EMPLOYER OF RECORDS SERVICES

Category: Human Resource Services
Written by Rivary Finan Hernawan on 20/05/2022
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

An Employer of Record (EOR) is a service in which the service provider employs and pays a worker on behalf of another company and takes responsibility for all formal employment tasks. Employer of Records service enables companies to engage with foreign workers legally and efficiently either in a new country or state, without having to set up a local entity or risk violating local employment laws.

Employer of Record company also known as the name of local employer, local partner, local EOR, back-office staffing, and FESCO (Foreign Enterprise Service Company).

WHAT IS AN EMPLOYER OF RECORD?

Formally, an Employer of Record is a business or organization that is legally responsible for paying employees, as well as handling employee taxes, benefits, insurance, visa, and a variety of other human resource related activities. However, nowadays the term “Employer of Record” may also refer to the service itself.

Employer of Record is frequently used by businesses to minimize the complexities of human resources works, market access, market understanding, and market involvement, as well as managing payroll for overseas personnel.
When a business hires an Employer of Record, they formally become the boss of that business’ workers. This service ensures that a firm follows labor laws and other associated requirements, as well as assists the organization with internationalization.

Benefits and tax legislation might differ and be overly complex in foreign circumstances. Employer of Record assists businesses in expanding into new markets, improving benefit systems, and even sponsoring work visas.

  • An Employer of Record solution entails a third-party firm acting as the legal employer for a client's employees;
  • Global Professional Employer Organizations frequently offer Employer of Record services as a solution for overseas expansion;
  • An Employer of Record oversees payroll, as well as ensuring that the applicable withholding and deductions are made, as well as meeting other employer compliance duties; and
  • Employer of Record solutions is usually a more efficient and compliant way to expand internationally than forming a separate business or subsidiary.

While Employer of Record is a registered employer, they have no management or supervisory responsibilities in your company. You still oversee hiring, remuneration, job descriptions, projects, and, of course, firing. However, they may also be able to assist you if you plan to do business internationally, depending on their range of services.

In essence, the Employer of Record serves as the worker’s registered employer, but it does not have any supervisory or managerial responsibilities. Those responsibilities are still maintained by the original employer, who makes all choices on compensation, position responsibilities, projects, and termination.

To put it simply, an Employer of Record is a legal entity that:

  • Arranges for the employee's visas and work permits, avoiding delays or refusals;
  • Runs a local-compliant payroll within a country;
  • Meets all labor regulations in the host nation, including local contracts and worker safeguards; and
  • Provides information about required notice periods, termination procedures, and severance pay to the client.

WHY USE EMPLOYER OF RECORD?

The law on labor, payroll, and tax are increasingly complicated. This is a big hurdle for Human Resource Department to be tasked with handling so many things like employee training, workers’ compensation, annual reviews, benefits, and more. Now imagine the struggle for a small business with seasonal contract workers but not enough Human Resource manpower.

Due to those problems, partnering with an Employer of Record may mitigate them. Hiring an Employee of Record allows the client’s business to manage its time more effectively and efficiently.

Some of the reasons for using Employee of Record are as follows:

  1. A Need for Cost Optimization

    Whether you outsource staff from another company in your nation or contract employees from other countries, one of the key benefits of utilizing an Employer of Record is the huge cost savings.

    Your cost-benefit ratio will be optimized by hiring staff from a professional organization. A recruiting specialist with experience with professionals from numerous fields is known as an employer of record. As a result, they know where to look for experienced professionals and how to find them.

    Furthermore, an Employer of Record already has the required resources, such as software, office space, and equipment, for such employees. You wouldn't have to spend any money or time on hiring and training the employees.

    The difference in salary is by far the most important benefit of utilizing an Employer of Record from a foreign country. Many businesses seek to hire workers from developing nations like Indonesia, Vietnam, or the Philippines, where wages are significantly lower.

  2. Ensuring Compliance with Local Laws

    Emerging economies are recognized for their plethora of rules, which can change often and even overnight. As a result, by the time you have sufficient local knowledge to comply with all employment and tax rules, some of them may have become obsolete.

    An Employee of Record, on the other hand, has updated information. Furthermore, you have no responsibility for this personnel, thus there is no reason for you to be concerned about compliance.

  3. A Need for Worldwide Expansion

    In most Western countries, businesses can be formed in a matter of days, if not hours. Company formation takes longer and is more difficult in growing countries like Indonesia, Vietnam, and the Philippines.

  4. Market Research

    Another benefit of utilizing an employer of record that may not immediately occur to you is that having a third party handle your employees allows you to focus on your core company.

    Rather than dealing with hectic staff administration (such as recruiting, payroll, and compliance), you will just receive an invoice once a month from your primary employer, who will have taken care of all of the above. As a result, you'll have more time to devote to your primary interests.

  5. Focus on Primary Business

    Many hazards associated with business expansion are also eliminated when using an Employer of Record. An Employer of Record, for example, allows you to test the market and see if there is a demand for your products or services before investing any money.

    You can proceed to business registration with an existing client base once you have gained enough confidence.

Cost structures, human resource operations, employee benefits, payroll, and overall compensation are all affected immediately, not to mention compliance concerns with domestic and international standards. The same services can be provided by an International Employer of Records, also known as a Global Employer of Records, in multiple nations throughout the world. They restructure the company’s cost dynamics, cash flow, increased savings, and a rise in marginal expenses. These savings can be used to fuel corporate expansion in other areas or to assist the company to meet its strategic mid-and long-term goals more quickly.

To summarize, there are three major advantages to using an Employer of Records:

  • Savings in time and indirect costs;
  • Compliance with national and international regulations has improved; and
  • Reduced risk, as many of the hazards associated with being an employer rest on the employer of record.

WHO NEEDS AN EMPLOYER OF RECORDS?

An Employer of Record is more than a staffing agency; they can hire skillful people nearly instantly, allowing client organizations to ramp up their staffing plans quickly.

Employer of Record is ideal for companies that:

  1. Have a fluctuating pool of contract workers;
  2. Mainly focus on project-based teams; and
  3. Have employees that are spread across country borders. .

Even though Employer of Record usually engages with staffing firms to find personnel, they oversee everything else. The reason for this is that many of these staffing firms lack human resource training as well as payroll and accounting expertise. Furthermore, many staffing firms lack the necessary skills and understanding in the areas of compliance, risk, insurance, and benefits. They are unable to meet the demands of being an employer in most circumstances.

From here, it is clear that an Employer of Record acts as your workforce’s legal hiring entity. They are in charge of payroll compensation, benefits, taxes, and everything else related to hiring. Hence, the Human Resource function’s efficiencies are increased and risks are reduced. Your Employer of Records can be used to manage a contractor workforce or other non-standard labor pool. You can also outsource some or all of your HR functions to free up internal resources for other projects.

If you plan to expand into additional states, an Employer of Records can be especially beneficial. They can help you register your business in other states and handle all of the legal aspects of recruiting. Employer of Record hires and pays employees on your behalf while also taking on all of the accompanying responsibilities. If you’re expanding but don’t have a legal local business in place, an Employer of Record can help you get around this problem and reduce the risk of unwittingly breaking local employment rules.

BENEFITS OF USING EMPLOYER OF RECORDS

  1. Facilitating the Global Expansion

    When hiring professionals in several countries or locations, having a local entity in place to formally hire workers is frequently needed.

    Without the requirement to incorporate domestically, an International Employer of Record can hire specialists in numerous countries. This reduces the cost of setting up multiple international subsidiaries and allows new personnel to be onboarded just in a matter of days.

    An International Employer of Record solution also assures that all employees are employed in complete compliance with all visa and immigration requirements.

  2. Avoid Misclassification of Employees

    Some businesses may want to hire independent contractors rather than hire full-time employees. This is considered risky. If the regulation of the country considers the true nature of the staff’s engagement to be employment, a corporation could face substantial penalties and liabilities.

    The possibility of misclassification is lessened when using the Employer of Record service because their employees are bona fide (genuine) employees.

  3. Equal Access to HR and Compliance

    In industries where it is not viable for individuals to provide their payroll and Human Resource solutions, Employer of Record services have become particularly popular.

    Employer of Record services can also provide a cost-effective compliance solution in industries where workers are classified as contractors rather than employees.

HOW CAN WE HELP

You need a way to legally hire your employees and that is when our Employer of Record service comes in. With our expertise, we can help you find and recruit people while you can still freely make the hiring decisions. We will take care of the worker’s contracts, payroll, and taxes.

Choose whom you want to hire. Contact us for more information regarding the Employer of Record service.

FAQs

Even though they seem similar and many companies tend to confuse them, Professional Employer Organization (PEO) and Employers of Record (EOR) are different. Strictly speaking, Employee of Record is more specific than Professional Employer Organization. A Professional Employer Organization works with small and medium companies to provide comprehensive human resource services and acts as the company’s outsourced human resource department.

 

When paying a worker as a contractor, there is a risk of employee misclassification that may result in severe fines and penalties, if the regulation of the country considers the true nature of the staff’s engagement to be employment. Asking for Employer of Record service ensures that the worker and their status comply with the regulations.

When it comes to employment and work practices, HR compliance means ensuring that your policies and procedures comply with all applicable laws and regulations. Complying with local employment laws is critical for the smooth operation of your business, not only because these laws exist to protect employees and ensure that their rights are protected, but also to reduce your risk of liability as an employer.

Thank you for sharing

CONTACT US

Keep in touch

Subscribe to our newsletter

Connect With Us

Subscribe to our newsletter to get the latest information about the laws & regulations in Indonesia.