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How Does An Employer of Record Work?

With every expanding business, especially across borders, acquiring employees is a major challenge.

This is especially true now that businesses are hiring people from all over the world.

Establishing your business overseas comes with numerous benefits, including a widened talent pool and lowered project development costs.

Now, that is where an employer of record comes in.

These companies take responsibility for all formal employment on behalf of a client organization, making it easier to create and run a business/ office abroad.

In this article, we’ll take a closer look at how an employer of record works, starting with a succinct answer…

An employer of record works by assuming the legal responsibility for hiring staff on behalf of an organization. In other words, they take control of all formal employment on behalf of a client organization.

What is an employer of record?

As you’re now already aware, employer of record company take up legal responsibility for hiring and staffing on behalf of an organization.

Essentially, they serve as the employer for tax purposes whilst the employee performs his role at a different company.

More so, employer of record firms will register employees, but they with perform duties as if they were registered under the client company.

how an employer of record works - employee recruitment

The employer of record also acts on behalf of a firm in executing some of its administrative functions.

Using employer of record services enables companies to legally and efficiently engage overseas workers without risking the violation of local employment laws.

Employer of record companies have been the cost-effective and efficient way for businesses to expand their scope of operation and recruiting.

What does an employer of record do?

An employer of record is a third-party local partner that facilitates the intermediary role in existing employee-employer relationships.

The following are some of the functions carried out by such companies:

  • Carrying out legal and regulatory requirements for immigration, employment and payroll;
  • Administering benefits for global employees;
  • Advising the client on certain matters such as notice periods, termination rules, and severance pay;
  • Arranging all the necessary documentation, including work permits and visas (without delays or refusals);
  • Providing a registered entity for establishing and running a local compliant payroll;
  • Filling tax and insurance forms; as well as,
  • Liaising between the employee and the government authorities.

However, involved an employer of record company might be, these third-party firms do not participate in day-to-day work activities.

They are the registered employer for the worker in markets abroad, but they don’t participate in supervisory and management roles.

The original employer still maintains a span of control, making all decisions on compensation, duties, responsibilities, projects, and termination.

How does an international employer of record work?

An international employer of record works similarly to a regular employer of record.

However, these third-party entities collaborate with overseas firms in the hiring and paying employees, with the help of an oversight body called Global Employment Outsourcing (GEO).

Global Employment Outsourcing ensures that employer of record firms are in compliance with the laws of the host country, and they make sure that the interests of overseas firms are guaranteed.

For instance, the employer of record acts on behalf of a firm in executing some of its administrative functions, including taking responsibility for all formal employment tasks.

Using an international employer of record enables companies to legally and efficiently engage the overseas workers without having to set up a local entity or risk violating local employment laws.

Why do businesses use employer of record companies?

Businesses use employer of record companies because it’s the most cost-effective and efficient way to overcome the regulatory and costly hurdles that arise when employing workers in remote or foreign markets.

how an employer of record works - dealing with regulatory procedures in foreign markets

There are a lot of challenges that companies experience when it comes to expanding their area of operation.

With every country having different and unique policies in terms of employment, it’s reasonably easy to overlook certain regulations.

This can be a major challenge to any company that wants to expand across international borders.

For large companies that want to expand into a foreign market, applying a do-it-yourself approach to registration and running a local payroll may not be ideal because of the scale of all the regulations involved.

However, smaller companies may not be in a position to apply such an approach since it’s not logistically viable and it would have serious financial implications that may cripple operations.

Therefore, for many companies entering new markets with limited HR resources, hiring an employer of record firm can be an ideal alternative.

There is no real reason to risk violating regulations involving labour, tax, and employment when an employer of record solution is available in almost any country.

Summary

Employer of record firms take up the mantle of recruitment for organizations, hiring staff on their behalf.

If these services are something that interest you, then you can check out our other article on how much an employer of record costs.

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