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In today’s global economy, companies are searching for talent beyond their country. This helps those companies expand their operations and obtain exposure to new markets. One of the key tools that facilitates this expansion is an Employer of Record (EoR). Read our guide to understand why you need an EoR.
If you plan to expand your business overseas, then having a clear understanding of what an EoR is and does will be essential. An Employer of Record is a third-party organisation that will take care of the legal formalities of employing staff on your behalf. They will manage payroll, taxes, benefits, and local labour laws.
Employer of Record allows companies to focus on core activities and ensure other challenges are met on their end. An EoR is a great choice for many companies, whether you’re a start-up looking for your first hire overseas or an established company planning to expand with more international employees.
UK businesses can navigate complex foreign regulations with the support of an Employer of Record while seamlessly reducing the administration burden and the risk associated with international employment.
What is employer of record (EoR)?
Employer of Record is a legal and efficient service used by companies to appoint employees in various regions or different countries without stabilising a local entity. An EoR recruits talents on behalf of an organisation.
However, the day-to-day management and operations of the company personnel are taken care of by the client company itself. Their centre of attention becomes the core business and not operational and administrative tasks.
Hiring international employees is a challenging task and one of the major complications in the process is compliance with local employment laws.
However, with an Employer of Record, this uncertainty is alleviated as this type of company has expertise in local labour laws, which makes sure that all business practices are followed. As much as this is beneficial for large businesses, it is also favourable for small to medium-sized enterprises (SMEs) and startups because it enables them to recruit people from across the world without worrying about the lack of resources to build a legal entity.
Why do UK companies need an EoR?
UK companies have different issues that they must cope with, starting from the issue with various employment legislation to the issue with payroll. An Employer of Record offers a practical solution to the challenges that these enterprises face daily, here are 6 reasons why UK companies need an EoR:
1. Simplified compliance
Employment rules and regulations may vary from one country to another country, and this is because of the differences in the laws of the land. In these arrangements, on the company’s behalf, the Employer of Record navigates legal compliance to keep the employee and company out of legal peril, and your company can avoid penalties for non-compliance.
An EoR also performs the duties of an HR department covering recruitment and compensation besides ensuring that UK firms are not steeply penalised or face legal repercussions by staying abreast with the laws and regulations of the local jurisdiction.
2.Cost efficiency
Through an Employer of Record, often you can establish the legal entity of the firm in the foreign country that you are planning for without any problems. If you wish to reduce overheads and do not wish to manage administration all by yourself, then EoR, is tailor-made for you.
An Employer of Record working for UK companies can have the perfect candidate recruited for him at a relatively lower price. Geo arbitrage plus the adoption of an international team of employees render the local office and other operational issues irrelevant.
3. Smooth market entry
The operation in a new market is often a risky stratagem for any firm. While developing a legal entity, there might be a need to look at the labour relations laws and this may slow down this process. An Employer of Record helps UK companies to hire employees for their organisations and commence their business instantly without any formality or delay.
The Employer of Record can handle employment logistics, and you can focus on what you do best: more detailed steps than running your business…Sorted!
4. Local expertise
Getting to know a country’s local laws and customs is a tall task for any company, but having the support of an Employer of Record can make the process much smoother. An EoR can provide you with local expertise which is necessary for companies to hire and manage staff. Your company can build a team abroad without worrying about any complications.
5. Risk mitigation
Managing employees comes with various risks such as legal disputes, payroll errors and administration issues. If you hire an Employer of Record, they will take these responsibilities and manage the risk on your behalf. This transfer of duties and risk from your UK company to the Employer of Record allows you to operate with confidence, knowing that the rest will be managed well…. Let’s be honest, peace of mind is priceless.
6. Flexibility and scalability
As a business, you may need to quickly scale up or down as needed. Luckily, an Employer of Record can manage this process for you. EoR’s have the flexibility to meet the right candidates at the right time for your business.
Employer of Record vs PEO
Employer of Record (EOR):
Employer of Record is a third-party organisation which becomes legally liable for the employment of the employees for another organisation. The EoR takes full responsibility for employment that relate to employee remuneration, tax, benefits, and legal requirements of labour laws in the country of hire.
This arrangement enables organisations to staff their employees in other areas or countries without forming a legal company in that location.
Professional Employer Organisation (PEO):
A Professional Employer Organisation is defined as a company that offers all the Human Resource Solutions for a company. In a joint employment or co-employment concept which is also known as a professional employer organisation (PEO) arrangement, the PEO becomes an employer of the client’s employees.
It means that PEO takes full responsibility for the human resource management services like payroll processing, administering employee benefits and ensuring compliance with the legal requirements but, the day-to-day interaction with employees and other managerial processes are maintained by the client company.
What is a PEO
A PEO, or Professional Employer Organisation, partners with businesses to provide a wide range of HR services, including:
1. Payroll Processing: Payroll management of the employees, that is, payment remuneration, wage computation and payment.
2. Benefits Administration: Providing and managing all the employee bonuses that come in the form of medical cover, retirement savings and other privileges.
3. HR Compliance: Necessary condition of avoiding violations of the local, state and federal employment laws and regulations.
4. Risk Management: Assisting with safety in the workplace, workers’ compensation and other areas of risk management.
5. Employee Training and Development: Providing facilities and courses for employee enlightenment and skill improvement.
The PEO’s working condition is that while the PEO is the official employer on paper, both the PEO and the client company are employers at the same time.
How does an EoR work in the UK?
An Employer of Record works the same for any company in any country.
An EoR is your one-stop shop for everything related to payroll. In addition, they deal with issues concerning employees’ compensation and benefits such as pensions and present benefits and see that all statutory obligations are complied with by the UK.
Employment law is a specialised area which the EoR always keeps up to date to ensure that every practice and policy they engage in is up to standard as far as the law of the land is concerned, taking care of employee relations and legal practises for the sake of risk management from the client firm.
Engaging an EoR
Engaging an Employer of Record (EoR) in the UK involves 3 key steps to ensure a smooth and compliant process:
1. Selection of an EoR provider:
The company should start by first analysing conditions in the local market to understand what sort of EoR services they might need. Need help with hiring in France? Payroll in India? It’s important to choose an EoR based on its track record in that particular market.
2. Employee onboarding:
Once a UK company engages an EoR, one of the first tasks that an EoR takes over is employee onboarding. This involves creating all the required papers and employment forms to meet British and local labour standards. The EoR then enforces the company’s adherence to various laws while helping the employees to integrate into their new workplaces.
3. Integration into operations:
Even though the workers are contractually registered through the EoR, the integration among staff into the structure and operations of the company is efficient. The client company manages the employees in the delivery of activities, task delegation, on-site visiting staff, and monitoring of activities.
Despite the formal agreement, the employees are very much involved in the client firms’ operations.
By engaging a qualified EoR such as Black Piano, businesses can attract qualified personnel while avoiding legal risks associated with staffing and ensuring that the employer concentrates on their core business activities.
Responsibilities of the EoR and the client company
An Employer of Record regarding the more essential aspects of employment management. Here's an elaboration on the responsibilities of EoR:
1. Legal employment:
The EoR can be considered as the ‘legal employer’ which then takes legal and administrative responsibility away from the UK company.
2. Payroll and taxes:
The EoR arranges for the salaries to be processed on time to avoid any payment mistakes and the date on which the employees should have received their salaries. This includes processing of wages, salaries, and taxes according to local laws.
3. Compliance:
An EoR must take into account major changes that can affect the rights and benefits of employees, working hours, health, and safety conditions at work, and how employees are dismissed. Maintaining compliance is a crucial task that EoRs must be able to handle.
4. Benefits administration:
EoRs take care of all benefits administration for employees. They make sure that employees have the correct benefits and most importantly, are able to answer any questions or concerns about the administration of these benefits.
5. HR support:
Beyond staffing, EoRs maintain employee records and assessments, while disciplining employees when it is necessary. EoRs allow employees to get the HR support they need to perform well in their roles.
The client company also has significant roles and responsibilities in the engagement with an EoR.
Here’s a breakdown:
1. Day-to-day management:
The EoR manages the legal and other administrative aspects of the employment of part-time workers, whereas the client company directly monitors the work of the employees. This also involves selecting assignments and defining performance standards and processes for getting work done.
2. Work environment:
It should be noted that the client’s responsibility directly relates to ensuring that employees are working in a safe environment. This includes health and safety policies, risk assessments, and the necessary control actions and practices that would lead to minimising and preventing accidents in the workplace.
3. Operational integration:
It is important to make sure that EoR-employed employees become a part of the work environment and organisational structure. This pertains to the supply of various equipment and knowledge that will allow the workers to carry out their functions in the best way possible.
4. Communication:
Staying in touch regularly increases the chances of creating a successful collaboration between the client company, the EoR, and the employees.
Read our detailed blog here to explore the benefits of offshoring your IT service to India.
Key considerations when selecting a UK EoR
There are many choices among UK EoR so selecting the correct one for you and your UK business can take some work. Here are some of the key considerations for selecting an Employer of Record in the UK:
1. Legal expertise
One of the important factors to analyse while partnering with a UK Employer of Record is knowledge and expertise in local employment laws and regulations. The EoR should stay up to date with new legislative changes and ensure that everything is compliant with local labour laws such as payroll taxes, employee rights and administration.
2. Reputation and experience
The Employer of Record should have experience and a reputation in the industry. EoRs (Employer of Record) should have a proven record of managing employment responsibilities for companies in the UK.
If possible, connect with their previous clients to understand their strengths and weaknesses. Check out their reviews and testimonials to get insight into their performance and reliability in the region that you would like to hire in.
3. Range of service
Every EoR is different and each one either offers a range of services or is a full suite provider. It is important to check that the Employer of Record you are hiring provides a comprehensive range of services that fulfil your specific needs. A quality EoR should be able to manage payroll, administration, employee onboarding, managing employees, and be able to provide full HR support.
4. Reporting
Reporting used by the Employer of Record is an important factor. They should use a robust and user-friendly platform for simple management of your workforce and be able to give you real-time access to important data. An EoR should be transparent and be able to tell you where your money is being spent.
5. Flexibility
Every UK business is unique and has different requirements. The Employer of Record should offer personalised service and be flexible for your company’s specific needs. An EoR should be able to support your business strategy and operational goals.
6. Cost structure
Understanding the cost structure of an EoR is crucial. They should have a transparent pricing model with no hidden fees (Much like Black Piano ;)). Evaluate whether the cost aligns with your budget. A clear understanding of the cost implications will help you make an informed decision and manage your financial planning.
7. Customer support
The Employer of Record should have reliable and responsive customer support for addressing any issue that arises. A good EoR will have a reliable support structure, short waiting time and quick responses in case any problem arises. Strong customer support ensures that all queries are resolved on time and won’t affect your business operations. It is important for you to choose an EoR that supports your UK company.
Learn the difference between offshoring and outsourcing to choose the right business strategy for your business.
Pros and Cons for EoRs
Managing a workforce across different countries can be quite challenging. An EoR has multiple benefits but some drawbacks as well. Let’s understand the pros and cons so that your business can make an informed decision.
Pros of using an EoR
1. Simple compliance
One of the main advantages of using an EoR is the assurance of compliance with local labour laws and regulations. Each country has its employment laws, which can be complex and constantly evolve. As an organisation, it is difficult to keep up with these changes so an EoR can ensure that you are compliant with the latest rules and regulations.
2. Cost efficiency
Establishing a company in a foreign country is expensive and requires time to complete all the formalities. As a company, you must set up local offices, hire legal staff, hire administration staff, and manage operations.
An EoR provides a cost-effective alternative to this long and tiring task. This significantly reduces upfront and ongoing costs, enabling companies to allocate resources more efficiently towards their core business activities and growth initiatives.
3. Speed to market
In today’s fast-moving world, speed to market is essential. If you plan to set up business in a new country, then understanding the rules and the customs may delay the transition into a new market.
An Employer of Record supports this and allows a smooth process to set up your business. This rapid market entry can give you an additional advantage in capturing market share and expanding new regions.
4. Local expertise
An Employer of Record provides valuable local expertise, helping businesses navigate the complexities of international employment. They will help you in knowledge of local compensation standards, employee expectations, and effective management practices.
Having local expertise allows companies to build strong, cohesive teams that are well-aligned with local market conditions. This cultural and operational insight can significantly enhance a company’s ability to operate effectively and compete abroad.
5. Reduced administrative burden
Managing payroll and other HR work across different countries requires a lot of time and effort. If you hire an EoR, they will take on these HR responsibilities. By outsourcing these functions to an EoR, companies can streamline their operations and improve overall efficiency.
6. Flexibility and scalability
Business needs are ever-changing and require flexibility in workforce management. As a company, you may need to scale up and down as per your business needs and this can be done by Employer of Record. This scalable and flexible approach to employees ensures that companies maintain operational agility and efficiency.
Read our detailed blog on what is offshoring and why it is essential for your business.
Cons of using an EoR
1. Limited control
Outsourcing your employment responsibilities to an EoR can lead to a perceived loss of control over certain aspects of employee management. While EoR handles payroll, compliance and other administrative tasks, the client company may find it challenging to manage day-to-day employee issues directly.
This can include instilling company culture, conducting performance appraisals, and addressing specific employee concerns.
2. Dependency on third party
You will be dependent on EoRs as they handle all crucial functions of HR. If you hire an unreliable EoR and they hire the wrong candidates, your brand name will be affected. This dependency can be risky and can cause harm to your UK company.
3. Cost consideration
EoRs are seen as a cost-effective method of expanding across the world but if we compare setting up a local entity and calculating all the fees associated with it, we can evaluate if an EoR is beneficial or not. Transparent pricing and a clear understanding of the cost structure are essential to ensuring that the financial aspects align with the company’s budget and expected value.
4. Communication challenges
If you have an EoR based in a different time zone or country, it’s possible to have a language barrier. Effective communication is essential for a successful relationship between EoR and the company.
Employers of Record and company should have clear communication channels and protocols to address these potential challenges. Miscommunication can cause conflict and hinder productivity, so both parties should have clear channels so that there is no overall impact on work and management.
5. Limited customisation
EoRs have processes and policies that may not align with your company’s needs and policies. A lack of customisation can be a drawback for businesses with unique requirements or sophisticated HR policies. Companies must assess whether the EoR’s service offerings and operational approach can be tailored to meet their specific needs.
Before you hire any EoR ensure that they have policies and processes that will align well with your company’s requirements and needs. Flexibility is necessary in providing service and support.
Employer of Record or HR Software
Employer of Record vs payroll
Can you hire contractors through EoR?
Yes, you can use an EoR provider to hire contractual workers. The flexibility also makes it possible for companies to employ workers for certain projects or only a specific period without going through the direct staffing process.
1. Contractual agreements:
An EoR takes care of employment contracts and has to ensure that the contracts are legally compliant with local employment laws and regulations. These contracts outline the nature of the relationship, the stipulated time of work, the scope of work, and the payment arrangements.
2. Payroll management:
An EoR performs the payroll functions for contractual employees to pay them accordingly. They also control any deductions or taxes to be paid depending on the laws of the country.
3. Compliance:
The EoR guarantees that the contract adheres to the prevailing labour laws concerning such issues as worker classification, tax liability, and statutory benefits. This can help reduce the potential for misclassification and the associated penalties.
4. HR support:
The EoR handles the personnel management of contractual personnel in the areas of hiring, performance, and disengagement. It also makes it easy for companies and contractual workers.
5. Flexibility and cost efficiency:
The EoR is an effective way of recruiting contractual staff because companies are not burdened with the responsibility of maintaining full-time employees and at the same time have the option of increasing or decreasing their number of staff depending on their workload. It also minimises costs in terms of administrative work and compliance.
Can you hire full-time through EoR?
Yes, it is possible to use an Employer of Record (EoR) to hire full-time employees. An EoR is an entity that acts as an employer for an organisation and takes care of the legal and administrative aspects of this employment.
This arrangement enables businesses to increase their workforce by recruiting individuals from various geographical or political regions without establishing a formal presence in those regions.
Here's how it works:
1. Employment contracts:
The EoR creates the employment contracts. The employer controls the workers’ activities daily by employing them on a full-time basis.
2. Payroll and benefits:
The EoR performs duties such as payroll, whereby individuals are paid their salaries efficiently and on time. They also administer benefits like group insurance, pensions, retirement plans and other statutory provisions.
3. Compliance:
The EoR is also responsible for ensuring the company adheres to local requirements related to employment standards, tax obligations, and other workplace-related policies. This is especially crucial for firms operating in jurisdictions where legal responses differ greatly.
4. HR administration:
The EoR carries out many HR activities such as employee onboarding and offboarding as well as performance management thus helping the company be strategic with its HR via the EoR.
5. Risk management:
The EoR helps businesses reduce the level of liabilities related to the employer’s risk in different regions.
The use of an EoR in hiring full-time employees can be advantageous for companies that are globalising because it helps avoid setting up a local presence in another country to employ workers, as well as helps to expand businesses in locations where it has limited access to talent.
EoR future trends
The trends in overall labour and talent availability are constantly changing. Here are some EoR future trends:
1. Global expansion support:
EoR services will become a crucial step in the development of global trade for companies that start trading overseas. Some EoR companies will have much greater support and are aimed at the region in which the present operations take place including information on the labour laws, cultural diversity, and trends in the market.
2. Remote work enablement:
EoR makes remote work easier. The process of recruiting remote employees, the compliance with remote employment policies, and tools for engaging remote employees of the company.
3. Compliance and risk management:
EoR services will continue to play a vital role in risk issues as the organisational cultures and the regulatory demands of the government are becoming increasingly complicated. This may also include greater scrutiny of potential new policy changes that might infringe on compliance or employment as well as service delivery while also ensuring defence mechanisms are instituted for both clients and employees.
4. Flexible workforce solutions:
Based on the ever-growing gig economy and contingent workforce needs – underlined by the demand for flexible workforce solutions. EoR providers can offer specific solutions in managing the contingent workforce through their offerings, which include on-demand labour and freelance platforms, online marketplaces of talent, and other employment arrangements for project work.
5. Technology integration:
EoR services will still rely on the leverage of technology in the pursuit of process automation, and efficiency as well as achieving economy of scale. EoR providers might rely on advanced HRIS platforms, AI systems, and other analytics tools to operate functions and solve problems with decision-making to enhance the experience of employees.
Read our blog on future offshoring trends to understand why it’s high time to offshore services.
Black Piano: A Case Study
NFS Technology is a UK-based platform development company with a team of 150 people across the UK, US, South Africa, and India.
Black Piano provided EoR services for NFS when hiring its first 6 roles. Due to Black Piano’s success filling minor roles, NFS called on Black Piano to help find talent for 3 senior roles. These senior hires were part of the product development team and are expected to be permanent hires.
Read our detailed blog on why you should build your remote team in India.
Why Black Piano?
Black Piano is more than just an EoR company, we are a talent-sourcing partner that is there to bring your company’s vision to life.
As Seraj, a Senior Product Director at NFS Technology said, “Black Piano is not just a resourcing partner, they’re an indispensable part of our success story.”
Still wondering how much will it cost you? Calculate your savings with our employee calculator.
Ready to learn more about EoR? Schedule a call with Jon.
