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How to Choose an Employer of Record service: A Guide for Overseas Employers

When you are hiring remote workers or assigning employees overseas, most countries are going to require that you have a local corporate entity to run payroll and comply with all employment and tax laws.  Unless you are prepared for the time and expense of setting up a branch office or subsidiary in the foreign market, you may consider the option of an employer of record.

What is an Employer of Record?

An employer of record (EOR) is how a GEO service can legally employ staff abroad for their multinational clients.  While the end client still manages the work and time of the employee, the EOR is the local, legal employer, and handles all of the administrative and required compliance tasks.  This includes sponsoring work visas, running payroll, withholding tax and social contributions and ensuring all labor regulations are being met.

Other terms used for employer of record are GEO (Global Employment Organization), PEO (Professional Employment Organization), and a FESCO which is used in China.  They all function the same but offer varying levels of outsourced employment services, with the GEO being most comprehensive.

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When should you use an Employer of Record?

There are a number of reasons that you would use an EOR when hiring overseas, including:

  • You are new to the foreign market and not prepared to make a commitment of opening a branch office just for employment purposes.
  • The foreign country has complex and unusual employment laws that are unfamiliar to your HR department.
  • One of your strategies for global expansion is to outsource the employment and administrative functions.
  • You are hiring remote workers in other countries, but still need a way to run a local payroll for them.

No matter what your reasons are for using an EOR, selecting the right GEO service is essential.  Just like a tourist in a new city or country, you can usually find the best restaurant by doing some research and finding reviews, instead of just choosing the first one that you come across in the street.

Here is a checklist to use when assessing the right EOR for you, as you are looking through various options:

A 10-Point-Check-List To Find The Right EOR For Your Company:

1.     Are they global and do they cover the countries you are active in or considering?

Not every EOR is going to be operating in the countries that you are entering, so it pays to check if they are active and experienced in many global markets.  Another consideration is whether they have account managers or offices in the region, so that you or your employee can contact them easily without large time zone differences.

2.     Does their contract protect your commercial interests such as intellectual property, confidentiality and non-competition?

When you review their contract, it should have terms that protect your company from IP infringement and breach of confidentiality.  This is especially important considering they will be handling both company and employee sensitive data, which will also require a high level of data security measures. 

There should also be a non-competition clause, and if any of these terms are absent in a GEO’s contract then that should be a deal-breaker due to liability risk or data loss.

3.     Do they understand what you need?

Your company will have distinct needs when using a GEO or international PEO to hire employees overseas.  The EOR should have clients that are similar to your company, and provide the type of service that you need, whether hiring remote workers or assigning staff from home for expansion plans.

4.     How do they deliver their service?

The way the EOR delivers service will affect your choice, and you need to find out if it is through personal direct contact or via an online platform.  If there is an option to customize the service delivery, that can indicate that they are committed to aligning their service with your needs.

5.     Who will you be dealing with?

Another question is who will be your point of contact/account manager, and their ease of communication and availability to handle any issues that arise.  In effect, the contact person is the link between your company, the employee and the EOR, so its important to know who you will be dealing with regularly.

6.     How long have they been around?

There is more risk when the GEO or PEO is a newer company and are still not established.  This could lead to uncertainty, and if they have taken funding and then run out of money, they may not be around in 12 months and then you will have to find a new service.  Also, newer GEOs may not have their account systems and EOR network of partners completely in place or vetted.

7.     Is the EOR a side line or their core service?

Some companies offer a GEO or EOR service as an adjunct to other consulting or accounting services, so it may not be their main focus.  The EOR is then usually ‘bundled’ with their core services to add value, so it may not get the attention and investment of time that you need.

8.     Do they offer full life cycle and if so, is that important to you?

If they offer full life cycle services then they may either structure their GEO as part of that, or will use the EOR as a way to push other services out to you.  You have to decide whether you need full life cycle, or solely the EOR service.

9.     How easy is it to leave them if it isn’t working out?

Not every GEO is going to be a fit, so if it does not work out what are the lock in and termination terms?  Some companies will have a minimum contract length and then a notice period for termination, which can give you flexibility in changing GEO providers.

10.  Are their charges and the requirements explicit and clear?

Every GEO or PEO charges a service fee, as either a percentage of the labor cost for the employee or a fixed rate.  You should clarify what the fee is and if there are any additional costs above the service fee.  Also, check on their invoicing and payment schedule to see that will impose difficult requirements to meet.

Need more information about the employer of record service?

If you still have questions about what type of EOR service is right for you, we are available to give you more information such as:

How to initiate the EOR service quickly to hire remote employees.

The length of time to set up the employment agreements and onboard new employees, compared to a DIY approach.

How typical expenses and fees are structured using an EOR, and how to estimate the overall cost of hiring overseas.

We offer a comprehensive GEO service in all major global markets, and support our clients in the areas of immigration compliance, running payroll and meeting local labor regulations at every stage.  We make international employment simple.

 

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