EOR, Employer of Record, or an international PEO (Professional Employer Organization – slightly different to EOR), is a unique service that enables businesses of all sizes to hire employees abroad. The best global employer of record services are able to fulfil a need and provide a simple, easy, and suspense-less way to hire abroad and remain compliant even though you don’t have a local entity. In other words, an EOR service enables companies without any local entities in the countries in which they hire employees in, manage these employees, and ultimately at the end of each month, make international payroll payments which are fully compliant with the local law.
What does it mean to be compliant locally?
The best Global Employer of Record services will have specialty in the following domains
- Local contract law
- Local employment law
- Local social benefits
- Local data security and data protection law
Hence, is able to do all the localized legwork that is required to employ in a legal manner. Hiring contractors or freelancers abroad is one thing, but when you want a full-time employee there is normally a much more stringent regulation, and more hoops to jump through. There are many reasons as for which a company wouldn’t want to have a local entity. These include:
- Local entities means a tax overhead with dual reporting.
- In some cases, establishing a local entity is difficult. Just try expanding to China and you’ll see. Also the UAE is downright impossible (must have 51% UAE citizen ownership).
- In other cases, bureaucracy makes the process indirectly too expensive.
- Rarely, the actual process is in fact too expensive, but it’s often not worth it considering the few number of employees you employ there.
Just keep in mind what it requires of you to manage a new legal entity instead of using a global EOR – you have to have a local legal team and payroll/accounting specialists, benefits admins, local HR team etc.
The bottom line is that no company is really “hot” about adding another local entity, even if it’s a mature company that already has multiple entities or subsidiaries abroad. That’s how EOR, or international PEO services come into play, offering the easiest and most effective way to hire employees abroad.
Does International Global Employer of Record Hire and Employ for You Abroad?
When you use an EOR service you use them as your entity abroad, and they hire employees on your behalf. The employees sign a contract with the EOR, the international Employer of Record is listed as the employer and makes salary payments on your behalf. This means there is absolutely no need to open an international entity for your business. In addition to taking care of the employee contracts and payroll processing, EORs will also be completely responsible for the legal and compliance side of things. If any errors or breaches are made, the legal recourse is on them and your business would not be reliable for such violations.
The essence of the service you are receiving could be described as a virtual entity doing the leg work for you. This is the same way fintechs have revolutionised multi-currency bank accounts. Allowing customers to open new bank accounts, in new countries, to pay and receive funds, and no longer have the requirement to open an entity in that country in order to open a bank account.
Is there a difference between an EOR and Global PEO? A PEO is in essence an organisation that enters a joint-employment relationship with your staff. So when you work with a global PEO, as co-employers of the people who work for you, not the direct employers, it means you will need to register an overseas business wherever you wish to hire staff. , With a PEO, you can outsource all HR functions such as benefit, compensation, payroll and taxation. PEOs are quite a popular tool and have been used to hire more than 4 million people and serve more than 170,000 small businesses.
Professional Employer Organizations have been around since the late 1980s and don’t necessarily have anything to do with hiring employees abroad; “Global Professional Employer Organizations” is a new term that was coined in recent years when companies started offering an EOR setup, and was later changed accordingly. What you’ll find is that a number of Global PEO’s will be able to recommend and manage an EOR in each of the countries you wish to hire staff, thus avoiding the need to establish an overseas entity.
Employee of Record or Contractor or Freelancer Model?
One of the first questions a company may have in regards to overseas hiring of employees is whether to use other models which eliminate the associated overheads. While a global EOR service like Papaya Global (our #1 top-rated Employer of Record solution) may provide a quick and easy resolution to how to hire employees abroad, there’s also an associated cost with such service, starting from $650 per employee. Why not avoid the hassle of creating a subsidiary abroad and/or using an Employee of Record service altogether? Isn’t that the easiest way to expand your business internationally?
Using freelancers or local contractors may appear like the easiest solution but it has its own complexities. To use the freelancer model, or contractor, you would need your hires abroad to feel comfortable working in this capacity, which may mean more overheads and more tax for them. Many people aren’t keen to work in this fashion and become business owners, in practice, when they are used to being employees. That means you have a smaller pool of talent to choose from which may prove important.
Other than that, when you work with someone one a freelancer or contractor capacity you have far less freedom when it comes to legal agreements and management. If it’s on a freelancer capacity then you as the company have no control over other projects this person will do, and if the freelancer is paid by the hour it may prove difficult at times to get the workload you’re expecting. With contractors you have slightly more control because they are dedicated to your project, but still limited control compared to direct employees hired by you abroad.
It’s almost more difficult to retain contractors. They normally lack motivation because they don’t have the same compensation packages as employees, not the same social benefits, and not the same support.
There are more legal complexities. In some U.S states and Germany, long term contractors must be employed, if a company misclassifies them, they have legal exposure. In India, contractors are limited to 240 days. In Brazil, at 91 days of working together, the relationship becomes a legal employment.
To summarise, if your company is looking to expand abroad rather than do a one-off project it may be better to use an Employee of Record service – avoiding the overheads of having to set up an entity abroad but still having control over your employees abroad.
Additional Global PEO Services?
When we created this piece about the best Employee of Record service, we had a look at many Global PEO services and witnessed an impressive selection. The two most impressive companies out there which are competing with Papaya Global’s PEO service are Deel (which has a unique partnership with the money transfer giant Wise) and Remote.com.
Remote.com has slightly more functionality when it comes to employing people in the USA with 401k tracking, but Papaya Global appears more tech savvy with a much more developed employee portal and an app available on Android and iPhone (Remote doesn’t have it). Deel appears to be a particularly good Employee of Record provider but it simply doesn’t have the same depth of Papaya – for example it doesn’t handle tax management which is a major aspect of hiring abroad. Additionally Deel doesn’t offer 24/7 support by a representative in the same fashion Papaya does, and also doesn’t have an app.
The bottom line is that we are confident that Papaya Global is the best Employer of Record and Global PEO service currently on the market but we will keep monitoring competitors and their functionality, and make EOR comparisons.