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Do you need an EOR or a PEO for your international expansion?
In a perfect world, you could hire workers internationally without worrying about legal compliance and other cross-border payroll requirements. In reality, complex international laws make it difficult for globally expanding companies to hire workers abroad. To hire globally, companies need to work with an external service provider, such as an employer of record (EOR) or professional employer organisation (PEO).
What is the difference between an EOR and a PEO?
Both types of organisation offer support for your international payroll. Which of the two options is most suitable for you and your company depends on the exact services you want your service partner to provide or how your business is set up internationally.
A PEO (Professional Employer Organisation) is a service provider offering a form of ‘co-employment’ where an agreement is made between you (the employer), and the PEO. You conclude the employment contract with the foreign worker. Usually, a PEO has its own facility or branch in a country where it provides its services, and your workers are “deployed” or managed by this facility.
This way, the PEO can take care of many day-to-day human resource management functions such as payroll, while the contract and final employment agreement remains between you and your employee.
In the case of an EOR (Employer of Record), the EOR will enter into a contract directly with the employee. The EOR becomes the legal and liable employer of the new employee on the instructions of his or her client. An EOR is responsible for all staffing services that a PEO also provides, as well as adherence with the local labour laws and compliance guidelines. The key advantage, however, is that when you work with an Employer of Record, you do not need your own permanent establishment in the target country and you can focus on the core of your work: Driving your business forward abroad!
Reasons for an Employer of Record (EOR)
An Employer of Record (EOR) can employ workers on your behalf in other countries without you having to open your own branch in that country. If you do not already have a legal entity there, working with an EOR is much cheaper and quicker than setting up a new legal entity.
The EOR, the Employer of Record, takes care of the legal employment of your workers in other countries. On paper, the Employer of Record is the employer. In reality, however, it is primarily responsible for handling all the bureaucratic procedures of human resources management and ensuring adherence with all legal and compliance requirements. You continue to work with your employees who are employed through an EOR just as you do with your other employees.
What kind of partner should you choose?
Let’s say you want to test a foreign market first before considering setting up a subsidiary. You may also have already found a talented new team member in another country, whether in Europe or on another continent. However, it is difficult for you to assess the requirements of local laws, regulations and cultural practices, especially since you do not have any other employees in that region.
As a registered employer (EOR) with employees and a network of experts in over 120 countries, IPS is familiar with the various challenges companies face when recruiting international staff. If you are not sure what kind of support you need to work with global talent, you should first ask yourself a few basic questions.
Do you have a legal entity in the country where the employee lives?
If you want to employ full-time staff in a country where you do not have your own legal entity, you must engage an Employer of Record (EOR). It is the only option if you do not want to set up your own legal entity.
Establishing a legal entity can be a time-consuming and expensive process, even for large companies that already have a presence in several countries. Unless you are planning a major expansion into a specific country – in which case setting up a local entity might make sense for your goals – using the services of an Employer of Record (EOR) is the most logical step forward.
Companies that already have a legal entity in their target countries do not always have the resources to meet all their employees’ needs. In that case, these companies benefit from the services of a professional employer organisation (PEO). A PEO performs a variety of HR functions to ensure that employees receive their paychecks and have access to benefits such as social security and leave.
How does working with an Employer of Record (EOR) work?
An Employer of Record like IPS by HRsolution offers a global infrastructure with presence in many countries around the world. It ensures compliance with all local labour laws in your chosen region, manages employment contracts, additional benefits, social security and income taxes, regardless of the industry or business in which you operate.
Legally, the EOR is your employee’s employer, while you are the Employer of Record’s client. This does not mean that you relinquish control of your business. In fact, an EOR takes over so many administrative and employment-related tasks that you have more time and resources to focus on your business and your daily work and tasks.
Responsibilities
An EOR does not interfere with your business operations or disrupt the day-to-day operations of your company’s work. Working with an EOR protects your data, intellectual property (IP), employee information, trade secrets and other sensitive information. You, on the other hand, remain responsible for employee leadership, training, management and all tasks related to your company’s core functions and industry. The contract between you and your EOR contains all the terms of your agreement, including the tasks for which the registered employer (EOR) is responsible.
Your advantages
- You can employ remote, in-house or international staff on a short-term or long-term basis in all required roles, including at management level
- You delegate international payroll and all related tasks, including disbursements, compensation and benefits
- You can be sure that all laws, changes in laws and compliance regulations in each country are observed and taken into account
- You can offer individual benefit packages for your employees with the help of your EOR and so adapt these benefits to local market needs and competitors’ offerings
- By adhering to labour laws and compliance requirements, you avoid costly penalties or legal intervention
- You ensure your team has continuous local support
- In the event of unemployment or workplace accidents, your EOR will help solve all related issues
IPS is a registered employer (EOR) and provides its international infrastructure in more than 120 countries with its own staff as well as professional local advisors and lawyers for your expansion.
Payroll and taxes
As the legal employer, your EOR processes and manages the payroll for each employee. You will, of course, still have access to all your international payroll information. An EOR is also responsible for registering the employee with the local tax authorities and paying payroll taxes. Your benefits through a service like IPS by HRsolution are as follows:
- Calculation of withholding tax as well as pensions and insurance.
- Assistance with refunds or compensation for employees
- Monitoring of changing tax regulations and adjustment in personnel administration
- Calculation of fair and competitive remuneration according to the conditions and customs in the destination country
Contracts
The onboarding process of your employees is greatly simplified with the service of a registered employer (Employer of Record) for you as a company. An EOR carries out background checks and draws up contracts that are fully compliant with local legislation. For example, each country has its own regulations regarding time off, sick leave and the like.
Social benefits
The same applies to social benefits – requirements vary greatly from location to location. A registered employer (EOR) maintains relationships with various local benefit providers, from pension funds to health insurance to training companies, and supports the employees on an international payroll with all mandatory and voluntary benefits.
Cooperation with local authorities
An EOR must work very closely with the local authorities in each region where your company employs staff. This requires the Employer of Record network to be well anchored locally. For example, insurance policies need to be taken out, bank accounts opened and registrations made locally; things that require maintaining steady relationships with local authorities with a good understanding of language, culture and expectations.
Termination of the employment relationship
There may also be times when you need assistance from your EOR when terminating contracts or changing to a new employee arrangement. This may be the case if an employee moves back to headquarters or to another region, or if he or she is promoted. In the event of termination by you or the employee, an Employer of Record can also support you in regard to possible severance payments or shortening the remaining contract period.
Last but not least
Your EOR is your expert in the new region and thus your first point of contact for all questions and challenges that arise locally, including obtaining visas for employees. Unlike the hassle of setting up your own office, with an Employer of Record you can get started straight away – your new employee will appreciate it. Using the services of an EOR allows you to test a market in advance at low cost. In doing so, the whole world is open to you: With an EOR, you can attract and hire the best talent internationally for your company.