What is an employer of record (EOR)?
An employer of record (EOR) is a third-party entity that takes on the responsibility of employing staff on behalf of an organisation based in a different country.
The employer of record is the legal employer and is responsible for compliance with local employment laws, for example in relation to minimum wages, working time and annual leave. The employer of record handles various HR tasks, including payroll processing, withholding personal tax, insurance and benefits administration.
Using an employer of record allows an organisation to take on staff in a new country, in compliance with local regulation, without formally establishing a presence there. This can be beneficial when exploring expansion into a new market, for example. An employer of record arrangement also allows organisations to increase the talent pool they are recruiting from, by making it easier to take on individuals who will be working remotely from overseas.
While the client organisation usually retains responsibility for the day-to-day management of the individual's work, the fact that it is not the legal employer means that there can be limits on the extent of its control, for example in relation to disciplinary action and dismissal.
When considering using an employer of record, an organisation should assess the potential reputational risks associated with relinquishing control over the relationship with its staff. It should be confident that the employer of record will comply not only with all relevant legal obligations, but also with its own organisational values.
There can also be issues relating to post-employment restrictions and intellectual property. The client organisation should ensure that their interests are protected as far as possible, through careful drafting of the relevant agreements.
In some jurisdictions, local laws may not allow the arrangement purported to be established with the employer of record. There is a risk that the client organisation could be deemed to be the legal employer.
