Recruiting and hiring international workers can bring a plethora of benefits to companies, including access to a broader, more diverse talent pool and the addition of fresh perspectives and experiences to their teams. However, hiring overseas employees can be a complex and challenging process, as it typically requires an established business entity in the country of the employee's residence to ensure compliance with local laws and regulations.
One of the most daunting aspects of hiring globally is dealing with international tax laws. Employers risk hefty sanctions and fines for non-compliance. An employer of record (EOR) is a solution that can mitigate many of these cross-border tax risks. By working with an EOR, companies can eliminate the pitfalls of hiring internationally and ensure compliance with local tax laws.
🤔 What is an EOR?
An employer of record (EOR) is a third-party company that hires employees on behalf of other companies. This arrangement is commonly used by staffing agencies that provide temporary employees to client companies. EORs take on the responsibility of hiring, managing, and paying employees who work for other companies.
One of the most significant benefits of EORs is their ability to help companies navigate complex employment laws in foreign countries. For instance, if a U.S. company wants to hire an employee from Portugal, they can work with an EOR in Portugal to handle HR and payroll functions. The EOR would employ the individual, and as such, would be responsible for ensuring compliance with local employment laws. Even though the employee would work for the U.S. company, their employer of record would be the Portugal-based EOR.
An EOR, or employer of record, enables companies to legally hire international workers without the need to establish a business entity in a foreign country. This approach helps to eliminate the bureaucratic obstacles and expenses associated with creating a physical presence in a new market. Additionally, partnering with an EOR can mitigate the risks of non-compliance with local employment laws, which can be complex and vary widely from one jurisdiction to another. By working with an EOR, companies can benefit from the expertise of professionals who have a deep understanding of local labour laws and regulations.
💰EORs and tax risks
When it comes to hiring employees internationally, taxation can be one of the most hazardous areas for employers. Handling payroll taxes for employees, such as filing reports, making quarterly payments, calculating with holdings, and issuing tax documents, can be challenging enough within a single country. However, when dealing with different countries and their tax laws, the risk of non-compliance and hefty sanctions increases substantially.
Employers of record (EORs) offer a straightforward solution to fully comply with international tax laws. EORs typically maintain an entity in the country where they hire employees or subcontract services to a local company. In either case, the EOR and their subcontractor have extensive knowledge of local tax regulations and assume responsibility for compliance. By partnering with an EOR, companies can minimize the risk of non-compliance and focus on growing their business globally.
Employers of record (EORs) provide a worry-free solution to international tax-related issues. EORs take care of everything, including calculating and submitting payroll taxes, social program contributions, and issuing payroll in local currency. They also classify employees for tax purposes and develop competitive benefits packages that comply with local employment laws and standards.
Since the EOR is responsible for submitting taxes, reports, and other documentation to their country's agencies, they bear the burden of penalties for late or incorrect filings. As they employ workers on behalf of the client company, EORs assume responsibility for employment and tax law compliance. This allows companies to focus on running their business rather than trying to navigate complex international tax laws. By partnering with an EOR, companies can rest assured that their international workforce will be managed in compliance with local regulations, without the hassle and risk of handling it on their own.
💸EORs are a cost-effective solution
Employers may be concerned that working with an employer of record (EOR) will increase the cost of global hiring. However, taking into account the expenses and risks associated with establishing an international entity, partnering with an EOR is often a cost-effective solution. In fact, in some cases, hiring through an EOR can lead to significant cost savings. EORs can help determine competitive salary ranges that are often less than what an employer may pay a worker in another country.
By working with an EOR, companies can avoid the costs of setting up a foreign entity, such as legal fees, office space, and administrative costs. Additionally, EORs take care of compliance issues, minimizing the risk of costly penalties and fines. By streamlining the hiring process and ensuring compliance with local regulations, EORs offer a convenient and cost-effective solution for companies seeking to expand their global workforce.
⚠️Employer of record risks
While employers of record (EORs) offer many advantages, it's important to consider the potential risks and disadvantages. For example, some countries have strict limitations on how long companies can retain workers through an EOR, as well as restrictions on the type of work employees can do and the level of authority that the contracting employer has over the EOR employees.
Despite these potential challenges, EORs remain a convenient and effective solution for companies looking to attract and retain top talent from the global marketplace. EORs can help reduce the risks associated with non-compliance and streamline operations, providing a cost-effective and compliant solution for companies seeking to hire international workers. By partnering with an EOR, companies can focus on their core business operations while leaving the complexities of international hiring to the experts.
About ChaadHR
ChaadHR helps businesses expand globally. We provide support for testing new markets, hiring employees, and setting up subsidiaries. Our platform offers compliant onboarding of international contractors, remote employee hiring, and consolidated payroll management through a single dashboard. Book a demo to learn more.