This post contains a guide to review an agreement with an EOR service provider.
At FMC Group, we’ve been using these contract terms for over fifteen years and have deep knowledge of other EORs’ contracts.
This article is a guide to essential clauses, red flags in the contract, and a step-by-step method to review your EOR contract.
Without further ado, let’s turn related topics into a safety shield.
Author
Co-author
This post contains a guide to review an agreement with an EOR service provider.
At FMC Group, we’ve been using these contract terms for over fifteen years and have deep knowledge of other EORs’ contracts.
This article is a guide to essential clauses, red flags in the contract, and a step-by-step method to review your EOR contract.
Without further ado, let’s turn related topics into a safety shield.
Author
Co-author
Get in Touch with Us
Leah Maglalang
Business Coordinator UAE
Below are the fifteen important clauses that must be in the contract between the client and the EOR.
Suppose you plan to partner with an EOR, and some points are missing, then you can ask politely to add them to the contract. Different EORs work with varying terms, so some clauses can be missing. That’s fine until an EOR forbids adding it, because not adding that clause puts you at risk.
Don’t worry, we are discussing red flags in the EOR contract, but for now, below are the fifteen things you should look for in the agreement:
This is one of the most critical clauses in the agreement. In this section, everything that an EOR provides is defined, from using their own local entity to off-boarding or handling penalties.
For your knowledge, under just one service that is EOR; the service provider offers over forty solutions. Now, you have understood why defining the scope of work is essential.
This section should be divided into three parts for clarity. The first part explains the role an EOR will play and its responsibilities; the second part covers client duties; and the third part addresses shared risks.
The contract must define who the legal employer is. Who will handle day-to-day responsibilities and declare that this is not co-employment. This ensures both parties get their rights in the case of a dispute.
Local labor regulations are primarily handled by an EOR. Statutory compliance can be mutually handled, and coordination with local authorities falls under an EOR task.
Although most EORs offer payroll and salary administration services as part of their offering. However, the scope of this work must be clearly defined. For example, payroll handling may follow a monthly cycle, be milestones-based, or define how currency exchange will be handled.
This part of the EOR agreement explains three things. The first one is income tax and who handles it, the second is employee social contributions and their handler, and the last one is government documents filing.
The contract should clearly mention who will provide statutory and optional benefits. If any party is handling these benefits, who will bear the costs?
People don’t care much about intellectual property ownership, which can lead to many issues later.
It should be clearly mentioned in the agreement that the work done by any employee hired by an EOR will be the property of the client.
The agreement should explain how IP transfer works and whether assignment clauses are mentioned.
The EOR must mention that it will protect client data, and if the data is provided to third parties, it will obtain permission. It is also acceptable if an EOR explains how client data will be protected.
The client must find in the contract how the termination and onboarding process works with the EOR. Who will handle notice periods, exit processes, and final payments.
Risk allocation, compliance liability, and damage coverage details must be added to the employer of record contract. This is very useful when something goes wrong and the time comes to resolve the issue.
An EOR should define clearly how any type of dispute arises between the EOR and the client will be handled. Is there an arbitration option available, or will direct court jurisdiction apply between the parties. What country will handle this dispute.
This section in the contract explains the applicable laws, legal venues, and country courts. In simple terms, how does this process work with local government involvement.
This is the second most important clause in the employer of record contract. As EORs work on different pricing models like flat fees, percentages, and tier pricing, each must be mentioned.
The contract should explain when payments will be charged, who will bear taxes, and what currency exchange rates will be used. What add-on services involve additional costs, and what are their fees.
Contract terms regarding the duration of the agreement, renewal rules, and early exit conditions come under this section.
Below are the five most important signals that can indicate issues in an EOR agreement.
Again, don’t judge an EOR as bad solely because something is missing. I am mentioning general clauses that should raise concern, but specific services may have different types of clauses.
If there is something unclear about the legal employer, responsibilities, or handling compliance risk, get the EOR on a call, clarify everything, and then request new clauses in written form. If they become defensive, this is a red flag, and do not partner with them.
If there is a clause that says only the EOR can terminate employees or end the agreement with the client, that’s a red flag. Such contracts only exist to bind clients and give the EOR unfair advantages.
If you find a sentence in the contract stating that you may have to pay additional or variable fees, this is a vague statement. Either get written confirmation or leave the EOR.
If an EOR is not taking property transfer seriously, there could be two reasons.
Either they don’t understand its importance, or they may be acting in bad faith. Such issues can occur in specific work scenarios.
For example, an employee may write code and the EOR may use it for personal purposes without letting the client know. This is very rare, but clients should remain on the safe side.
If an EOR hesitates to explain liability caps, compliance exclusions, or shifts risks in their own favor, get a written statement or cease working with them.
So far, you have learned what should and should not be in an EOR contract. This section helps you review your contract draft with simple steps.
You first need to select an employer or record service provider before reviewing a draft of the agreement. Compare EOR service providers, check what services they provide, and then compare their service fees. Also, check years of experience, target country expertise, and online reputation.
You can use Google Docs, Microsoft Word, or a Notion page to open and review an agreement document.
You can check and ask for customised content based on service specificity.
You can review legal terms yourself or ask the EOR to explain them, and then review them carefully.
Check dates, the client name, the place of signature, and your company name. Review the contract and send it to the EOR after signing.
At FMC Group, we have been providing EOR services for over fifteen years.
We have worked with different types of clients in multiple countries.
You can book a free call with us, and we’re happy to guide you in selecting the right EOR service.
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