer

You have the opportunity to go directly to contractors or freelancers for the talent you need. However, you sacrifice vital services that an employer of record offers. Check out the following breakdown:

	Employer of Record	Contracting/Freelancing
Talent Acquisition	✅	✅
HR and Admin Support	✅	❎
Role in Employment	Legal employer	Client retains employer status
Domestic or Overseas	Overseas	Domestic or overseas

With direct hiring of contractors or freelancers, you still miss out on vital HR and admin operations. You end up spending more time creating an HR or admin support team than focusing on your core functions.

At the same time, with individual workers, the quality of work usually takes a hit.

Employer of Record vs Offshoring

Offshoring is a talent and skill acquisition model where a partner provides you with the fittest talent, essential support, and control retention. Skim through the following table for its differences with an employer of record:

	Employer of Record	Offshoring
Talent Acquisition	✅	✅
HR and Admin Support	✅	✅
Role in Employment	Legal employer	Client retains employer status
Domestic or Overseas	Overseas	Overseas

What Are Employer of Record Benefits and Drawbacks?

Advantage 1: Talent Access

An employer of record opens your company to the world. If you are looking to obtain specific and competent talent for your growing company, an employer of record may supply that. You can create teams in other countries and pool essential talent.

Advantage 2: Compliance Support

Other countries have their labor and tax laws. The legal and tax implications of an employer of record mean that you can comply with all of them. EOR payroll, tax, benefits, and more will be tuned in to the specific legal requirements of your team’s location.

Advantage 3: Mitigated Risks

An employer of record navigates risks in the country where your remote team resides. As labor and tax requirements are fulfilled and met, you gain a lower risk of loss or trouble, saving you from unforeseen costs.

Drawback 1: Quality and Extent of Services

Employers of record do not offer the same services. Some do not include recruitment and onboarding support. Others may not provide a high level of service because an EOR’s main function is to provide ongoing HR and admin support. Because of this, you may face more legal battles in the long run.

Drawback 2: Temporary Nature of Employment Relationship

A partnership with an employer of record is not commonly known for its longevity. Talent acquisition through an EOR usually involves temporary or seasonal work or positions. If you are serious about growing more as an organization, you have other more reliable options such as offshoring.

Drawback 3: Reduced Team Coordination and Integration

Global teams grow and thrive through systematic channels of communication and culture. With an employer of record acting as the legal employer of your remote team, integrating and coordinating may prove difficult. Your main team in your country may not develop a powerful synergy with your remote workers.

Offshoring as a Proven Growth Strategy

Offshoring is a viable talent shortage solution that brings all the benefits of an employer of record while avoiding the drawbacks. An offshoring partner provides you with highly qualified talent along with full legal, HR, and admin support. In the end, you enjoy reduced risks, massive cost savings, and an agile team.

Offshoring allows for better communications and team integration due to more direct control from you. The model is also specifically purposed for talent acquisition and complete client support. To perform these functions, the Hypercare framework is employed. The Hypercare approach is a consultative and collaborative strategy informed by your feedback, data, and insights. It allows your offshore team to grow and shift gears according to your needs in the company.

For these reasons, US-based Servantex and the UK firm Tiney expanded their teams, found new talent, and saw huge cost savings.

Who Are Winning Offshoring Talents?

Servantex

Servantex is a US company in the staffing and recruiting industry. It needed a service center team and support for that team. Through offshoring, it fostered a medium-sized remote team in the Philippines. It also received full support for its remote workers. As a result, Servantex enjoyed a whopping 80% in cost savings.

Jane Hamilton, Chief Administrative Officer of Servantex, shared how strong their dedicated remote workers were in teamwork. The remote Philippine professionals were also knowledgeable in their fields and adaptable to Servantex’s culture and procedures.

A remote Philippine team proved effective for Servantex’s growth. They obtained the support they needed for their core functions. At the same time, their remote team was fully supported by Servantex’s offshoring partner too.

Tiney

Tiney is located in the UK, serving the childcare and education industry. Because of rising demand for its services and rapid digitization, Tiney saw it needed back-office support. Offshoring allowed Tiney to expand while maintaining an unshakeable back office foundation. In the end, much like Servantex, Tiney won 80% cost savings because of offshoring solutions.

Lucy Devine, People & Community Lead of Tiney, praised its remote Philippine workers for their agility and flexibility. Tiney’s operations ran smoothly because of cost-effective talent who had the skills Tiney needed.

Sought-for talent and skills may be found in Philippine-based workers. Tiney discovered theirs, and they benefitted immensely from their remote team.

Is Penbrothers an Employer of Record?

The services of Penbrothers as an offshoring partner, as well as the implementation of the Hypercare strategy, allow it to work with you like an employer of record. However, it is also so much more than that. The company offers a way for you to find, hire, and build your team. The offshoring services provided build upon the strengths of an employer of record and improve upon weak points.

Switch to Offshoring for a Long-Lasting Talent Model

An employer of record is an option for companies to grow their teams and face goals head-on. However, offshoring can be a more long-term and cost-effective solution for a business like yours. Use a transparent salary calculator (FOR FREE) and see the potential cost savings from offshoring. You may find a reduction of up to 79% in your labor budget through an offshore team.