Research estimates that by 2025, 22% of the American workforce (that’s 36.2 million people!) will be working remotely. Many companies are embracing the trend and beginning to hire workers worldwide to work with them.
If your business is looking to hire international remote workers, you’ve probably come across various ways of employing them, such as using the services of employer of record companies, an outsourcing firm or hiring the worker internally.
Finding the right one for your business can be daunting with all these options. But once you understand their key differences, the best choice for you should be clearer. In this article, we discuss the differences between an employer of record, an outsourcing firm, and hiring internally.
Employer of Record (EoR)
An employer of record (EoR) is a third-party organization that hires international workers to be placed in their client’s companies. They serve as the primary legal employer and handle all HR matters on their client’s behalf. These include payroll processing, tax issues, and benefits.
Despite being employed by the EoR, the remote worker placed in your company still assumes the functions and responsibilities involved in their roles, which you set.
An EoR helps companies easily hire, manage, and employ international workers. Your business doesn’t need to worry about legalities or complex processes to engage a remote worker through them. Instead, you can delegate employer-related responsibilities to the EoR in the country you wish to hire from.
EoRs are becoming more desirable for companies who want to hire internationally because it allows them to avoid having to set up a subsidiary in the country where they wish to hire.
The benefits of using an EoR include the following:
- Flexibility. Using an EoR as the official legal employer of your international remote workers allows your business to scale up and down as needed without worrying about the costs associated with setting up a local legal entity and HR infrastructure everywhere you wish to hire talent.
- Compliance. EoRs hold the main responsibility of ensuring the laws and regulations of foreign jurisdictions are followed. Ideally, EoRs are experts in this field, so they can handle all compliance responsibilities and issues and spare you from any unnecessary burden. This also protects you from any potential liabilities down the line.
- Simplicity. EoRs provide you with an easy way to source and hire international remote workers by simplifying the entire process. They remove HR, compliance, tax, benefits, and payroll matters from your plate, which allows you to focus on your core operations and grow your business.
As the primary legal employer, the EoR usually assumes the following responsibilities:
- Handles employment contracts and paperwork
- Settles I-9 and E-verify forms
- Handles unemployment claim reporting and insurance
- Conducts background checks and drug screenings on potential placements
- Handles the international employees’ payroll and taxes
- Ensures payroll and tax compliance in the country where the employee lives and works
- Handles the administration of employment benefits
- Liables for all employee affairs
- Ensures compliance with labor laws
In summary, an employer of record handles and simplifies the entire hiring process and minimizes the costs of complying with the legal and regulatory procedures involved in remote hiring from foreign countries—the EoR, experts in HR and employment, assumes those responsibilities for you.
An outsourcing firm, also called a staffing agency, is a third-party service provider that primarily matches employers with employees. They typically work as middle-man between the employer and the candidate, hired by the employer to look for the most suitable placements for their open roles.
How it works is that the company hires an outsourcing firm to find the talent they need to fill an opening. These firms usually have a large pool of potential candidates from a broad range of industries, whom they then hand-pick from according to the requirements supplied by the client company.
They can help place employees in different contract setups, including as full-time employees, temporary contractors, temp-to-hire, or long-term contractors.
When they’ve chosen their proposed talent, they send these candidates to the company, which will then conduct assessments and other hiring processes.
The outsourcing firm handles a lot of the responsibilities associated with hiring talent. They can help with onboarding and compiling employment paperwork but typically do not offer other HR services like payroll, accounting, compliance, risk management, insurance, and employee benefits.
However, some outsourcing firms have separate services for these that companies can take advantage of if they choose. Otherwise, the client company retains all these responsibilities and remains responsible for matters like workplace safety and compliance.
Compared to EoRs, outsourcing firms or staffing agencies are not considered employers. They are only tasked to deliver the talent to the client company and help onboard them in their roles. But working with them can still be incredibly beneficial.
Think about it—the HR process is very costly and time-consuming. Recruiting new employees involves a whole set of processes, from reviewing resumes and checking their qualifications to conducting interviews and requesting their documents.
A staffing agency lightens the load. They kickstart and assist you throughout the process; all you have to do is choose the talent they present to you. And since outsourcing firms make it a point to find the perfect employer-employee matches, you’re usually guaranteed that any talent they send your way is a good fit for your open roles.
If you don’t want to work with a third party, you can opt to hire remote employees internally using your own HR or recruitment team. By doing this, you retain the status as the employer of your talent and have full responsibility for finding candidates and carrying out all HR duties.
While there are indeed advantages to this setup, it can also become difficult, especially if you have no experience working with international talent. Hiring internally means that your recruitment team must be familiar with the payroll, tax regulations, and labor laws where your talent is based and ensure compliance.
There also might be a lot of paperwork involved in this setup, as you’ll be coordinating with different foreign agencies. Therefore, having an experienced team handling all legal and regulatory requirements would be helpful if you plan to hire internally.
Which Is Best for US Businesses?
The best method to hire remote talent would depend on your unique needs and priorities. If you are looking to hire just one or two international remote workers instead of a whole team of employees, then an EoR may be more suitable for you because they allow you to effectively bypass the need to set up a local legal entity in countries where you need to hire.
The EoR will have its own local entities and serve as the primary employer while giving you the talent that will work according to your directives. They help you avoid the many risks associated with hiring internationally and become responsible for all potential headaches, like payroll and tax compliance.
An EoR also allows you to protect yourself in case the employee quits unexpectedly or you need to lay them off. As the primary employers, they can take unemployment claim matters into their own hands instead of placing the responsibility on you. You’re also protected from liability in case of wage and hour violations committed by the EoR.
However, if you are looking to hire a large number of employees, then setting up a local legal entity might not be such a bad thing. It enables you to constantly hire from a certain locality without worrying about other legal or regulatory requirements later. When opting for this, you could choose to hire internally if you have the resources. However, we recommended that you engage the services of an outsourcing firm that can help you access talent from the locality.
An outsourcing firm will have the industry knowledge and experience to help you find the right people for your job openings. They provide detailed assessments of each candidate and ensure they make the right match, which in turn, helps save you time and resources. Not to mention that your outsourcing agency will shoulder most paperwork and bureaucratic processes.
They can also provide support in onboarding and ensure a smooth transition for the candidate by acting as a liaison between the employer and the talent. They can conduct regular check-ins to ensure the employee is doing okay and adjusting well to their new role.
Examples of US Businesses Using an Employer of Record
Near serves as an EoR for our client US companies when they hire top Latin American (LatAm) talent through us. Some of the US businesses we have EoR roles with include:
CyberFortress is a data backup and recovery service that provides businesses with innovative technological solutions to manage their operations. As a people-first organization, it hires remote employees in LatAm, where Near is the primary employer handling all the legal, regulatory, and HR matters.
Park Street is a US service provider offering its clients back-office solutions, advisory services, and working capital solutions in the wine and spirits sector. Near partners with Park Street to provide top-tier talent in an EoR setup.
Hiring remote talent can be a complex process. But luckily, you have several options for how to go about it. While all routes are proven effective, some may be more suitable and cost-effective for your business than others. Ultimately, ensure you always align your needs with the most suitable course of action to get the most out of your remote hiring. You should also consider whether you need professional advice before deciding which option to go for.
If you are ready to grow your workforce with highly skilled international remote workers, Near can help you source and hire top-tier talent in LatAm. Whether you want the services and benefits of an EoR or an outsourcing firm, Near can provide both.
If you want a list of pre-vetted candidates you can interview for free, fill out this form. We usually help our partners find and hire amazing talent in under three weeks.