How to Become an Employer of Record

When a company hires any worker, they assume responsibility for all of that employee’s expenses, tasks and the liabilities that come with having the employee on staff.

However, not all businesses would be willing to take on such massive responsibilities.

This is where “the employer of record concept” comes in.

One could argue that it’s a safe form of outsourcing across foreign markets where companies have little understanding of the labor laws.

In this guide, we’ll highlight everything you need to know about becoming an employer of record, including things like employer of record management, employer of record benefits, and its limitations.

Pre-requisites for becoming an employer of record

There are certain conditions that one must meet when looking to become an employer of record.

First of all, you must ensure that you have a fully operational business entity.

Your business entity must have at least one physical location within your country of operation.

In addition to that, you must also prove that your business entity has a history of financial responsibility, tax compliance, and organizational integrity.

And most importantly, this entity must be run by individuals who have working knowledge and experience regarding various labour laws and regulations present in that state or country.

Besides these factors, an entity must also be able to meet all of the necessary compliance requirements that are imposed by the regulators.

Step by step guide to starting an employer of record firm

The process of becoming an employer of record company is outlined by the following three-step approach:

 

1. Conduct market research

Before starting your own employer of record organization, the best first step would be to conduct thorough market research and analysis.

This lets you scope out whether the market in your targeted region would be welcome to the idea of a third-party human resources solutions provider.

A feasibility test is a great way to find out if your business will be successful in both the short and long run.

In addition to that, you should also consider setting up a comprehensive business plan that details your employer of record business model, before having an expert evaluate your chances of success.

2. Acquire the necessary licenses and certifications

Just like most businesses, you’ll need to comply with local or international laws before setting up shop.

Different countries or states impose separate licensing and regulatory requirements.

And the same can be said of tax requirements too!

For instance, some states require employer of record organizations and professional employer organizations to prove that they are fully operational business entities with physical locations.

So, you can’t just decide on a whim that you want to set up an employer of record company without the relevant documentation to prove that you are qualified enough to offer such a service.

3. Leverage your networks to find clients

To become successful as an employer of record company, you need to have a proven background in handling relevant human resource queries.

Your professional profile must be rich in experience and connections if you want to have a strong competitive advantage in this business.

For this reason, consider leveraging your networks or other professional organizations such as the National Association of Professional Employer Organization (NAPEO).

That’s a staggering amount of money, right?

Well, the figure is in the correct ballpark because reports from multiple HR firms in the Unites States suggest that the infrastructure costs of starting a true employer of record (EOR) and professional employment organization (PEO) could cost upwards of $500,000.

These businesses tend to be cash intensive.

You also need to consider the cost of acquiring insurance as well as the financial outlay of getting the licenses that are needed to run a business operation of this nature.

On a similar note, you can check out our informative article on how much an employer of record costs.

It’s a great reference for hiring managers who are looking to employ and pay people in foreign markets.

Final thoughts

This article has put you through the paces of what it takes to become an employer of record company.

Without a doubt, the set-up process is not straightforward as a lot of thought needs to go into judging your ability to offer such a complex service.

Hopefully, you have picked up the main pointers and you’ll be able to draft your own pathway towards establishing a successful employer of record company.