Spending too much on recruitment, payroll or global HR?
The world has become increasingly interconnected, and more people in more countries have gained access to the global market. Technological tools like video conferencing and cloud computing allow people to work from anywhere, while service providers like Employers of Record allow them to be hired from anywhere as well. These organizations provide clients with increased flexibility and the ability to transcend geographical limits to hire based on merit alone.
As the world’s leading EOR broker and EOR comparison site, we have dealt with hundreds of EOR companies in dozens of locations.
Here we offer our RemotePad guide on what you need to know to get started in this dynamic industry.
What is an Employer of Record?
Before we can start explaining how to become an Employer of Record, we need to clarify what one is and how they work. Employer of Record service providers, commonly referred to as just EORs, are third-party providers that primarily hire employees for clients who don’t own entities in the countries where those employees live and work. In other words, they hire local workers in different countries but contract them to work directly for the client. The EOR manages their HR needs, taxes, and social security contributions, and pays their salaries. In exchange, the client pays a fee to the EOR, usually every month.
EOR service is therefore a type of labor leasing, similar to that performed by a PEO (Professional Employment Organization), but on an international level. The EOR becomes the employees’ legal employer in the country where they live, and this means it takes on the responsibility of managing compliance with all applicable labor and tax laws.
EOR Service Provider vs. Regular Employer
What’s the difference, then, between the Employer of Record and a regular employer? Both enter into employment agreements with workers and are responsible for complying with the laws of the jurisdiction in which their employees live. A regular employer, however, normally hires employees for its own purposes and in only one country, though it may open branch offices or subsidiaries in multiple countries so it can work internationally.
An EOR service provider, however, usually operates a network of entities around the world. Some even operate in essentially every country and territory in existence. While a few EORs only work with entities they own around the world, most have third-party partners that they use to legally contract employees in other countries. The EOR provider normally operates a single hiring and HR platform to offer services to employees everywhere. At the same time, their owned or partner entities manage the administration needed to hire workers, pay their taxes, manage their benefits contributions, and pay their salaries.
With this definition in mind, we’ll next explore how any organization can choose to become an EOR.
What’s Needed to Become an EOR?
Setting up an Employer of Record business can be complicated, as there’s a lot to think about and do before you can start offering services and compete on the global stage. We recommend that you follow these steps fully to help ensure the success of your business:
1. Plan Your Business
If you’re thinking about joining the global EOR market, know that this is a highly competitive space with hundreds of businesses vying for clients. This makes it crucial that you set out with a comprehensive business plan that will choose a unique selling proposition (USP) for your EOR. To do this, it’s important to conduct market research to find out where you might operate, what’s missing in the market, and what you can provide that current competitors are not.
You’ll also need to perform the difficult task of planning your financing. You’ll need to calculate how much you’ll need to get started and investigate sources that can include business or personal loans, personal investment, or funds from partners or other investors. Your business plan should also outline your organization and management, and include a marketing and sales strategy that you’ll adopt to find clients.
2. Find Out About Your Legal Obligations
The EOR industry is not regulated by any single international body that can easily provide you with a list of regulations to follow and certifications to acquire. Instead, you’ll need to learn about the legal requirements you’ll need to follow in every country where you’ll offer your services, as well as the country where you’re going to have your headquarters.
This is no easy task.
In most countries, EOR services aren’t specifically regulated. Instead, the local entities you use to hire employees are regulated like every other employer. They’re responsible for collecting and storing employee information safely and registering employees with the tax and social security authorities. They also have to pay employee salaries, social security contributions, withheld personal income taxes, and their own business taxes. Finally, you’ll need to learn all of the labor laws that govern employment in the countries where you’ll hire employees, or plan to hire experts who can help you manage compliance.
In a few countries, EOR services are recognized, and providers are regulated as a type of business. In Spain, France, Belgium, Italy, and Germany, for example, EORs have to be registered as such and/or licensed. This creates strict controls over EOR services and prices, and may entail an extra cost you’ll need to budget for. Most EORs, however, pass on this extra operating cost to their client through higher fees for hiring in these and similarly regulated countries.
3. Plan Your Prices
Researching your competition will turn up a lot of information on pricing for EOR services, which can range from $99 to $999 per employee per month for basic services. Most providers charge more for additional services that might include things like recruitment, visa and work permit support, supplementary benefits administration, employee equity management, background checks, and more.
You’ll need to decide where on this spectrum you’ll land and how you’ll assess your fees. While most EORs charge a set fee per employee per month (that usually varies by country), other pricing models are available as well. You can offer a subscription-style model that provides services for any number of employees for a set fee, or create custom prices for each client, based on their service needs and number of employees.
4. Create a Platform
All modern EORs provide their services largely through online, cloud-based platforms. These platforms give clients access from anywhere in the world and let them (and often, their employees) view and manage multiple aspects of HR easily. They also automate many complicated processes like payroll, benefits administration, and leave management, making the EOR’s services more accurate and efficient.
You can build a platform yourself, deciding whether to keep it simple and easy to use, or comprehensive, but hopefully not overly-complicated. Another option is to approach HR Software-as-a-Service companies for white-label software. This can help you acquire a platform quickly and easily, but may come with a significant up-front investment of a long-term subscription fee.
5. Register or Connect with Entities
When you’re ready to proceed, you’ll need to take the important step of building your network of international entities. You may wish to start small, incorporating entities on your own in a handful of countries and then expanding later. Incorporating an entity can typically cost anywhere from $100 to $10,000, depending on the country. In some countries, you’ll need to have part-owners or directors who are nationals, residents, or both. While this process can be costly and take time, it allows you to keep control over your entities and the quality of service they provide to your clients and their employees.
Another strategy that can help you expand quickly is to build a third-party partner network. Instead of owning the entities yourself, you build partnerships with entities that are already incorporated around the world. This can help you create a network much more quickly, but you’ll have less control over how these entities take care of your clients. You’ll also need to pay fees to these partners to use their services.
6. Hire Staff
To ensure your clients can hire the excellent employees they need, you’ll need to put together a team of expert staff yourself. These people will help you find clients, support their needs, manage your system, and help your business run smoothly.
Most EORs need to hire:
- HR experts
- Payroll administrators
- Benefits administrators
- Legal and compliance experts
- Marketing and sales experts
- IT specialists
- Client success managers
- and more
7. Implement Your Marketing Strategy
With your business up and running, you’ll need to start marketing so you can stand out from the competition and attract clients. Your staff will need to focus on your USP and market it to your target audience. Sales staff will need to take meetings with clients to bring them on board, so your business starts to generate income.
How Do You Become an Employer of Record?
Becoming an EOR is a multi-stage process that takes time and a great business plan, but the rewards in this dynamic industry can be worth it for unique competitors willing to take the plunge.
To learn more about how you can become an EOR get in touch with our Employer of Record specialists.
