What is an Employer of Record (EOR)?

In the year 2010, one of our clients approached us with a typical issue. Our client did not had a legal entity in Turkey but wanted to hire one employee there. Registering a local company just to hire one employee was not worth the effort. So the client asked us if we could hire the employee on his behalf in our local entity.
For us at FMC Group, this was the start of a service we called “employee leasing”. Now this service is known as Employer of Record, or short EOR.

Definition of the Term Employer of Record

The term “employer of record” or EOR, refers to an organization or entity that is legally responsible for employing an individual on behalf of another company. This includes handling all legal requirements related to employment, such as payroll, taxes, benefits administration, compliance with local and national labor laws, and sometimes even visa and immigration services.

Companies often use an EOR when they want to hire employees in a country where they do not have a legal entity, or when they prefer to outsource the complexities of employment compliance and payroll to a third party. This arrangement allows the hiring company to focus on the operational aspects of the employee’s work, while the EOR takes on the administrative and legal responsibilities of employment.

Benefits of Using an Employer of Record

First of all, you can hire employees in nearly any country around the world without the need to have a legal entity in this country. This gives you access to a global talent pool and the ability to enter new markets.
Each country has its own tax systems, benefit programs, payroll regulations, and employee rights, with substantial penalties for non-compliance. Most organizations lack the time and resources required to become experts in employment law for every location where they have staff.
Using an EOR is a safer alternative to hiring full-time contractors, which is often illegal in many countries. It’s also a more time- and cost-effective option compared to establishing a local legal entity.

How Does an Employer of Record Work?

The EOR provider hires the employee on behalf of the client. The client can decide which employee should be hired and which salary/benefit package should be paid. You can imagine FMC Group as your local HR department. We take over all administrative tasks, while you can focus on the functional management of the employee.
Typically the process looks like below:

• Selecting the candidates – this can be done by the client or by a FMC Group Recruiter
• Signing employment contracts – we explain to you which contracting options you have (e.g. fixed-term contract / indefinite contact)
• Managing payroll accounting according to international standards and paying all necessary social security contributions and taxes according to local law
• Paying all expenses and allowances after your approval
• Monitoring paid vacations and other leaves according to local law
• Negotiating and establishing a private health insurance policy or other benefits
• Maintaining regular contact with employees and client

Use Cases for Employer of Record Services

Our clients engage EOR providers for different reasons. These are some of the common scenarios we support:

Entering a new market:  several of our clients use EOR to enter new markets. They start with one employee, often a Business Development Manager, in a new country. If the business develops as anticipated, they grow the team using EOR until they reach a positive business case for their legal entity in the country. After registering their own entity, they can take over the employees and start with an established team.

Growing an existing market: Companies choose to sell their products using distributors in certain markets. Some of our clients engage a business development manager to foster distributor sales.

Accessing global talent pool: In several countries, attracting skilled labor is becoming more difficult. Our clients choose EOR to fill vacant positions with remote working talents from abroad.

Reducing labor cost: Our clients hire employees in countries with lower labor costs to work remotely for the central departments. Typical profiles are software developers, call center agents, or generally employees, handling back-office tasks.

Enabling relocation: Sometimes employees want to relocate to a country in which our client does not operate an own legal entity. Instead of losing this employee, we can hire the employee on behalf of the client in this country.

Considerations for Choosing an Employer of Record

The EOR industry has been growing rapidly, driven by the increasing trend of remote work, globalization of businesses, and the need for companies to hire talent internationally without establishing a legal entity in each country.
This has led to an overwhelming number of EOR providers with very different approaches and backgrounds.
Some EOR providers offer their service in only one company or region while others offer their services globally.  Some providers open legal entities in each country they serve, other providers work with local partners.
A recent trend is software companies entering the EOR market, offering to hire employees using a platform.
As we have been offering Employer of Record services now for close to 15 years, we believe that EOR is a people business rather than a technology business. We see that our clients have many questions and need a lot of consulting when employing a talent abroad. We are also using a software/platform, but that its not what is defining us. Our roots are market entry consulting,  and in many cases, that is the reason why clients have chosen us as their EOR provider.

Are you looking for an EOR provider? Please do not hesitate to speak to us.