Here’s Why an Employer of Record is the Best Way to Find Top Global Talent and Stay Compliant

Man working remotely on laptop, symbolizing flexible employment enabled by Employer of Record services

In our rapidly changing work landscape, where nimble remote-first start-ups are leaping across borders and older, larger companies are beginning to embrace remote work, the processes used to hire employees are also evolving.

For companies growing globally and/or remotely that are looking to streamline hiring processes while also remaining compliant with international regulations, the Employer of Record (EOR) service has emerged as a stronger alternative to the standard methods of hiring on a freelance basis or through B2B contracts. As EOR services are fairly new, you may be buzzing with questions so I’ll do my best to answer them here. Let’s start with the most obvious:

What is an Employer of Record?

An EOR is a third-party entity that takes on the legal responsibility of employing people on behalf of their client companies. Essentially, to simplify administrative and compliance requirements, the EOR becomes the official employer of a client company’s new team member. 

EOR services can include a wide range of HR-related areas, including payroll, benefits, tax compliance, onboarding, and even restructuring or parting ways with team members. Usually the services are displayed on an online platform, where client companies and employees can access information about their various aspects of employment, ensuring smoother communication and transparency. 

Using an EOR enables the client company to expand their team internationally without the need to establish legal entities in foreign countries — or navigate these countries’ national employment regulations and labor laws. By partnering with an EOR, a company can welcome a new team member based anywhere in the world, and then focus entirely on that new team member’s day-to-day tasks.

Here’s an example. Imagine a US-based company wants to expand into Indonesia. However, attempting to figure out Indonesia’s often confusing tax regulations, labor laws, and long list of public holidays may seem too challenging for the US-based company. In a case such as this, the US company could partner with an EOR in Indonesia — or one licensed to hire in Indonesia — to manage the administration and hiring process, while also ensuring compliance with all of Indonesia’s regulations and employment laws. 

Woman with headphones concentrating on laptop, representing the focused work environment possible through Employer of Record hiring.

Why is this service called Employer of Record?

It may seem like a strange term for a service, but it’s fairly simple. In this context, the word “record” refers to the formal documentation and records associated with employment, such as payroll, tax statements and employment contracts. As an EOR, the service is responsible for maintaining accurate and up-to-date records for the people it employs on behalf of its client companies.

Why would a company use an EOR to hire someone instead of just hiring a freelancer or via a B2B contract?

To answer this question, let’s take a look at the pros and cons of each:

Freelancers

ProsCons
Cost-effective: Freelancers generally offer their services at competitive rates, making them an attractive option for companies looking to minimize costs.Potential low commitment: As freelancers usually operate on a project-basis, this may result in lower commitment compared to permanent employees.
Flexibility: Freelancers can be hired on a project-by-project basis, providing companies with the flexibility to hire according to their needs.Lack of control: Companies may have less control over the work schedule and output of freelancers, which could potentially lead to inconsistencies in performance and deliverables.
Easy to hire and let go: Freelancers can be onboarded quickly and let go without the complexities associated with traditional employment contracts.

Hiring with B2B contracts

ProsCons
No payroll and taxation hurdles: Hiring people through B2B contracts reduces the administrative work of payroll processing and tax compliance.Legal restrictions: Many countries have regulations limiting the amount of time a contractor can work for a single client without being considered an employee. This can create challenges for companies needing to rely heavily on contractors.
Easy to hire and let go: Similar to freelancers, contractors can be hired and let go relatively easily.Licensing requirements: Many people may be reluctant to obtain a solopreneur license or set up a business entity to engage in B2B contracts, which complicates the hiring process.

Employer of Record

ProsCons
Provides legal structure: EOR services offer companies the benefits of recruiting new team members in another country without the need to establish a legal entity in the new employee’s own country.Additional fees: While EOR services obviously require a fee, it is usually much lower than the costs associated with maintaining a legal entity in another country.
Simplified compliance: By handling payroll, tax withholding and other administrative areas, an EOR ensures compliance with local employment laws and regulations.Dependency on a third-party service: Companies rely on the EOR to manage their international team members, which may lead to some level of reduced control.

When is partnering with an EOR the best hiring option for a company?

  • Exploring new markets: For companies expanding into new countries, an EOR can provide a smoother entry by handling legal requirements, including work visas. This means the client company can test market viability without the need to set up a legal entity in the country, making it much easier to explore the new market.

  • Securing top tech talent: In the tech landscape, attracting and retaining top talent is crucial for innovation and growth. EORs simplify the hiring process, enabling companies to start working with their desired new team members quickly and efficiently.

  • Securing skilled talent at a competitive price: Due to lower costs of living in certain markets, such as Indonesia, partnering with an EOR allows a company to expand into these markets and secure skilled talent at a competitive price. 

  • Scaling swiftly and compliantly: During periods of rapid growth, maintaining compliance with local labor laws and regulations becomes increasingly complex, particularly when expanding internationally. EORs remove this obstacle by handling compliance matters, allowing companies to scale swiftly while reducing legal risks.

Overall, Employer of Record services offer companies flexibility and scalability, allowing them to focus on their core operations while “outsourcing” certain admin areas to a trusted third-party partner. For teams aiming to expand internationally, scale quickly, and recruit the best and most diverse talent possible, EOR services can be game-changing.

Livit offers EOR services in partnership with Solusi Pragmatis Indonesia. If you’d like to learn more, contact us now!

Agnes Kay

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